Recession Readiness Insights

How to Spot Customer Risk Early: Student Debt, Inflation and Interest Rates

How to Spot Customer Risk Early: Student Debt, Inflation and Interest Rates

November 11, 2022 | Katherine Doe

As the end of the year approaches, the future of consumers’ finances is in an uncertain place. Will the approximately 20% of Americans that hold student debt(1) be able to repay their loans once deferment ends? How will consumers manage as prices for many necessities remain high? Will consumers be able to meet new and existing mortgage, auto loan, and credit card debt commitments if high interest rates continue? How will consumers prioritize student loan debt vs. other debt?

For lenders, all  of this uncertainty makes it difficult to monitor customers and spot hidden risks within their portfolios. With ever-changing market dynamics, some consumers who have consistently met financial commitments may still become behind on payments. Some will be unable to absorb the increased debt load from student loan balances – even if a student loan forgiveness program is approved. And, some will be unable to meet the minimums on their exploding credit card balances and other financial obligations as they prioritize paying for food, housing, and transportation costs to keep their homes and their jobs.

Let’s take a closer look at student loan debt.

The student loan crisis is widespread: 

  • Approximately 43.4 million borrowers hold student loan debt to the tune of over $1.6 trillion in outstanding student loan balances. This is second to mortgage debt and more than one tenth of total household debt.(2)
  • Once the student loan accommodation status is lifted, every age group will experience a 17% jump in scheduled monthly debt payments.(2)

What does all that amount to at the individual level? The answer – about $38,000 in average student loan debt per borrower. And once accommodations are lifted, an average of $244 per student loan borrower will be due each month. This is money that is likely going toward discretionary spending or paying for other debt obligations right now. Equifax anticipates that there will be a new onset of student loan defaults 270 days after accommodations are lifted.(2)

Many lenders may not have much knowledge about how the end of student loan accommodations will impact their portfolio. Some lenders may not know which of their customers have student loans under deferment. They may also have limited data on how much student debt is owed by each of their customers. Or, how the end of accommodations might affect payment of other debt obligations. Without this knowledge, lenders could face a surprising increase in delinquencies and defaults across all lending categories. According to our analysis, delinquency rates are on average 3x higher for consumers that have received an accommodation.(3) This makes it even more important for lenders to understand potential student loan risk.  

Lenders may be facing hidden risk from student debt. But they can prepare.

To see a more complete picture, lenders can take advantage of a collection of consumer credit attributes to better assess the impact of student loans across their customer base. With this Market-Driven Attributes Package, lenders can identify customers that have student loans and then segment them by metrics such as deferment, balance, payment history, delinquencies, and more. Lenders can also combine these metrics with additional data to assess student loan payment to income (PTI) and consumer debt to income (DTI). 

These insights can help lenders flag student loan borrowers that present increased risk of financial distress. Then, they can offer options to help borrowers manage their finances and debt repayment across all debt categories. 

Inflation and rising interest rates are having a clear impact on the consumer wallet

While student loans are held by only a portion of the U.S. population, inflation and rising interest rates are placing financial stress on almost everyone:

  • Total debt is up 8.4% from a year ago(4), as food, housing, gas, utilities, and automobile prices have all increased. 
  • Outstanding balances on bank cards are up a notable 18.1% compared to a year ago. Credit utilization is also on the rise.(5)
  • For many, wages are not keeping up with inflation. About 38% of U.S. households say they find it somewhat or very difficult to pay for usual household expenses.(6)

With a higher percentage of consumers’ income going to daily expenses, there’s less available to pay off credit balances. Plus, consumers are quickly eroding any pandemic savings they may have accumulated. This means more risk of delinquencies, defaults, and write-offs for lenders. In fact, delinquencies are already starting to creep up, including across auto loans, personal loans, and credit cards.

How can lenders proactively manage customer risk through these uncertain times?

With the new year just around the corner, lenders need to focus on the key metrics that can help them assess their customers’ financial health as they continue to struggle with inflation and high interest rates. By applying Market-Driven Attributes designed to help evaluate these factors as part of frequent account and portfolio reviews, lenders can better spot customer segments that may present higher risk. 

For example, lenders may spot accounts with:

  • significant jumps in new credit
  • increased revolving utilization
  • decreased open to buy
  • rising total outstanding balance
  • increased debt to income (DTI)

Any of these factors may reveal an early warning of possible future delinquencies and warrant increased monitoring.  

With deeper analysis into customers’ use of credit, lenders can gain a better understanding of how consumers’ borrowing and payment priorities may change as inflation and high interest rates continue. Lenders can go even further by analyzing customers’ financial resources and resilience to meet credit obligations, even when under financial stress. We have seen that adding this kind of insight to portfolio reviews can spot customers with a 40% greater chance of delinquency than with credit scores alone. Lenders can then take action to offer payment plans or other programs to higher risk customers in order to minimize delinquencies, defaults, and subsequent write-offs.

Student loan debt, inflation, and high interest rates all pose considerable risk for lenders. With focused insight on consumers’ credit behaviors as they manage through these turbulent times, lenders can better spot potential accounts of concern early, develop plans to manage their customer relationships, and cut risk. 

For more details about how to leverage key consumer attributes and metrics to address student loan, inflation, and interest rate challenges, please contact your Equifax representative or contact us here for a consultation. Review our white paper to learn more about the student loan crisis. And, visit our website to learn additional tips to help your business manage through economic uncertainty.


(1) The Washington Post, August 24, 2022.
(2) Student loan statistics: The student loan crisis white paper, Shur℠, Equifax, and VantageScore®, July 2022; Federal Reserve Bank of New York.  Figures presented do not take into account any possible student loan forgiveness.
(3) Equifax analysis.
(4) Equifax Credit Trends as of September 2022.
(5) Equifax Credit Trends as of September 2022.
(6) U.S. Census Bureau, Oct. 5-17, 2022.  

Katherine Doe

Katherine Doe

Director of Product Marketing, Risk Solutions

Katherine joined Equifax in 2016 and has worked in several marketing roles across our Workforce Solutions and US Information Solutions divisions. When not working on product marketing by day, Katherine enjoys beach days, visting new restaurants, and leisurely South of Broad walks with her dogs in Charleston, SC.