The effect of student loan status on credit union members

As the largest provider of student loans, the Federal Government accounts for over 90 percent of the 1.6 trillion dollars in outstanding debt. In response to the pandemic, temporary relief was in place for borrowers between May 2020 and October 2023.

Approximately 80 percent of borrowers deferred their student loan payments, either partially or fully. In this month's Economic Update, Dawit Kebede looks at the impact of restarting payments on credit union members and what that means for credit unions. Following the end of the relief period, delinquency rates rose sharply beginning in January and now exceed pre-pandemic levels. Collections on defaulted loans have resumed as well.

While credit unions hold less than one percent of their portfolio as student loans, 20 percent of credit union members have student loans through other lenders, totaling more than $430 billion in outstanding loans, and 26 percent of the national student loan debt.

What this means for credit unions

Credit union members with student loans hold $270 billion in loans from their credit union, accounting for 16 percent of total credit union loan balances this year. Auto loans are the largest loan type held.

Looking at the repayment status of these student loans shows credit union members with slightly better performance. About 106,000 credit union members, representing $29 billion of the loans held by credit union members, are at least 90 days past due. However, for broader student loan borrowers, there are about 245,000 individuals with $128 billion that are 90 days past due.

This shows that credit unions' indirect exposure to risk due to the resumption of collections is slightly lower than other lenders' expectations.

Credit unions helped ease the impact of repayment

Research shows that most consumers used the pause in student loan payments to spend more, with an increase in credit use on credit cards and auto loans. Credit union members' credit card balances grew by 8.5 percent while banks and national credit card companies saw increases between 25 and 30 percent.

Credit union members were more conservative in their spending during the pause. Along with lower rates on auto loans, mortgages, and credit cards, providing lower monthly payments, credit union members had some protection against the financial impact of resumed student loan payments.

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