CFPB Reports Student Loan Repayment and Borrowing
The Consumer Financial Protection Bureau (CFPB) publishes an annual report for student loan borrowers complaints. The 2017 Ombudsman was published at the end of last year as directed by the Dodd-Frank Act and Consumer Protectin Act. The report offered insight into the changing practices due to student loan complaints. Loan providers, debt collectors, private lenders, and services offering “student loan debt relief” where all included in 22,900 complaints from student borrowers to the CFPB. The Office of Research also publishes occasional “CFPB data point” reports offering deeper insights into select student loan markets, consumer behavior and regulations.
Last Friday the CFPB delivered a data point report on how student borrowers manage their last student loan payments and their borrowing behavior afterwards. A press release emphasized their key findings on “the interconnected nature of borrowers’ finances, as repayment of one type of debt affects payments and borrowing on other types of debt.” This study group includes only borrowers who are able to pay off their loans, not those struggling or defaulted. The Office of Research key findings were published in a Friday press release outlined below and found here.
“Key findings include:
Most borrowers paying off a student loan do so before the final payment is due, often with a single large final payment. The median final payment made on a student loan is 55 times larger than the scheduled payment (implying a payoff at least 55 months ahead of schedule), with 94 percent of final payments exceeding the scheduled payment and only 6 percent of loans paid off with the final few payments equal to the scheduled payments. Even among loans within five years of their scheduled payoff date, for which refinancing is uncommon, the median final payment is more than seven times larger than the scheduled payments made immediately prior.
Borrowers paying off a student loan early also reduce their credit card balances and make large payments on their other student loans at the same time. In addition, these borrowers are 31 percent more likely to take out their first mortgage loan in the year following the payoff than in the year preceding the payoff. While this is evidence of a link between the timing of student loan payoffs and home purchases, the simultaneous reduction in credit card and other student loan balances suggests that increased wealth or income may influence when borrowers pay off student loans, reduce credit card balances, and purchase homes.
The smaller share of borrowers who pay off their loan according to the scheduled payments pay down, rather than take on, other debts in the months following payoff. Paying off a loan reduces borrowers’ monthly payment obligations, and those with additional student loans put 24 percent of these savings toward paying down those other student loans faster. Borrowers also use 16 percent of the drop in their required payments to reduce credit card balances. Unlike for borrowers paying off a student loan early, those paying off on schedule are not more likely to take out a mortgage for the first time.”
The majority of student loan borrowers make a large lump sum contribution to pay off their student loan. This sheds significant insight into the borrowers financial life cycle as wealth accumulation through career maturity and other life events make this pattern possible. Those able to pay off student loans continue a financially-responsible path either continuing to pay off other debts rather than acquiring more, or purchasing a home.
To reach the CFPB’s Student Loan Ombudsman:
By phone (844) 611-4260
By email email@example.com
By mail Consumer Financial Protection Bureau
Attn: Seth Frotman
1700 G Street NW
Washington, DC 20552