The Consumer Financial Protection Bureau (CFPB) released a report last week, examining the payment habits of student loan borrowers.
The typical student loan has a term of ten years, with equal monthly scheduled payments, but borrowers can pay the loan off early.
Among the key findings, the CFPB report reveals that most student loan borrowers pay off their loans before the final payment is due — often with a single large final payment. For example, 94 percent of final payments exceed the scheduled payment, and only 6 percent of loans are paid off with the final payments equal to the scheduled payments. Further, the median final payment is 55 times larger than the scheduled payment.
Also, borrowers that pay off student loans early also reduce their credit card balances and make substantial payments on their other student loans at the same time. Additionally, 31 percent are more likely to take out their first mortgage loan in the year following the payoff than in the year preceding the payoff.
CFPB officials surmise that understanding how borrowers pay off their student loans provides insight on how households manage their finances. The patterns highlight the interconnected nature of borrowers’ finances. This research may help shape new policies or products related to homeownership, credit card use, and the broader economy as a whole.