A new study on student loans runs counter to the popular belief that rising student loan debt is hurting the ability of young adults to access credit.
Student loan obligations have not inhibited younger consumers' ability to access and repay other consumer credit categories such as auto loans and mortgages when compared to their peers without student loans, according to the TransUnion study. Consumers ages 18-29 with a student loan in repayment are in fact generally able to gain access to new loans and perform as well or better on those loans as similarly aged consumers without student loans. The study found that in only three to six years, student loan consumers in their 20s have been observed to pass similarly aged consumers without a student loan in overall loan participation rates on mortgages, auto loans and credit cards. The percentage of consumers ages 20-29 with a student loan has skyrocketed from 32% in 2005 to 52% at the end of 2014. In the last five years alone, student loan balances have increased from $589 billion in Q1 2010 to $1.1 trillion in Q1 2015, according to TransUnion data. The share of student loans in relation to other products such as mortgages, credit cards and auto loans as part of a the overall loan "wallet" for consumers ages 20-29 also has grown dramatically - up from 12.9% in 2005 to 36.8% in 2014, a 186% increase. The study's results show that the changing economy and shifts in the ability to access consumer credit greatly impacted younger consumers overall, both those with a student loan and those without one. The percentage of consumers ages 18-29 with credit products such as mortgages, credit card and auto loans dropped dramatically between 2005 and 2012. But the drop impacted both consumers with student loans and those without similarly; the presence of a student loan in repayment did not appear to disproportionately impact consumers with student loans. Other macroeconomic factors, such as rising unemployment rates for younger consumers and tightening lending standards, likely were far larger contributors to decreased consumer credit originations and participation by all consumers in this age group. The results from the study were revealed at TransUnion's Financial Services Summit in Chicago, which included more than 275 senior-level financial services executives from across the globe. "Going to school impacts young consumers' access to credit; while in school, students may be less likely to have a job and generate the income necessary for loan approval. However, most catch up once they leave school-and their ability to catch up has not changed over the past decade," said Steve Chaouki, executive vice president and the head of TransUnion's financial services business unit. "Our study demonstrates that consumers in their 20s with student loans in repayment - that is, once they finish school - are in fact able to access credit at levels similar to or better than their peers who do not have student loans. TransUnion observed borrowers with student loans who entered repayment from three different timeframes: Q4 2005, Q4 2009 and Q4 2012. "We looked at three distinct timeframes to get a better sense of the student loan picture," said Charlie Wise, co-author of the study and vice president in TransUnion's Innovative Solutions Group. "We believe most people would agree that 2005 was a 'normal' year, in that the economy was strong and credit was readily available to younger borrowers. In other words, it is fair to use 2005 as a baseline for comparison. Q4 2009 was in the immediate aftermath of the financial crisis, while Q4 2012 represented the most recent data available for observing trends over an ensuing two years." Student loans generally enter repayment status six months after students graduate or otherwise end their studies. In other words, students graduating in May or June usually begin to make payments on their student loans in the fourth quarter of the year in which they graduate.
