The CFPB has issued a new report, “Data Point: Final Student Loan Payments and Broader Household Borrowing,” which looks at repayment patterns for student loans and how borrowers who have repaid their student loans subsequently use credit.  The CFPB’s analysis focuses on borrowers when they first pay off individual student loans.  The report uses data from the Bureau’s Consumer Credit Panel, a nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide credit reporting companies.

Key findings include the following:

• Most borrowers paying off a student loan do so before the scheduled due date of the final payment, often with a single large final payment.  The median final payment made on a student loan is 55 times larger than the scheduled payment (implying a payoff at least 55 months ahead of schedule), with 94 percent of final payments exceeding the scheduled payment and only 6 percent of loans paid off with the final few payments equal to the scheduled payments.

• Most borrowers paying off a student loan early also simultaneously reduce their credit card balances and make large payments on their other student loans.  These borrowers are also 31 percent more likely to take out their first mortgage loan in the year following the payoff.  While this evidence shows that early student loan payoffs coincide with increased home purchases, the simultaneous reduction in credit card and other student loan balances suggests that increased wealth or income may influence when borrowers pay off student loans, reduce credit card balances, and purchase homes.

• Most borrowers who pay off a student loan by making all of the scheduled payments pay down other debts in the months following payoff rather than take on new debt.  Those borrowers with additional student loans put 24 percent and 16 percent of their newly-available funds toward, respectively, paying down their other student loans faster and reducing credit card balances.  Unlike borrowers paying off a student loan early, borrowers paying off on schedule are not more likely to take out a mortgage for the first time.

The CFPB observes that because the results discussed in the report show that repayment of one type of debt directly affects payments and borrowing on other kinds of debt, “policies and products that change repayment terms or balances for one credit product are likely to have spillover effects on  others, either enhancing the intended effects (e.g. payment relief, increased credit access) or leading to compensating shifts (e.g. reallocated payments or borrowing).”  As a result, the CFPB believes that analyzing borrower behavior across all liabilities can improve its understanding of the underlying mechanisms that influence behavior and allow it to more accurately predict the impact of new policies or products on consumers and the overall marketplace.

The CFPB also notes that while its analysis focuses on student loan borrowers who successfully pay off their loans, similar approaches could be applied to struggling student borrowers and might shed light on how borrowers use other credit products to cope with their student debt, how their access to other credit may be inhibited, and how available repayment plans and other programs change these outcomes.