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A Trillion Dollar Question: What Predicts Student Loan Delinquencies?

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Abstract

The recent significant increase in student loan delinquencies has generated interest in understanding the key factors predicting the non-performance of these loans. However, despite the large size of the student loan market, existing analyses have been limited by data. This paper studies predictors of student loan delinquencies using a nationally representative panel dataset that anonymously combines individual credit bureau records with Pell Grant and Federal student loan recipient information, records on college enrollment, graduation and major, and school characteristics. We show that borrower-level credit characteristics are important predictors of student loan delinquencies. In particular, credit scores of young borrowers are highly predictive of future student loan delinquencies, even when measured well before borrowers enter repayment. In marked contrast, our results point to only a limited power of student debt levels in predicting future student loan credit events. Our findings have potentially useful practical implications. For example, access to credit file information when borrowers exit school could help to more effectively target student loan borrowers who might benefit from enrolling in income-driven repayment or loan modification plans.

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  • Alvaro Mezza & Kamila Sommer, 2015. "A Trillion Dollar Question: What Predicts Student Loan Delinquencies?," Finance and Economics Discussion Series 2015-98, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2015-98
    DOI: 10.17016/FEDS.2015.098
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    1. Susan M. Dynarski & Steven W. Hemelt & Joshua M. Hyman, 2013. "The Missing Manual: Using National Student Clearinghouse Data to Track Postsecondary Outcomes," NBER Working Papers 19552, National Bureau of Economic Research, Inc.
    2. Thomas Hylands, 2014. "Student Loan Trends in the Third Federal Reserve District," Cascade Focus, Federal Reserve Bank of Philadelphia, April.
    3. Adam Looney & Constantine Yannelis, 2015. "A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 1-89.
    4. Jesse Bricker & Jeffrey P. Thompson, 2014. "Does education loan debt influence household financial distress? An assessment using the 2007-09 SCF Panel," Finance and Economics Discussion Series 2014-90, Board of Governors of the Federal Reserve System (U.S.).
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    2. Ege Aksu & Sidhya Balakrishnan & Eric Bettinger & Jonathan S. Hartley & Michael S. Kofoed & Dubravka Ritter & Douglas A. Webber, 2024. "Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"," Working Papers 24-07, Federal Reserve Bank of Philadelphia.
    3. Suzanne Bartholomae & D. Elizabeth Kiss & Jesse B. Jurgenson & Barbara O’Neill & Sheri Lokken Worthy & Jinhee Kim, 2019. "Framing the Human Capital Investment Decision: Examining Gender Bias in Student Loan Borrowing," Journal of Family and Economic Issues, Springer, vol. 40(1), pages 132-145, March.

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