March 2, 2022 – NEW YORK – The Federal Reserve Bank of New York has released the second installment of The Low-Income State of America: Access to Credit and Paying Off Debt. The report finds that payment rates and median credit scores have increased for all income groups through September 30, 2021. While overall bankruptcies have declined significantly during the pandemic and new foreclosures have effectively halted, the report also finds that student loan default rates remain more than three times higher. higher among borrowers in low- and middle-income areas than in high-income areas.
The report examines debt holdings by income group and uses anonymized credit data from Equifax merged with geographic income data from the American Community Survey.
“Although the COVID pandemic has taken a toll on low-income Americans, our data suggests that most borrowers, including those in low-income areas, have managed their financial responsibilities and debt repayments,” the authors said. “We plan to monitor how low-income households are weathering the unwind of policy interventions that have improved their financial stability over the past two years.”
With a focus on student loans, the report describes how most student loans were eligible for CARES Act emergency assistance, suspending loan repayment until May 1, 2022. As a result, borrowers with student loans saw their credit rating increase more sharply than borrowers without a student loan.
Among other key findings:
- Median credit scores for student borrowers in low-income regions increased more than medians in high-income regions.
- Controlling for income, significant differences in default rates on student loans exist across geographies, with some metropolitan statistical areas showing particularly high rates.
- Comparable debt holdings of auto and student loans across income groups point to significantly higher non-housing debt-to-income ratios among low-income borrowers.
- Mortgages are common among borrowers in high-income areas and rarer among borrowers in low-income areas.
The report is the second in a series. The authors intend to continue monitoring debt holdings across all income groups in 2022.
Full report is available on the New York Fed website.
Source: Federal Reserve Bank of New York