WASHINGTON–While some forecasts see significant financial problems ahead for some consumers as a result of the resumption of payments on federal student loans, a new CUNA forecast predicts the effect on credit union delinquency ratios will be “modest.”
Ligia Vado, senior economist with CUNA, said the trade group’s analysis of how, after a three-year forbearance, the restart of payments in October on federal student loans will affect members reveals CUs should feel some effects in delinquencies, but it won’t be significant.
What the Data Show
Vado noted that as of the second quarter of 2023, the total student debt loan balance in the U.S. was approximately $1.5 trillion held by approximately 43 million Americans. Of that total, about 90% is federal student loan debt, with the remainder loans made by private lenders, including credit unions.
In all, as of the second quarter Vado said credit unions had approximately $6.5 billion in student loans on their books, or less than 1% of total outstanding student loan debt.
Other Issues at Work
But that’s not the only issue at work, according to Vado. As a result of the three-year forbearance period, many student debt-holders saw a corresponding increase in their credit scores and expanded credit limits, and as a result took on approximately 12% credit card debt relative to borrowers with student loans not in forbearance, and further took out 4.6% more in loans than distressed borrowers who were not eligible for forbearance.
This included borrowers who were in distress even prior to the forbearance, according to Vado, noting what all of that creates are borrowers who are becoming more delinquent and at higher rates.
The Deeper Analysis
The natural conclusion from the trendline, according to Vado, is that credit unions will see increased delinquencies and suffering loan performance, but a deeper analysis suggests the fallout should be minimal for most CUs.
“(Since) credit unions hold less than 1% of student loans in the in the U.S. and most student loans are originated by the federal government, the effect of the forbearance is not directly on student loans that credit unions have, it's the indirect effect on the payment on other loans,” Vado explained.
The CUNA analysis calls for a “modest” effect on CUs, according to Vado, based on an analysis of Equifax analytics data sets.
The Findings
According to the CUNA analysis:
- The number of credit union members with a credit union mortgage who also have a student loan with either the federal government or a private lender is relatively low at 16%
- The percentage of members with a credit union second mortgage who also have a student loan is 15%
- The percentage of credit union auto loan borrowers who also have a student loan is 21%
- The percentage of members holding other consumer loans who also have a student loan is 19%
No ‘Significant Shock’
Overall, said Vado, CUNA is forecasting that delinquency ratios at credit unions will largely revert to the long-term mean and will not see any “significant shock” as a result of the resumption of federal student loan payments.
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