WASHINGTON–A new report that examines delinquent loans held by young servicemembers leaving active duty reveals credit defaults and other “derogatories” are more likely to occur in the six months after departing the military for those who served at least seven months and up to 35 months.
The report, from the Consumer Financial Protection Bureau, further found that among those who serve at least seven months, delinquencies and defaults are between two and 10 times more likely to appear on a credit record in the six months after they leave the military as compared to the six months before.
The CFPB report’s findings looked at auto loans, revolving credit accounts (credit cards), and personal or retail installment loans, and medical and non-medical debt.
According to the CFPB, of all servicemembers who exit with auto debt after seven to 35 months of service, one-third become 90 days delinquent or default on that debt within one year. That compares to less than 15% of auto debt holders with longer terms of service went delinquent or defaulted within one year after separation, the Bureau said. For both groups, it said, the post-separation rates of delinquencies and defaults for revolving accountholders and for those with less-common types of installment debt (such as personal loans) are even higher than for auto debt.
Additional Analysis
According to the Bureau, “Conditioning on those who actually have an account at the time of separation, it is particularly likely that those with other installment loans will have trouble paying off that debt. Looking at the fraction of accountholders with either a delinquency or default within one year of separation, the numbers for those who serve seven to 35 months are as follows: 34% (auto loans), 38% (revolving accounts), and 64% (other installment accounts). For those who serve longer, the numbers are: 33% (auto loans), 21% (revolving accounts), and 33% (other installment accounts).