Education Still Makes a Difference
As college costs have skyrocketed, students and their families have taken on debt to make up the difference. Many studies have pointed out that the increasing student debt has created a financial burden on millennials and postponed their homebuying decisions. Few addressed the effect of student loan debt on millennials’ creditworthiness.
CoreLogic has studied the effects of student loan debt on millennial renters (specifically those 20-34 years old) by using the CoreLogic Rental Property Solutions’ tenant screening score from ScorePLUS. ScorePLUS measures the likelihood of lease default in next 12-18 months at the time of rental application. It uses the applicant’s credit history from credit bureaus as well as specific rental application characteristics. The score is scaled in the range of 200-800 with a higher score indicating better credit quality. CoreLogic first compared the average ScorePLUS score for millennial applicants with student debt and without student loan debt (see Figure 1). As is evident, from 2009 to 2015, the millennial applicants with student loan debt actually have higher ScorePLUS scores than those without student loan debt. Applicants with student loan debt generally held college degrees so it is no surprise that these applicants had higher scores, on average, than those who did not have a college degree. It is noteworthy that the score gap of the two groups becomes smaller in recent years.
CoreLogic also compared renters’ ScorePLUS scores with different amount of student loan debt as shown in Figure 2. We can see in both 2010 and 2015 that millennial applicants who had higher student loan debt earned higher average ScorePLUS scores than those who had a lower amount of student loan debt. A similar trend was found in renters’ FICO scores in Figure 3 which shows that applicants who carried higher student loan debt had higher FICO scores, on average. Therefore, student loan debt did not prevent millennials from access to credit even though it may delay their homebuying decisions.
As this CoreLogic analysis shows, renters with student loan debt have higher average credit scores than those without; and those with higher debt amounts have higher average credit scores than those with lower student loan debt amounts.
Despite the fact that student loan debt has grown into the nation’s second largest consumer debt, following mortgage, and has created a significant financial burden for millennials , it does not appear to prevent millennials from accessing credit.
1 Increasing Student Loan Debt Affecting Millennial Renters,” CoreLogic Insight blog, August 2016.
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