Resumption of Student Loan Payments Caught Two-Thirds of Borrowers by Surprise; More Consumers Say Household Finances Worsening, Though Better than a Year Ago
TransUnion’s Q4 2023 Consumer Pulse Study also explores the strength of Millennials
Two in three consumers (65%) with a student loan said they were caught by surprise when the U.S. Department of Education announced this summer that student loan repayments would begin once more in October 2023. TransUnion’s (NYSE: TRU) Q4 2023 Consumer Pulse study found that 49% of student loan borrowers expected the resumption to occur in 2024, with another 14% believing it would happen in 2025 or beyond. The Q4 2023 Consumer Pulse study is based on a survey of 3,000 American adults between September 27 and October 9, 2023.
The resumption of student loan payments coincides with more Americans stating their household finances are worse than planned compared to last quarter (40% in Q4 2023 vs. 35% in Q3 2023). At the same time, more consumers today (31%) say their finances are better than expected versus one year earlier (23% in Q4 2022).
Nearly six in 10 consumers (56%) also remain optimistic about their household finances in the next 12 months, the same level observed in Q3 and higher than the 52% seen in Q4 2022. Similar to recent quarters, inflation for everyday goods is the No. 1 household financial concern, with 79% of survey respondents ranking it as one of their top three. A recession (48%), rising interest rates (44%), increased housing prices for rent or mortgage (42%), jobs (30%) and stock market volatility (30%) followed.
“Our newest Consumer Pulse study reveals different insights based on how the consumer sentiment data are viewed. We primarily view such data on a year-over-year basis to ensure seasonality is considered. In this regard, consumers are more optimistic about their household finances and said they are generally performing better financially than they did at the end of 2022,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. “For this quarter, it’s clear that the resumption of student loan payments – while an obligation impacting only a fraction of US consumers – could be playing a role in limiting optimism in the short-term for some consumers.”
Among those consumers with student loans coming due this fall, 57.6% plan to make all monthly student loan payments in full, 29.6% expect to pay partial amounts and 12.8% said they do not plan on making payments.
TransUnion conducted an earlier analysis about student loan borrowers that found as of May 31, 2023,
40.6 million consumers possessed student loans, totaling $1.6 trillion in balances, of which the large majority were federal student loans that were in the pandemic-related payment moratorium. From this group, 26.8 million consumers, holding federal student loan debt totaling $1.1 trillion, were expected to be faced with a resumption of payments, some, particularly recent graduates, for the first time ever.
“After over three years without required student loan payments, it’s not shocking that a majority of these borrowers were surprised when they learned that these loans would require monthly payments in 2023,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion. “Many of these borrowers took on additional loans, including new credit cards and other credit products, during the payment pause. While their total debt loads have risen, it’s positive to see that nearly nine in 10 plan on making full or partial payments on their student loan debts.”
Millennials Powering the Way
The Consumer Pulse study found that Millennials were the generation with the most Federal student loan repayments. Yet, this generation is the one best positioned to make these payments. While 31% of consumers said their finances are better than expected compared to one year earlier, this percentage rocketed to 52% for the Millennial generation. Only 30% of Millennials stated their finances are worse than 12 months earlier, a net positive of 22%.
This net positive was the highest of any generation, with Gen Z next with a net of 7% (37% better; 30% worse). Conversely, Gen X was a net negative of -26% (24% better; 50% worse) and Baby Boomers were -29% (15% better; 44% negative).
A likely reason why Millennials are generally in a better position? Nearly seven in 10 (69%) expect income increases over the next 12 months. This compares to 51% for all consumers surveyed. As well, more than half of Millennials (53%) say their income is keeping up with the rate of inflation whereas Gen Z (44%), Gen X (26%) and Baby Boomers (21%) lag. At the same time, Millennials are most credit hungry with 53% expecting to apply for new credit/refinance existing credit in the next year – much higher than Gen Z (44%), Gen X (31%) and Baby Boomers (10%).
“There are more than 70 million Millennials in the U.S. and they comprise the largest segment of all generations. Their continued success in the consumer credit market is a key area to watch in the coming quarters. With a steady flow of income and a healthy appetite for credit, Millennials can be a major force in driving the U.S. economy,” concluded Wise.
For more information about the Consumer Pulse study, please click here.
About TransUnion (NYSE:TRU)
TransUnion is a global information and insights company with over 12,000 associates operating in more than 30 countries. We make trust possible by ensuring each person is reliably represented in the marketplace. We do this with a Tru™ picture of each person: an actionable view of consumers, stewarded with care. Through our acquisitions and technology investments we have developed innovative solutions that extend beyond our strong foundation in core credit into areas such as marketing, fraud, risk and advanced analytics. As a result, consumers and businesses can transact with confidence and achieve great things. We call this Information for Good®—and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world.