“the Intersection Of Student Loans And Healthcare Careers: Balancing Education Costs”

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Today, researchers from the Center for Microeconomic Data released the 2022 Student Loan Update, which contains statistics summarizing who has student loans along with characteristics of these balances. To calculate these statistics, we use the New York Fed Consumer Credit Panel (CCP), a nationally representative 5 percent sample of all American adults with an Equifax credit report. For this update, we are targeting individuals with a student loan on their credit report. The update is linked here and shared in the student debt section of the Center for Microeconomic Data website. In this post, we highlight three facts from the current student loan landscape.

“the Intersection Of Student Loans And Healthcare Careers: Balancing Education Costs”

On pages 4 and 5 of the 2022 Student Loan Update, we classify student loan borrowers into four mutually exclusive categories, according to the evolution of their balance from the balance a year before:

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Over the past decade (but prior to the COVID-19 pandemic), the share of borrowers in each of these categories was relatively stable—about 37 percent of borrowers had declining balances, about 47 percent of borrowers had flat or increasing balances, and about 15 percent of borrowers were in delinquency or default. However, average balances have not been equal across these categories. In 2019, the average balance of those with a declining balance was smaller ($22,342) than those with an increasing balance ($44,993).

The federal response to the pandemic for federal student loan borrowers raised these proportions. The share of borrowers with flat or growing balances increased from 48 percent at the end of 2019 to 66 percent at the end of 2021. Meanwhile, the share of borrowers with a failed or defaulted loan was halved from 15 percent to 7.5 percent as federal borrowers were not required to make payments and most delinquent borrowers were automatically marked as current.

To better understand the behavior of individual borrowers, we present below a flow chart showing the proportion of borrowers who moved by category between the end of 2019 and the end of 2021. For simplicity, we limit attention to borrowers who have a student loan on their credit had reporting at the end of 2019. The share of borrowers with a decreasing balance decreased from 37.1 percent to 25.5 percent, driven by a large transition to the flat or increasing category after the pandemic tolerance. However, 10.3 percent of borrowers moved from the flat or increasing category to the decreasing or no reported loan category (this category includes those whose loans were paid in full, forgiven or discharged). This shift is likely due to borrowers taking advantage of the payment freeze and interest waiver to reduce balances during the pandemic. In addition, many borrowers who were delinquent or were set to move to current. For delinquent borrowers eligible for pandemic forbearance, this status change was achieved automatically. Meanwhile, many defaulting borrowers were able to rehabilitate their loans during the pandemic patience without having to make monthly payments. Net, the size of the “same or higher” pool of borrowers increased by more than 7 percentage points, or about 3.2 million borrowers, during the pandemic. Additionally, 12.3 percent of borrowers (5.4 million) who had a student loan at the end of 2019 no longer had a student loan on record at the end of 2021.

Page 6 of the 2022 Student Loan Update shows the total number of borrowers by credit score groups (see also the table below). Credit scores here are Equifax Risk Scores, which are comparable to FICO credit scores. Borrowers are separated into groups by credit score: below 620, from 620-659, from 660-719, from 720-759, or more than 760. Pre-pandemic years saw small decreases in the share of borrowers with scores below 620, from 40 percent in 2011 to 36 percent in 2019. Meanwhile, those in the two highest credit score groups increased from 25 percent of student loan borrowers to 29 percent over that period. After the pandemic, subprime borrowers (those with scores below 620) dropped 8 percentage points to 28 percent of the total in 2021, while the share of borrowers with scores of 660-719 dropped 2.5 percentage points to 24.6 percent and the share of super-prime borrowers ( those with scores of 720+ increased by 5 percentage points to 34 percent. The share of balances held by super-prime borrowers increased over the pandemic from 27.1 percent ($236 billion) of student loan debt in 2011 to 32.1 percent ($482 billion) in 2019, and then to 38.7 percent ($609 billion) by 2021 ., the share of balances held by subprime borrowers fell from 35.6 percent ($536 billion) of student loan debt in 2019 to 26.0 percent ($409 billion) in 2021.

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The graph below shows migrations of credit scores of borrowers with a recorded balance and risk score in both 2019: Q4 and 2021: Q4. For simplicity, we reduce the number of credit score groups to three: subprime borrowers (with credit scores below 620), borrowers with credit scores of 620-719, and super-prime borrowers (with scores over 720). During the pandemic, there were significant flows to higher credit score groups. For example, at the end of 2021, 29.7 percent of former subprime borrowers moved to the 620-719 group (with a median risk score increase of 82 points), and 29.4 percent in the middle risk score group moved to the highest group (with a median risk score increase of 54 points). In total, 79.1 percent (30 million) borrowers saw increases in their credit scores during the pandemic, and 21.9 percent (8 million) increased their scores enough to migrate to a higher credit score group as defined here. This shift in the credit score distribution is greater than for a similar period before the pandemic. Between 2017 and 2019, 71.9 percent (27 million) increased their credit scores, and 16.1 percent (6 million) increased their scores enough to migrate to a higher bracket. For some, the improvement in risk score came from generally better financial footing; for example, credit card use, which affects the score, dropped for student loan borrowers from 64.6 percent in 2019 to 58.5 percent in 2021. Student loan borrowers who were delinquent prior to the pandemic saw the largest increases in risk scores when their balances were marked current at the start of the pandemic. The median change among these borrowers was a greater than 100-point increase.

Fact 3: Student loan balances and delinquency rates vary widely in states with worse outcomes in the South

On pages 9 through 11 of the 2022 Student Loan Update, we report the average balance, median balance, and delinquency rate of borrowers for student loan borrowers by state for 2019, 2020, and 2021. Median balances vary widely among states with Wyoming with the smallest median balance ($14,634) and Georgia with the largest ($21,965), although Puerto Rico has the lowest median balance of $12,645 and Washington, D.C. not including D.C.) with the largest median balance, seven belong to the Southern Census Region (Georgia, Maryland, Virginia, North Carolina, South Carolina, Alabama and Tennessee).

Below, we report the borrower delinquency rate for each state for the end of 2019 and the end of 2021. Prior to the pandemic, the median state had 14 percent of borrowers with either a delinquent or defaulted student loan on their credit report. Borrower delinquency rates were highest in Mississippi (21.6 percent of student loan borrowers), Puerto Rico (20.1 percent), and Louisiana (20.0 percent) and lowest in Vermont (8.4 percent) and North Dakota (8.9 percent). As with median balance, the South also had the highest borrower delinquency rates, claiming ten of the top twelve states. In fact, every state in the Southern Census region, except Virginia, had a loan delinquency rate higher than the state median.

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Due to the automatic forbearance of federal student loans during the pandemic, the delinquency rate of borrowers fell dramatically across the country when previously delinquent (but not defaulted) student loans owned by the federal government were marked current. In addition, borrowers in default could more easily rehabilitate their loans during the repayment period. By the end of 2021, the highest borrower delinquency rates were nearly halved (for example, Louisiana to 9.3 percent and Mississippi to 10.7 percent), although the overall ranking of states was largely unchanged.

The student loan landscape is poised to change dramatically again between the end of 2021 and the end of 2022. Most critically, the pandemic forbearance for federal student loans is currently scheduled to end on August 31, 2022. If so, we expect a reduction in the proportion of student loan borrowers who default on their loans when payment requirements resume. While many will reduce their balances, some borrowers will enter delinquency or default. The extent of these shifts will depend to a large extent on the policy that accompanies the resumption of payments. If missed payments are not reported to credit bureaus, the increase in delinquency (and corresponding reductions in credit scores) will be slowed. The end of forbearance will have consequences on credit scores, borrowing, and household cash flow over the

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