Mortgage and student loan debt continue to impact the lives of both the oldest and youngest segments of the population, but significant changes have occurred within the past decade that could create challenges and opportunities for lenders, a TransUnion study finds.
A direct shift in the “consumer loan wallet” — the composition of loans that people typically carry — is identified among the 20- to 29-year old population as well as the 60-plus age group.
For the younger cohort, mortgage debt has decreased to just 42.9% of their wallet, down 32% since 2005. While mortgage debt falls, student loan debt has skyrocketed to 36.8%, a 186% increase since its 2005 share of 12.9%.
“Mortgage participation rates have steadily declined while student-loan participation rates have soared,” TransUnion writes.
The average student loan balance has also increased 60% since 2005, “a potential cause for concern.”
Alternatively, the oldest consumers have the greatest loan growth, particularly in mortgages. The 60-plus population is the only group that has experienced an increase in mortgage share in their wallet since 2009.
This year, mortgage debt comprised 76.3% of seniors’ wallets, with an average mortgage loan balance per consumer of $160,120.
The older age tier also is the only one in which prime borrower mortgage participation – the percentage of consumers with a prime or better credit score who have a mortgage balance – has increased since 2009, moving up from roughly 27% to 32% in 2014. All other age groups saw a decrease in prime borrower mortgage participation rates over that period.
For lenders, younger Americans’ wallets present a challenge, while the older Americans’ open up a door for opportunities.
“Significant student loan debt in younger age tiers may constrain demand and ability to pay on other loan types,” TransUnion writes.
To counteract this, lenders should focus marketing to younger consumers on loan products they continue to need and seek such as auto loans and credit cards. Lenders should also evaluate different loan structures — longer repayment terms and lower loan-to-value amounts — that incorporate smaller balances and payment amounts for younger consumers with significant student loan debt.
When addressing the 60-plus cohort, lenders should develop strategies to effectively target and reach these older consumers. Positioning loan products as well as savings and investment products in branches near older populations is one such strategy.
“Lenders who understand and continue to monitor the evolving behaviors of borrowers at different life stages will be best positioned to capitalize on emerging opportunities and plan for oncoming challenges,” TransUnion writes.
Written by Emily Study