Final Student Loan Payments and Broader Household Borrowing

Abstract

Student loans make up an increasing share of consumer debt in the U.S., particularly for younger borrowers. Research has shown that borrowers vary greatly in their ability to pay off their loans, and in how quickly they can do so. This Data Point provides a closer look at borrowers’ use of credit as they approach and make their final student loan payments, and in the months that follow.

Key findings include:

• Most borrowers paying off a student loan do so before the final payment is due, 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).

• Borrowers paying off a student loan early are 31 percent more likely to take out their first mortgage loan in the year following the payoff than during the year preceding the payoff. In the same month as the payoff, these borrowers also reduce their credit card balances and make large payments on their other student loans.

• The smaller share of borrowers who pay off a loan according to the scheduled payments pay down, rather than take on, other debt in the months following payoff. Paying off a loan reduces borrowers’ monthly payment obligations, and those with additional student loans put 24 percent of these savings toward paying down their other student loans faster.

Note: This is another in an occasional series of publications from the Bureau of Consumer Financial Protection’s Office of Research. These publications are intended to further the Bureau’s objective of providing an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse.