Student loans are now the largest non-mortgage form of debt held by consumers in the U.S., but there remains limited evidence of how this growing debt burden affects the use of other financial products and services. As student loan burdens have grown, the federal government has introduced several to reduce financial distress for borrowers by setting payments for federal student loans based on borrowers’ incomes and family sizes.
Not much is known about the types of borrowers using IDR plans. Existing research has only been able to consider narrow samples of borrowers, such as those with older loans who are introduced to IDR plans after they fall behind on their loans, or those with student loans in default.
Today the Consumer Financial Protection Bureau describing how borrowers fare on IDR plans. This Data Point provides new background on which types of student loan borrowers use IDR, how their delinquencies on student loans and other credit products evolve as they transition onto IDR and thereafter, and borrower experiences with the enrollment recertification process. This research uses the Bureau’s Consumer Credit Panel (CCP), which is a panel of a nationally representative 1-in-48 sample of de-identified credit records, to identify and analyze likely IDR borrowers and to provide broader and more comprehensive statistics on IDR borrowers over the past decade.
Overall, the results in this report show that the available aggregate statistics mask a fair amount of variation in borrower circumstances and outcomes. Borrowers on IDR include both those who obtain only temporary payment relief as well as those who will enroll for multiple years, and both those struggling with high delinquency rates as well as relatively affluent borrowers with high balances. Income-driven repayment plans offer temporary relief for some borrowers and provide more sustained relief for others. At the same time, a large share of borrowers continue to struggle while on an IDR plan, and many move in and out of forbearance. Apart from measuring these different outcomes, this Data Point is a first step in understanding which types of borrowers use IDR as a stepping stone to repaying their loans and which borrowers continue to face hardship despite the availability of IDR.
Key findings include:
- Many borrowers went into delinquency on their student loans prior to enrolling in IDR, especially as borrowers exited deferment or forbearance periods, but rates of delinquency stabilized or dropped following enrollment. For borrowers with partial payment relief, delinquencies decreased 19 to 26 percent one year into IDR enrollment relative to the quarter before enrollment. However, the only segment of borrowers for whom delinquencies were fully cured were those with a $0 monthly minimum payment after entering IDR. Overall, the share of borrowers actively in repayment on their loans was 27 percent higher at the end of borrowers’ first year in IDR than just before IDR enrollment.
- For delinquent student loan borrowers, IDR enrollment was followed by a 17 percent reduction in delinquencies on other credit products, suggesting broader improvements across their entire household budget. These improvements likely reflect in part borrowers reallocating some payments from their student loans to their other debts. However, one in five such borrowers were still behind on their payments on these other credit products one year later, reflecting persistent financial struggles for some borrowers.
- About two-thirds of borrowers recertified their IDR enrollment for a second year immediately or within two months after the initial IDR period ends. An additional 12 percent of borrowers entered forbearance or deferment. Timely recertification enables eligible borrowers to maintain uninterrupted access to more affordable monthly payments. Difficulties could persist for borrowers who do not recertify on time, with 25 percent in forbearance and 7 percent delinquent while still not recertified six months later.
- Delinquencies more than tripled for borrowers who did not recertify on time after their first year, while delinquency rates improved gradually among those who recertified after their first year. Those borrowers who recertified on time also had the lowest delinquency rates on other credit products before enrolling in IDR and were able to lower those rates further while repaying under IDR.
- Over half of borrowers who failed to initially recertify continued to use some form of reduced payments, either through forbearance or delayed IDR recertification. Together with the two-thirds of borrowers who did recertify on time, more than 80 percent of IDR-enrolled borrowers sought out prolonged payment relief beyond a single year.
This Data Point focuses only on one outcome related to IDR: near-term delinquencies following enrollment in IDR. A full assessment of IDR would look at additional outcomes and effects. Nonetheless, this Data Point helps the Bureau and other researchers and policymakers understand how consumers repay their student loans and how that behavior affects their use of other financial products, important evidence not only for monitoring these markets, but also as one input into the more comprehensive discussion around the IDR program.