Student loan debt won’t hamper the younger generation’s ability to pay their auto loans, according to a new study from TransUnion.
In fact, the study found that individuals with student loans may start behind their peers, but over time perform as well if not better than those without student debt – in terms of getting an auto loan and delinquencies.
The study analyzed borrowers with student loans age 18 to 29 that started repaying their loans in the fourth quarter of 2005, 2009, and 2012 and who kept up their payments, compared with control groups in the same time periods that did not have student loan debt.
“What we’ve seen is that once you enter repayment, demand particularly for auto loans is actually higher for consumers with student debt than that control group,” Charlie Wise, co-author of the study and vice president of Innovative Solutions at TransUnion, told Auto Finance News. “As well as their ability to pay and performance on those new auto loans is better than it is for consumers without student loans.”
TransUnion conducted the study in response to “talk in the media” and among policy makers about whether the increase in student loan debt is keeping younger consumers in particular from being able to access new types of loans, like auto loans, according to Wise.
“We wanted to do a study and cut through the hype and say, is this really a problem,” he said. “Or is this just something that’s worth watching but hasn’t really had an impact yet?”
The study found, for example, that within the 2012 group, 34.1% held both a student loan and an auto loan at the time of repayment, versus 41.7% in the control group. Over a period of two years, the control group without student loans rose to 52.1% while the group with student loans narrowed the gap to 49.1%.
In terms of delinquencies, TransUnion found that consumers with student loans entering repayment at the end of 2012 had a 15% lower 60+ day delinquency rate on newly-opened auto loans by the end of 2014 than those consumers without a student loan.
“It’s actually really good news for consumers, as well as for particularly auto lenders that are interested in targeting and building relationships with millennials, but are concerned about student debt and loan impact,” Wise said. “Well it actually looks like this is a very a credit active, credit hungry populations that seems to be performing very well on auto loan obligations.”
More details on the Auto Finance Risk & Compliance Summit, May 18-19 in San Diego, can be found at www.afrcs.com.