A report by the CFPB's Office of Research found that student loan borrowers are repaying their debt in creative ways.
While many borrowers are struggling to repay their student loan debt, a new study reveals some surprising trends for the majority of borrowers who do pay off their student loans.
The Bureau of Consumer Financial Protection’s Office of Research received data from the anonymized credit reports of 270,000 borrowers, covering the period from January 2013 to October 2017. This allowed them to analyze how borrowers are paying off their student loans while still managing other household expenses.
Interestingly, this report showed that of the borrowers who were able to repay their student loan debt most did it ahead of schedule. In fact, many borrowers finished paying off their loans with one large lump sum payment.
This one-time payment is typically about 55 times higher than the scheduled monthly payment. In fact, 94 percent of final payments are higher than the scheduled payment. There is a small sampling of borrowers whose final student loan payments were essentially the same as what they owed for their scheduled monthly loan payments.
The data also showed that once a borrower has paid off their student loans, they are more likely to begin paying down other types of debt. For instance, after paying off their loans, many borrowers will begin paying down credit card debt. This is likely due to the fact that they now have more money in their budget to put toward other expenses.
The results also indicated that borrowers are .68 percentage points more likely to have their first mortgage 12 months after paying off their student loans. So for many borrowers, the desire to purchase a home may have given them the motivation to finish paying off their student loan debt.
Thomas Conkling, an economist with the CFPB, said the data on student loans helped the bureau see how families manage their finances over time. A blog post on the CFPB’s website noted that this data demonstrates all financial issues are interdependent “as repayment of one type of debt affects payments and borrowing on other types of debt.”
It was unclear why so many borrowers choose to pay off their student loans with one lump sum payment. Research indicated that student loan payoffs were likely the result of a sudden increase in income or other life events but this couldn’t be evaluated in the study. However, if it were studied further, the authors said they believe it could give greater insight into the student loan industry.
If you’re curious about student loan repayment rates where you live, here’s a state-by-state breakdown of student loan repayment success.
Note: This article was updated on July 12, 2018 to better reflect the findings of the CFPB study.