In our first article
in this series, we discussed the magnitude of the student loan debt.
Over 43 million student loan borrowers. Over $1.5 trillion in federal
student loan debt. (1) A 17% jump in monthly debt commitments that
could translate into an extra $244 that borrowers owe each month.(2)
Student loans will present a significant economic hardship
for many borrowers.
For lenders, as well as telco, insurance, and energy firms,
it is time to take a good hard look at their student loan
analytics. They will need to evaluate how well prepared they
are to understand the potential impact on their portfolios.
Questions to consider:
Do you know which of your customers have student
Do you know how much student debt these
Can you calculate the percent
of student loan payments to income?
assess how the resumption of student loan debt will impact
customers’ overall debt to income?
practices do you have in place to assess risk from student loan
debt today? Will they still be sufficient a year from now?
How quickly can you respond to changes in your
customers’ financial situation once student loans are added to the
Do you monitor changes in your
customers’ credit behaviors outside your own firm? Would you know
about a delinquency for a loan held by another lender?
Looking back, if you knew the magnitude of a customer’s
student loan debt when you were underwriting a new loan for that
customer in the last few years, would you have still approved that
Risk from student loans will escalate. Prepare now.
Let’s explore some ways that lenders and other companies can
boost their risk analytics and account management practices. That
way they can better address the student loan challenge.
Start with the most relevant credit insights.
Lenders need a focused view of the impact student loan debt
will have on their customers. A good place to get started is with
the Student Loan Attributes Package. This is a collection of
consumer credit attributes designed to shed light on the impact of
student loan payments on your customers. With this, lenders can
discover which of their customers have student loans and what are
their balances and payment history.
Student loan credit attributes can help analysts form the
basis of their assessment of which current customers might be most
impacted by student loan commitments. We worked with one
large lender to discover that millions of their customers hold
student loan debt creating significant risk exposure for the firm.(3)
To enhance risk assessment, lenders can supplement student
loan attributes with income and total debt data. Then, they can gain
updated calculations for important metrics, including:
Gain a broader view of consumer finances.
Lenders that rely on credit metrics alone should take their
analytics even further. Why? Because typical credit and income
measures may not reveal which customers that have student loans are
most likely to be able to pay all their debt commitments.
To answer that, more insight is needed – like estimated
affluence, non-wage income, discretionary spending, and other
components of the consumer wallet. Together, these financial
characteristics provide an indicator of financial durability.
Namely, how well can you estimate whether consumers can meet their
financial obligations and keep spending, even when they are under
financial stress (such as stress from a new monthly student loan
bill). Financial durability (a non-FCRA measure) can help lenders
get guidance on how to answer the question: Do my customers likely
have the financial resources to pay all of their loans?
Financial durability is important to assess, even for your
historically best customers: Prime consumers with the lowest financial
durability have up to 3x the bad rate of those with the highest
durability.(4) That means that there is a segment of your strongest
performing customers that both hold student loans and are much more
likely to become delinquent. Use financial durability to help identify
them before delinquency strikes.
In an analysis conducted for large lenders, we looked at
which of their customers had non-deferred student loans in
accommodation off them. We found that 17-25% of those loan holders
in prime/super prime score bands actually have low or very low
estimated durability, indicating that despite their credit scores,
they may not have the financial resilience to meet financial
obligations during unstable times.(5) Some of these customers may
have strong credit scores due to no student loan delinquency
reporting or other forbearances since Q1 of 2020. Either way,
that’s quite a lot of “good” customers that lenders should be
Lenders can also consider exploring consumer-permissioned
bank transaction data to gain a better view of how customers manage
their money. They can integrate specialty finance data into their
risk assessments to better understand which borrowers use these
services and if they reliably meet those commitments. In addition,
it might be a good time to re-verify income and employment data for
customers that you identify as holding student loans.
Review your customer accounts frequently.
With the coming onslaught of student loan bills, annual
customer account reviews may not be enough to catch significant
changes in your customers’ credit situation. Instead, shift to
quarterly or monthly reviews so you can become aware of changes faster.
Here are some of the data points you would want to assess on
a regular basis for student loan borrowers (and all borrowers) in
your portfolio: Have your customers’ loan balances changed? Has
their utilization increased? Do your customers have new
delinquencies? Student loans are going to impact many of your
customers’ loan behaviors – better to know sooner than later which
of your customers present increased risk. And don’t wait – for every
month that a lender skips a review, loss mitigation efficacy
degrades by 50%.(6)
Track changes away from your firm with up to daily alerts.
If one of your customers that you have identified as having
a student loan becomes delinquent on a credit card account or auto
loan that they hold at another lender, how quickly would you know?
How about if they opened a new loan account or significantly
increased their utilization? Lenders can reduce these types of blind
spots by receiving alerts of changes in consumers’ credit behaviors
even at other firms via daily, weekly, or monthly notifications.
Then, you can respond fast to customers that may be struggling to
meet not just their student loans, but all of their loans.
Stay on top of student loan analytics and account
management to protect your business from coming changes.
Not all of your customers with student loans will present
increased risk. But many will.
With increased insight into your customers’ finances,
coupled with regular account reviews and alerts to changes,
lenders can better segment customers to identify those with
student loans that may present increased risk. Then, you can take
action to help those customers’ manage their debts, plus adjust
models, refine credit lines, address potential delinquencies, and
better prioritize collections efforts.
For assistance with how student loan debt will impact your
portfolio, ask for a free consultation with our risk advisor
experts by emailing firstname.lastname@example.org.
Listen to our podcast
to learn more insights from our experts about student loan related
risk. We can help you answer questions such as:
Which of your customers will be impacted by
student loan debts?
What is the
balance of these loans?
How much risk do
they present to your firm?
Learn more about our consumer
attributes for student loan related risk. Plus, explore how financial
durability measures can help you better segment your customers.
Discover more tips to enhance your account management in our eBook.
Feel free to contact us
for more information.
Credit Trends, July 26, 2023
student loan crisis white paper, Shur℠, Equifax, and
VantageScore®, July 2022.
3 Equifax analysis.
4 Equifax analysis.
5 Equifax analysis.
6 Equifax analysis.