On November 2, the Consumer Financial Protection Bureau (CFPB) released a blog post, exploring the potential impact of student loan payment reinstatement. The CFPB found that student loan borrowers are increasingly likely to struggle once their monthly student loan payments are reinstated. However, the CFPB also found that student debt cancellation may substantially reduce the number of borrowers at risk when the payment suspension ends. Overall, the CFPB found that “despite worsening credit outcomes … the cancellation of some student loan debt means that fewer student loan borrowers are likely to be at risk of payment difficulties when federal student loan payments resume in January 2023 than they otherwise would be.”

The CFPB’s most recent blog post follows an April 2022 post, which we reported about here, that attempted to identify which types of borrowers may struggle to make their scheduled loan payments based on five potential risk factors: (1) pre-pandemic delinquencies on student loan; (2) pre-pandemic payment assistance on student loans; (3) multiple student loan servicers; (4) delinquencies on other credit products since the start of the pandemic; and (5) new third-party collections during the pandemic. At that time, the CFPB found that about 15 million borrowers had at least one of the potential risk factors, and 5.1 million had at least two. According to the CFPB, since that report, delinquencies on nonstudent-loan products have risen. There has also been a small increase in the share of borrowers with new nonmedical collections reported on their credit records. As a result, the CFPB concludes that this led to an increase in the total number of borrowers with two or more risk factors to 5.5 million.

Among other findings from the blog, the CFPB reported:

  • A growing share of student loan borrowers are 60 days or more past due on a nonstudent-loan credit account since mid-2021.
  • As of September 2022, 7.1% of student loan borrowers who were not in default on their loans at the start of the pandemic were having difficulty repaying other debts, as compared to 6.2% of these same borrowers at the start of the pandemic.
  • Delinquency rates have risen even further for borrowers with defaulted student loans, increasing from 9.8% at the start of the pandemic to 12.5% as of September 2022.
  • More student loan borrowers face higher monthly payments on nonstudent loans. In its April 2022 report, the CFPB reported that 39% of student loan borrowers in its sample had scheduled monthly payments for all credit products — other than their student loans and mortgages — that increased 10% or more relative to the start of the pandemic. This has increased to 46% of student loan borrowers as of September 2022, with automotive loans driving much of that increase.

The CFPB’s post concluded that while many student loans borrowers are increasingly likely to struggle once their monthly payments are reinstated, as many as one-third of borrowers with two or more risk factors may have their balances completely canceled. And many borrowers with multiple risk factors who still have outstanding balances when payments resume may have reduced balances going forward.

The CFPB suggested that at-risk borrowers with loans remaining after current debt cancellation efforts may avoid payment difficulties by enrolling in income-driven repayment plans. Currently, many borrowers can qualify for plans that cap their monthly student loan payments at 10% of their discretionary income each month. The Biden-Harris administration also proposed the Student Debt Relief Plan, which would lower that cap to 5%, while also categorizing more income as nondiscretionary.

Suffice it to say that student loans remain a front and center issue for the CFPB, Department of Education, and a number of state regulators as the country emerges from the pandemic. Student loan lenders and their servicing partners should anticipate ongoing scrutiny of their practices, and in particular, how they work with distressed borrowers in the loss mitigation and collections context.