A study by credit reporting company TransUnion at least partly contradicts the widely held belief that hefty student loans prevent recent college graduates from getting auto loans.
If anything, the performance of young people with student loans “is stronger than those without student loans,” said Charlie Wise, vice president for TransUnion’s Innovative Solutions Group.
Individuals with student loan debt “actually perform better,” he said, in terms of delinquencies and losses for bad loans, than a similar group of millennials without student loans.
“They’re a good group lenders should be targeting,” he said.
TransUnion, of Chicago, studied data on more than 3 million consumers. The study focused on those who were most likely to be recent college graduates based on when they started paying their student loans, compared with similar groups with no student loans.
Before, after recession
Payments on most student loans are deferred while the student is still is school. Therefore, starting to pay off a loan is a good indication the student is no longer in school, Wise said. To compare groups from before, during and after the 2008-09 recession, TransUnion researched groups from 2005, 2009 and 2012.
TransUnion found recent graduates with student loans do start out a few percentage points behind their peers without student loans in how likely they are to have an auto loan.
For example, in the 2012 group, about 34 percent of those with a student loan also had an auto loan at the point when they started paying off their student loan. At the same point in time, about 42 percent of the 2012 group without student loans had an auto loan.
Closing the gap
Wise said the difference wasn’t as great as expected, and research showed the group with student loans caught up or significantly closed the gap within two years. The specific numbers varied, but directionally the results were similar for all three pairs of groups before, during and after the recession, he said.
Not only did the student loan groups catch up, but over time the group with student loans performed better in terms of delinquencies and losses for bad loans, Wise said. In the long run, they were more likely to have auto loans than the group without student loans, he said.
“If you look out three, four, five years,” Wise said, those with student loans “end up far ahead.”