TransUnion Live – The End of Pandemic-Era Student Loan Forbearance

Watch our on-demand TransUnion Live roundtable discussion in which Boston Consulting Group (BCG) and TransUnion shared insights and recommendations for lenders navigating the return of student loan payments.

We covered a range of topics related to the end of student loan forbearance, such as:

• The current state of the student loan market, including the overall amount borrowers owe on those loans
• An estimate of the payment shock student loan holders will likely face, along with the probability of default
• An analysis of which bills student loan borrowers will prioritize paying off

Full Transcript Below

Andrew Goss/Host:

Well, welcome everyone to another episode of TransUnion Live on LinkedIn. I'm TransUnion's Andrew Goss and I'm excited to be joined by my esteemed colleagues, Liz Pagle and Charlie Wise, and I'm especially excited to be joined by Kevin Moss of Boston Consulting Group, who's the former Chief Risk Officer at SoFi. Welcome everyone. Thank you. We're here today to explore how the end of pandemic era student loan forbearance will impact consumers and lenders based on findings from a recently released TransUnion study and a soon to be released joint TransUnion and Boston Consulting Group study. But before we get started, I have a quick housekeeping item, excuse me, that we usually get to at the beginning of these conversations. You'll see there's a comments area. If you have any questions related to today's conversation, please put them in there and we'll do our best to get to them today. And if we can't get to them today, we'll do our best to circle back around with you if they're relevant to the conversation at a later time. So let's get started. Charlie, I think in these conversations it's really good to get a lay of the land, even though a lot of folks probably are very familiar with this forbearance program. Can you walk through what's currently happening with the student loan moratorium?

Charlie Wise/SVP Research & Consulting, TransUnion:

Happy to Andrew, and I'll take us back to March, 2020 when the pandemic first began and as part of the immediate response to the pandemic and the expected catastrophic impact on consumers of a lot of the shutdowns, the Caress Act had a provision that essentially established a moratorium on required payments for all federal student loans that were in repayment status. So just translated if you had a student loan that was in repayment or subsequently was going to enter repayment, you were not required to make a payment. And that pause, that forbearance basically extended for three and a half years until a couple months back. During the budget reconciliation process with Congress, the administration announced that the moratorium and the payment moratorium was going to end in September of this year. The current month, these loans would once again end a repayment and the first payments for student loans would resume beginning next month in October.

So that's what we're looking at and we'll talk about the numbers of consumers who are impacted, number of consumers with student debt and those who are likely to be repayment. But a couple of interesting things have transpired as all of this has gone on. The first is that the administration also established an on-ramp period such that while student loans are now beginning to accrue interest again, and during that whole three and a half year period, there was no interest accrual on student loans that the interest would begin. But for the next 12 months, delinquent payments are non-payments on the required repayment amount for student loans would not be reported to the credit bureaus as delinquent. So we will not be seeing at least until fall of 2024, any reporting of delinquent accounts to the credit bureaus. And the other is that the administration announced an enhanced income-based repayment program, the SAVE program, which is potentially going to allow many, many lower income consumers the opportunity to reschedule their repayment amounts to match their incomes, which potentially could provide some additional relief to those consumers that are more impacted by the resumption of these payments. So that's where we stand right now is that millions of consumers that have not been paying and or have never paid against their student loans are going to face repayments over the next several weeks and couple months.

Andrew Goss/Host:

Thanks, Charlie. Yeah, that's a lot to unwrap. I think I'll turn to Kevin now, in terms of your background, obviously this pause is very unprecedented, and Kevin get into the consumer's mindset. How are they thinking about these student loans as they come back?

Kevin Moss/Senior Advisor, Boston Consulting Group:

Well, obviously it's very easy to get used to not having to pay a bill for a long period of time, and most people have either used that to pay for other things or in some cases, I think early on in the pandemic probably we saw credit card balances come down. So people were using some of that to pay down other debts. So we did a survey as part of our effort between our two organizations of panel of people who are in this situation who are government student loan holders. And the awareness is very high, obviously about that forbearance is coming to an end and just over half who didn't make the payments, Liz will go into this more carefully, didn't have the money to put towards their student loans. So people are faced with situations, what am my discretionarily was what am I going to have to stop spending on eat out less? Maybe I have to work more hours, maybe I'll have to borrow from family and one in four have no idea how they're going to make the payment. So I think people are worried about it and they should be because for three plus years for a big chunk of these people have not had to make a payment, and for another big group of them, they would have to make the payments for the first time. So overall, I think we have a lot of uncertainty and that's how consumers are feeling right now about this.

Andrew Goss/Host:

Interesting. Now, Liz, I think Kevin kind of teed this up a little bit, but in terms of how large of an issue this is, how many people could this be affecting right now? We did a little bit of research, TransUnion talk about what our study found in terms of sheer number of Americans impacted and then maybe break it down by credit score. And also when we get those really big numbers, what's the overall amount owed with these student loans?

Liz Pagel/SVP Consumer Lending, TransUnion:

So we studied just credit bureau data. So we looked at all the data on TransUnion's credit file to understand how many consumers had federal student loans. So it would be coming back into repayment, and that number is 40.6 million. So that takes into account everybody that does not take into account the SAVE program, which to Charlie's point, will decrease the monthly payments for many Americans who apply for it and qualify. But all this data that I'll talk about today is just looking at what's on the bureau today and what it looks like these consumers owe. So 40.6 million consumers, and they're across the credit spectrum, so 46% of them are below prime. So that's a really big chunk of consumers that are already kind of not top of the credit spectrum, but 15% of them are super prime. So there's consumers everywhere. Other pieces are age, and this is one that surprised me a little bit. Millennials are a huge chunk. So 43% of the consumers that owe on federal student loans are millennials, 28% are Gen Z. I think that number will certainly go up as Gen Z continues to graduate from college, 7% of them are boomers. So that really surprised me. That's a big chunk. And those boomers often have large loan amounts and 21% are Gen X. So we're across credit spectrum, we're across age.

And then I wanted to look at flip it and say, okay, of the Gen Z population, how many of them have outstanding federal student loans? So across all the Gen Zs, 20% of them have student loans, 24% of millennials, 13% of Gen X and 4% of boomers. So if you're a lender and you're thinking about the consumers that you're lending to, these are all populations that you've lent to no matter what ages you're lending to, no matter what credit tiers you're in, there are consumers that have these loans that'll be going back into repayment.

Andrew Goss/Host:

Got it. I don't know if we got to this, but if we could break it down in terms of what's owed overall the amount owed, drilling down a bit further, how much does each person owe? And then what does that bill look like every month? Yeah,

Liz Pagel/SVP Consumer Lending, TransUnion:

Yeah. So it's 1.6 trillion in balances. If you add up everything that's on credit reports today, now that number will go down because some of it'll be forgiven in the different programs and some of it'll be extended out longer. And then with some of these programs, if you pay for a certain number of years, it eventually gets forgiven. But the big headline number is 1.6 trillion. When we look at balance per consumer, the average balance per consumer is $35,000. The median is $18,000, and younger consumers tend to have lower balances on those loans. And then looking at payments, nearly half of consumers will have a payment under $200. Now, while that might seem manageable, it just completely depends on the consumer's circumstances. $200 could be a massive change in their monthly obligations and something that they didn't have that extra cash lying around. On a month to month basis, 20% of these consumers will have payments over $500. So that's pretty much significant no matter who you are. And the average payment is about $352. And again, note that this does not take into effect into consideration any of the SAVE programs. So a lot of consumers will successfully apply for those programs, payments decrease to match their incomes, and some of them will qualify for zero payments based on their incomes.

Andrew Goss/Host:

Great. Okay. Hopefully there isn't a test at the end of this, but

Charlie Wise/SVP Research & Consulting, TransUnion:

Yeah, and I'll just jump in and comment if it's okay that the 1.6 trillion in outstanding balance essentially means that student loans are the second largest consumer credit category in the United States behind mortgage, well behind mortgage, which is far, far larger, but more outstanding balances for student debt than there are auto loans, than there are credit cards or any other individual category. So it is a large, large chunk of total consumer debt.

Andrew Goss/Host:

Got it. Yeah, thanks Charlie. That's great context and I think it's good context for this next question I was thinking of for you in terms of obviously those payments were put on pause for three years, and how did consumers respond in terms of their spending and credit behaviors during that moratorium period and what does that mean for moving forward?

Charlie Wise/SVP Research & Consulting, TransUnion:

So it's been an interesting several years for the consumer, A lot's gone on, and to be honest, it's hard to isolate exactly what the impact of the payment moratorium on student loans has meant. What we have seen is that consumers with student loans have been very credit active over the last several years in opening new accounts. So since the payment moratorium began in early 20 20, 50 3% of consumers with a student loan have opened at least one new credit card. 36% have opened at least one new auto loan, 15% have opened a mortgage. And that's just several of the categories that where we've seen significant volume of activity. Now the whole population has seen a large boom in the amount of credit cards, the amount of mortgage originations, personal loans, et cetera. So it's been a very credit active time, but there's two sides of the coin.

One is you would expect that consumers, particularly those that maybe have recently graduated or earlier in their credit journey, that is a time that they're normally seeking credit. And so it's good to see that they're getting access to credit and they're evolving in their financial journeys. But the other question is has the pause in payments, the required payments enabled them to get credit maybe at a higher rate than they would've otherwise Since when lenders look at consumer's credit capacity, they look at required monthly payments and the required monthly payments for student loans has been zero for the last three and a half years. It is certainly possible that that has enabled or fueled potentially a higher level of borrowing than might have been otherwise if consumers have been making those 300 plus dollars payments each month and had that reflected in their credit applications. So long story short, consumers by and large with student debt have higher debt obligations than they did back in 2020.

Andrew Goss/Host:

Interesting. So we'll get to some of that payment hierarchy and all that in a little bit, but I want to get to a TransUnion study show about consumer's ability to make these additional payments that are now due on these student loans. Liz, I think you probably have some of the data and insights into that.

Liz Pagel/SVP Consumer Lending, TransUnion:

Yeah, and I'll just kind of continue from what Charlie was saying. So these consumers were credit active since the last time they had to make a student loan payment. And a lot of this is natural. I mean, somebody graduated from college five years ago, you're growing your life, you take on additional credit over time. The other thing here is the end of 2021, beginning of 2022 was kind of a boom period for credit. Their record number of credit card originations across the board record number of unsecured personal loan originations. There was just a lot of credit flowing into the ecosystem. So even if you look across the entire population, consumers in general were levering up during that period.

So if you think about that, I'm a consumer, I had, this is data for average non-mortgage consumer. So imagine a consumer that does not have a mortgage but had a student loan payment that was due before the moratorium. So if in 2020 they were paying this average non-mortgage, consumer was paying $617 a month across all their obligations and that included their student loan payment, that was their credit card, their personal loan, their auto loan, all of that added up to 617. Fast forward into May, 2023 when we did the study, that consumer actually was still paying $617. The average actually ended up being the same without the student loan payment. So they actually have filled in that gap that was previously paying the student loan payment to take on additional credit. So now you add that average payment of $352 on top and you get over 50% of a payment shock.

So you've suddenly, I'm paying 150% of what you were paying before on a monthly basis. Now that doesn't even take into consideration your rent. And who knows if consumers went out and got a more expensive apartment, got a new gym membership, there's obligations that they can't get out of quickly. But they may, to Kevin's point earlier, need to start looking at those expenses, seeing which ones they can cut out in order to make that payment. We looked at a couple other angles as well just to see if there's anything that we could see that could give us any indication of who might struggle to make these payments. One thing we looked at was who's already delinquent on something in their wallet. So we looked at that whole population and said, Hey, of all these consumers, how many of them are at least 30 days past due on something, whether it be their credit card, their auto loan, everything.

And that number was about 10%. So about 10% of these consumers are already delinquent on something in their wallet. And then the final thing is an attribute that I really like looking at in difficult times like we're in today, which we call aggregate excess payment. This is a measurement of how much consumers are paying above and beyond the obligations across their entire wallet. So if I have a $10 minimum payment on my credit card and then I've got all these other payments, you add those up and that is how much I actually owe that month. And many consumers pay more than that. So we add up what they pay across all of their products, including anything above the min paid due on their credit card, and that's their aggregate excess payment. It's positive for most consumers that aren't subprime, but once you see it declining, that kind of is an early indicator that consumers might be struggling.

So more than 50% of consumers had an aggregate excess payment of less than $300. Now that doesn't mean that they couldn't make a $300 payment today. That might mean they're just not today applying it across against other debt. They could have savings, they could have additional free cash flow, but it is an indication that they might struggle to make a $350 payment. But one thing that was positive is 18% of those consumers had an aggregate excess payment of over $1,500. So those consumers are in pretty good position. So there's a lot of different worlds that these consumers live in as they continue to or as they figure out how they're going to make these payments. But we do see many different groups and some we do believe we'll struggle.

Andrew Goss/Host:

Interesting. And I think Kevin, you have some research that might be able to shed a little bit of light also on what Liz was saying that you worked with TransUnion on. What have you found when it comes to the probability of default for student loan borrowers both on those student loans and on their bills in general?

Kevin Moss/Senior Advisor, Boston Consulting Group:

I'm not going to get into the specific numbers, but I'll give people a little. We're planning on releasing our paper later in October, probably mid to late October. But essentially what we did was we mentioned earlier, this is unprecedented. We've never had a situation where 40 million loans was essentially put into a forbearance situation. So what we did is we went back to TransUnion's database and looked at pre pandemic from 20 17, 18 and the first part of 19, those situations where consumers had some type of payment increase, it could have been something like the end of a teaser, it could have been an end of draw an arm reset to really, and looking at people whose balances remain stable. So it wasn't new credit.

And then we looked at the performance 12 months later and using some of TE's proprietary attributes and the account management score that they have, we actually built a model to look at those people that had payment increases against those that didn't. And at this point, all I'm prepared to share is that it's significant, the fact Liz went through all the numbers. When you think about that just under half of this population is near prime or subprime, there are significant credit risks that will affect most everybody's portfolios. So I feel like this is an important thing for risk and business leaders to be thinking about. And so what comes to mind is the SAVE program, which is the updated version of the REPAY program, like every creditor out there should be talking to their customers who have a student loan and saying, go apply for the SAVE program.

It would be remiss not to. I think creditors who have concentrations, particularly of these people who are either starting repayments or beginning repayment, should be looking at things like consumer credit counseling where they have a lot of credit card debt and they need to figure out how to cut expenses. They should be thinking about loan modifications and hardship programs that they have, depending whether it's a short term hurdle for them or a longer term situation. So I think in some ways this is, we're in an environment where we inflation and higher rates, those are already bleeding into people's capacity to pay. And this is another challenge that a whole many, many millions of consumers have to address. And so we'll help in our paper. I think we'll help people better understand how we see the relative risk of those people going through the payment shock. But right now, people should be talking to their customers about the SAVE program and preparing your account management and collection teams, your marketing communication teams to be building trust because ultimately we'll talk about payment hierarchy. Getting paid is going to be a more competitive situation, and it's the people who help their customers the most, who have value in that relationship that are more likely to get paid than others.

Andrew Goss/Host:

Interesting. And Kevin, let's get to that payment hierarchy because I think there's some logical ways that your brain can head right in terms of what are people going to, what are consumers going to prioritize in terms of bills and student loans for those student loan borrowers, where did student loans fall in that hierarchy and where did all the other bills fall? We don't have to get into all the nitty gritty details, but high level.

Kevin Moss/Senior Advisor, Boston Consulting Group:

So high level people prioritize having a roof over their head, so rent and mortgage, and then you would think a car is valuable. It helps people get to work to get to school for transportation and then credit cards. But as you move way down the list, what I'll say is student loans are towards the bottom, whether they be government or private student loans. And so when we also looked at the analytical results, and this has a lot to do with the fact that credit cards and retail cards have a very high concentration and penetration into the student loan population. Those two had the highest risk and personal loans, which surprised me a bit. But from talking to some of the folks from the tutu research side, it's consistent with other work that you guys done in the past. Personal loans were kind of in between. So I expected them to be a little worse than credit cards, but they actually were a little bit better. So at the bottom, what I would be worried about is like buy now, pay later your number one. This is an important reason why buy now pay later should be reporting to the credit bureaus.

Liz Pagel/SVP Consumer Lending, TransUnion:

Thanks Kevin.

Kevin Moss/Senior Advisor, Boston Consulting Group:

And so when it comes to push or shove, it looks like in consumer's minds, buy now, pay later is going to be towards the bottom of the list. So just below medical bills, which is not high in people's minds. So again, I think what we'll do in the paper is try to align what the survey and what the data actually told us. Little bit of difference, but they actually align pretty well with each other.

Charlie Wise/SVP Research & Consulting, TransUnion:

Got it. Yep. Kevin, just to paraphrase that, if you have a consumer that has credit cards in their wallet and maybe an auto loan and they're, they're seeing their student loan repayments or starting again, they're not likely to stop paying their credit card or stop paying their auto loan in order to pay their student loan, is that what the hierarchy is saying?

Kevin Moss/Senior Advisor, Boston Consulting Group:

It's a tough question to answer, Charlie. The answer is how do people prioritize their payments? It doesn't necessarily answer the question. If they had multiple of these, which one would they choose first to not pay? I think it's logical to assume that if somebody had an auto a credit card and a buy now pay later obligation that it's probably going to be the buy now pay later obligation that they choose not to pay if they have no other way to make the payments to the student loans, but they may choose not to pay the student loan. In fact, student loan has the highest risk of going bad in this situation. So I think we'll talk a little bit more about that in the writeup, but we can't always answer every question with the data that we have.

Liz Pagel/SVP Consumer Lending, TransUnion:

And if you think about it too, given the on-ramp period for the next 12 months that the delinquencies won't be reported to the bureaus, A consumer that fully understands that I think would put those non-reported obligations behind the obligations where a delinquency actually gets reported. But when I talk to lenders, Kevin, your point is great. Everyone should be talking about the SAVE program. If there's a way to educate consumers about the on-ramp as well that can help them understand how to prioritize the payments.

Kevin Moss/Senior Advisor, Boston Consulting Group:

That's right. And having talked to a few creditors about this, just one of the questions I remember hearing is it better to communicate to our customers? The answer is absolutely. One fourth of the people in the survey had no idea what their student loan payment was going to be. Right? Over 40% of the loans have changed servicers since the last time they made a payment. So there's a lot of uncertainty in the situation and anything that you can do as a creditor to build trust and help people who don't understand, we're in the credit business, so we understand better than most people do, but most people just think about credit as an enabler to have their lives, to run their lives. So anything we can do to try to educate and help our customers, I think is a positive in the long run.

Andrew Goss/Host:

Got it.

Liz Pagel/SVP Consumer Lending, TransUnion:

And I think we learned that in the pandemic, the lenders that reached out to ask consumers if they were doing okay that offered the forbearance proactively, they got those relationships, they went up in the payment hierarchy, and they grew the relationships over time too. So it paid off.

Andrew Goss/Host:

And we touched on this, and I guess Charlie, I'll turn back to you because you kind of did the overview of this, but in terms of, and obviously this is near and dear to TransUnion's heart is the student loan borrowers credit scores, how are they going to be impacted, if at all, because they're not going to be reported for the next 12 months. Is there some other way to look at the credit score impact?

Charlie Wise/SVP Research & Consulting, TransUnion:

Sure. So we're still trying to get the final guidance on what will be reported to the bureaus around federal student loans during this on-ramp period. The guidance we've been given is that delinquent payments, the consumers will have a payment amount due, a minimum payment due, but if they don't make a payment, that account will not be reported as delinquent during the 12 month on-ramp period. But we are still going to see the balances. We're going to see the minimum payment due, we're going to see the amount actually paid. It's just not that delinquency tag is not going to be part of the credit report. So if you think about consumers that don't pay their federal student loan during that on-ramp period, they're not going to have the negative impact of the delinquency showing up on their credit score. So the credit scores shouldn't see a material negative impact like you would if you missed a payment on a credit card or missed a payment on an auto loan or a personal loan.

But what will be reported is the balance. And because student loans are accruing interest of that time, consumers who are not making payments will see their balances marginally increased by the amount of that interest accrual. So total balances are a factor in credit scores, a minor factor. So it is possible that there may be a slight negative impact just as the balance is accumulating for consumers that don't make payments. Conversely, consumers who do make their payments on student loans may see a positive impact because those payments essentially will pay down the balance and there may be some positive small, likely, but positive impact, but by and large during the on-ramp period, and I believe this is the intent of the on-ramp period, is that the non-reporting of the non-payments will keep many consumers at least during that period from seeing a material negative impact to their scores if they're not able to or choose not to pay on their student loans.

Andrew Goss/Host:

Interesting. So we have a couple questions from some of the viewers here, and I think this is something, although I don't know if we can exactly look in our crystal ball, but it's a good question. I think it's from Miranda McConaughey, C E O of Lake County Educational F C U. Hopefully I got the pronunciation there. Correct. Do you think refinancing will go up for student loans?

Kevin Moss/Senior Advisor, Boston Consulting Group:

I can take a shot. I mean as the former C R O of SoFi, I would say yes, but the rate environment right now is pretty tough. And so it really depends on where the rates are for the tranche of student loans because the refinance transaction is typically about converting into a lower rate, taking government loans and putting them into a private loan contract. You give up some government protections that you have by doing that, but people are willing to do that. They can get a lower payment and then oftentimes pay off the balance over a shorter because government loans are 10 years. But I think in this rate environment, that's going to substantially eat into the financial incentive for people to want to refinance. So I think there will be. And the other thing I'd say is the traditional student loan refinance takes maybe the best 10 to 15% of the government student loan portfolio and some private loans. So it's not going to help the majority of the people who are in distress. They're going to have to look more towards the SAVE program, I think, and they're going to have to look towards creditor specific programs around loan mods and deferments and payment reductions, all that kind of stuff so that overall they get themselves into a position of affordability. I'm a huge fan of consumer credit, non-for-profit consumer credit counseling. I think they do wonderful things and I think they're going to be very busy over the next 12 months.

Andrew Goss/Host:

Interesting. Okay. Any other comments on that question? We have another question which I think I can field actually, but anyone else want to chime in on?

Charlie Wise/SVP Research & Consulting, TransUnion:

Yeah, I think on the refinance question, again, I think a lot of consumers may sit pat and wait for the sell ram period I to see how that plays out. And again, if the government is offering additional time period in which if a consumer truly is unable to make payments, they can not make those payments and not see a negative report, negative delinquency reporting to the bureaus, that may be incentive to stick around for that. But I think that as that on-ramp period comes to an end next year, end of 2024, that may be really a trigger point where more consumers are looking to say now as there's more of a consequence to not making payments. Let me think about that. And it's very possible that the rate environment by the end of 2024 may be a bit more favorable depending on what happens with the economy, et cetera.

Liz Pagel/SVP Consumer Lending, TransUnion:

I think one other consideration there is we don't know exactly what's coming next from the administration in terms of loan forgiveness and additional, if there'll be any additional programs. I think consumers should, if they're close, apply for the save program, see what's available to them. So there's a lot going on in student loans right now, and I think it's going to be a fascinating 12, 18 months to watch.

Kevin Moss/Senior Advisor, Boston Consulting Group:

And the SAVE program, which today is set at 10% of someone's income over the 32 8 0 5 in July of next year, it's going to 5%. So there's a bunch of, not all of the changes are going in right away. So I think to Charlie's point earlier, there may even be a financial incentive to defer till then because you can get a lower payment in July of next year.

Andrew Goss/Host:

Okay. Well it looks like someone from JP Morgan was asking, when is the next student loan analysis going to be released? And I can speak in broad brushes here. I would say sometime in Q four, I expect this research will come out. We're hoping sooner rather than later. So keep a lookout for that and certainly take a look on LinkedIn. I imagine we'll be providing links to that here as well.

Liz Pagel/SVP Consumer Lending, TransUnion:

And I think, so TransUnion will be watching this really carefully. So first payments will be coming in very shortly. We want to see segment the consumers, see who made payments, see who didn't try to profile them. So this is going to be a ton of research that we'll do and make it available. That B C G TransUnion joint study is something that we're really excited about. So follow Kevin, follow myself on LinkedIn. We will I'm sure post it, but it'll be something that'll be really valuable as well. But look for us with snippets of information coming through as well because we're obviously watching.

Kevin Moss/Senior Advisor, Boston Consulting Group:

And the other thing I would add to what Liz said is I think it's important for everybody to really understand who are the impacted segments in your portfolios. Like I said earlier, the people who have a payment increase because they're resuming payments or making payments for the first time, that has a material impact on the risk of going to default or going 90 days or worse as we've called as our bad definition. And so all of your strategies should be directed towards the people who are really impacted by this change. You have to start there. You really have to understand who talk to your representatives, make sure that you understand how to find these people the first step before you even walk.

Liz Pagel/SVP Consumer Lending, TransUnion:

Yeah. And we've put together a bunch of new student loan attributes to help lenders identify these consumers and segment them and understand. So I'm happy to talk about that.

Andrew Goss/Host:

And we just had another question come in from, I'm not going to try and pronounce the same, but it's from a director with the Bank of America. They had a question around the payment hierarchy. Why B N P L in the bottom of the hierarchy? What's the difference between IT and a personal loan in terms of the hierarchy in the consumer mindset?

Kevin Moss/Senior Advisor, Boston Consulting Group:

Well, first off, this is from a survey of 501 consumers who are in this student loan target group. Basically people who have government student loans. So it's what they told us intuitively, what I would say is buy now, pay later is not reported to the credit bureau. It's a transactional credit product. And whereas a credit card has an ongoing utility, a line of credit has an ongoing utility. So it doesn't surprise me like a car keeps you going to work every day. It keeps you taking your kids to school every day. So the products that have more of an ongoing utility are going to likely bubble up more in terms of trying to maintain and keep them.

This is nothing against B N P L over personal loan. I agree with you. I actually thought personal loans would've been worse in terms of the risk level. Some of that has to do with the risk of, I think personal loans over the last couple of quarters have improved their delinquency through middle of the year. I think people really tightened up. So some of it is also a function of the credit environment. Personal loans really deteriorated in 21 and 22. So the bottom line is it's not any one answer, but I think intuitively it's more about the utility that the product has to the consumer at the time they have to make these choices.

Charlie Wise/SVP Research & Consulting, TransUnion:

Yeah, Kevin, you're exactly right. There's the utility of what you're trying to protect, be it your home, be it your automobile, be it ability to spend on your card. But there's also the consequences of missing that payment. And it's an important piece of the credit ecosystem is reporting to the credit bureaus, reporting delinquencies, reporting payments or non-payments. Essentially if you make timely payments, that helps your credit score, it helps your access to credit, conversely, not making payments. So consumers are likely to look at those products that are not reported to the bureaus, and that may factor into their thinking around that consequence, which is some of the reason why over the next 12 months during the on-ramp period, as the non-payments on student loans are not reported to the bureaus, that's likely to factor into the consumer's decisions differently, then it would pre pandemic or after the on-ramp ends.

Kevin Moss/Senior Advisor, Boston Consulting Group:

Yeah. And one other comment that I would just make about private student loans, I don't want to throw them in the same boat for two reasons. Number one, 92% of those loans have a co-signer. And so if I was in the private loan business, I would be really concerned about making sure that your customers understood difference. Number one is you're reporting delinquency not. And number two, depending on what your servicing policies are, somebody flows one payment past due, you better be calling the guarantor like earlier. Because I think in people's minds, they may not always understand the difference between the two. So if people are receiving a lot of information about their government loans and nothing about how different private loans really are, then I think private lenders are putting themselves at a distinct disadvantage.

Andrew Goss/Host:

Got it. This has been a fascinating conversation. Before we end, is there anything else we wanted to get to? I think we covered a whole heck of a lot. It's been a great 45 minute conversation, but anything else that we want to get to and don't feel like you have to? Okay,

Well, as they say, silence is golden. So I want to thank all of our speakers today. This is a fascinating conversation, and thank our audience for joining. A reminder, if we didn't get to your question today and it's applicable, we'll do our best to circle back around with you soon. And then a quick plug for our TransUnion study that is in market implications of the end of pandemic era student loan forbearance visit. And this is going to be a long one, but I shortened it a little bit. transunion.com/end-of-student-loan-forbearance, and we'll put it up on the screen. See you next time on TransUnion Live.