During our July 28 Market Pulse webinar, our panel of experts discussed what lenders and Gen-Z should be doing during the current student loan debt crisis.
This month’s presenters included Robert Wescott, President at Keybridge; Tom Aliff, Risk Consulting Leader at Equifax; Kahlil Byrd (KB), Co-Founder & CEO of Shur; and Nick Rose, Head of Product Strategy and Research at VantageScore. KB and Nick Rose provided recommendations for a path forward to reducing the 8 million people out of delinquency and default right now.
Our presenters followed up with audience members’ questions* about student loans, the current economy, inflation, and whether or not we are currently in a recession. Presenters answer those critical questions below.
Watch a replay of our July webinar, “Market Pulse: The Impending Student Loan Impact for Young Borrowers” or download a copy of the presentation.
How much of the job creation is organic versus simply regaining jobs that were lost during the pandemic?
Robert Wescott: Many of the jobs being added are organic, not simply regaining lost jobs. Professional and business services (+800,000 net jobs added since before Covid hit), transportation and warehousing (+700,000 net jobs added since before Covid hit), information sector (+140,000 net jobs added since before Covid hit), and finance (+90,000 net jobs added since before Covid hit) are all showing strong organic job growth.
What is the connection between student loans, credit scores, and wealth creation? Who is impacted the most?
KB: You can forgive all the debt and five years from now we can still end up in the same situation based on prior trends. Our primary focus at Shur has been with younger folks, people of color, and women who have to borrow more and who take longer to pay off.
People are growing in rural communities where their salaries may not be as high as in the city. That being said, the question is at that delicate point that we’ve seen, when they have a credit file and don’t have a lot of room to fail or mess up, are there ways to work with significant partners, corporate cities, universities, and the bureaus to make sure that if somebody is launching they have the ability to succeed in the first major personal investment that they made? What we should be doing is protecting a person’s downside risk, so they can’t miss payments. Every person should have a plan and the ability to understand the elements of their credit score.
Missing payments at an early age can delay your ability to create wealth in your lifetime. That is why it is important to help intervene early on in a person’s life and we are able to do this with the help of our partnership with Equifax. We have the ability to create products and interventions in partnership with organizations and entities that are trusted by these individuals that can change their trajectory relative to their ability to create wealth for a lifetime.
As a Loan Officer I'm seeing more and more student loan debt obligations showing up on parent's credit report? What impact do you see on this group?
Tom Aliff: The impact will be included in the summary data. These populations are in the age groups where they exist. Our hypothesis is that many in the older generations are student loans for children and impact is as stated.
What are we currently seeing with respect to student loan holders? Tell us about the uneven impact that you thought in terms of your analyses of student loan accommodations on VantageScore?
Emre Sahingur: At a high level, credit scores were a big question from the start. Everyone wants to know what will happen to consumers' credit scores. I will start by saying that when you look at the course of the pandemic we've seen that the average credit scores generally increased for many consumers. That being said, the average VantageScore is 14 points higher compared to where we started in early 2022.
When you have historically low levels of delinquencies and lower balanced reduction of credit, you will have higher credit scores. 91% of all student loan borrowers have an accommodation on their student loan or a federal loan. However, 60% of them have seen their score increase more than 20 points recently. In contrast, there were fewer consumers that saw a decline in their scores. That being said, the likelihood of student loan borrowers seeing an increase was significantly higher.
Now what’s important to highlight is that not every consumer has the same credit profile and the impacts of these scores were not felt equally. When examining the different consumer segments, we looked at age groups and overall credit profiles. About 16% of student loan borrowers had thin credit files, and more than half of those consumers were Gen Z.
What are your thoughts on the current rate of inflation and how it could affect affordability for basic goods in 2022 and in the years to come?
Robert Wescott: The current rate of CPI inflation, at 9.1%, may be peaking. However, inflation will only dip to the 5-6% range in the next 12-18 months, not back to the 2% range the Federal Government wants to see.
There is rising nervousness about a recession, if there is a recession: What sectors would perform best and worst?
Robert Wescott: If a recession were to occur, the hardest hit sectors are likely to be construction, real estate, heavy equipment, motor vehicles, metals, etc. I am worried that the tech sector, e-retailing, and fintech will be hard hit. The least affected sectors are likely to be healthcare, educational services, wireless telecommunication, etc.
Do you think student debt relief is inflationary?
Robert Wescott: Forgiving student loan debt will be inflationary, and potentially quite inflationary. Even a writeoff of $10,000 in student debt could add $300 billion to consumer spending, because many households with student debt have very high marginal propensities to spend. The impact on the macroeconomy would be to boost consumer spending and aggregate demand in the economy, but the increased spending is likely to add several tenths to the rate of inflation--maybe even 0.5% in the first year.
For more from our presenters, watch a replay of our July webinar, “Market Pulse: The Impending Student Loan Impact for Young Borrowers” or download a copy of the presentation.
* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.