Fed Survey - Degree Non-Completers with Student Loans

This blog summarizes relevant sections on education and student loans in the Federal Reserve Board's May 2022 report, Economic Well-Being of U.S. Households in 2021.    

Good news

The Federal Reserve Board's household survey in 2021 found higher rates of financial well-being among those who have more education.  Over 50% of adults who went to college said that the lifetime financials benefits of their higher education exceeded the costs.  However, the lifetime financial benefits decreased in younger age groups due to higher costs and student loan debt.

College value perception

The perception that the benefits of college exceeded its costs varied by 15% between degree holders and non-degree holders:

• 46% of Completers (Bachelor's degree or more) reported that the benefits of college exceeded its costs, while
• 31% of Non-Completers (Some college, no degree) reported that the benefits of college exceeded its costs.  
  
  

Student loan payment status 

The household survey also found that there were significant differences in student loan delinquencies.  Delinquency rates varied by 17% between degree holds and non-degree holders:

• 6% of Completers reported being currently delinquent, while
• 23% of Non-Completers reporting being currently delinquent in 2021.
  
  

Reflecting on past education decisions 

The household survey asked degree holders what they would have done differently in hindsight.  At the top of their list was the following:

• 37% of Completers would have chosen a different field of study.

Why lenders should pay attention

To summarize, students that earn a degree and earn a degree in a field of study that supports their student loan debt will report high "Economic Well-Being".

For lenders, it directly impacts the level of current delinquencies that you are experiencing in segments of your portfolio today. 

• Non-Completers have higher delinquencies rates. (All loans are cosigned.)
• Completers in a field of study that does not support their private student loan debt payments have higher delinquency rates.  (All loans are cosigned.)

Lender solution

The value of the Einstein Risk Score is that it incorporates in its algorithm the Fed Household Survey's factors that impact a student's future Economic Well-Being.   

Lender's private student loan models have an underwriting gap in incorporating degree completeness risk and future earnings sufficiency to support student loan debt levels.  Add the Einstein Risk Score to your traditional cosigner underwriting models to make better lending and risk-based pricing decisions.   

You may want to consider approving loans with higher risk cosigners provided that  students have high Einstein Risk Scores to compensate. 

The Einstein Risk Score uses college transcript data, total student loan debt and projected future income to compile a score from a proprietary algorithm like the FICO scale.

Aaron Pisacane

Founder, Einstein Higher Edu Solutions

Pisacane@Einstein.Consulting

(917) 968-6483