The end of the moratorium on student loans could impact the credit scores of thousands of Puerto Ricans

The credit scores of hundreds of thousands of people in the United States and Puerto Rico could decline dramatically once student loan companies resume disclosing their customers' payment patterns to credit agencies, starting in October of this year.

A study presented this Thursday by If delays in repaying such an obligation are reported, 98% of student loan debtors could suffer a drop of up to 88 points in their credit level, explains Rodney Curbelo, TransUnion's general manager on the island.. Nearly 294,000 people on the island have student debt.

“The impact will be very significant, and that's why there's (federal) urgency and that's why you see a lot in the news in the United States about what else can be done, because this could stop many transactions, especially mortgages.” Transactions “ Curbelo explained.

endowment program, Resume student loan repayment, It was implemented with the aim of mitigating the economic impact caused by the Covid-19 pandemic, and ended in August 2023, but entities such as Sallie Mae and the federal Department of Education will not resume transmission until October of this year. Payment history of debtors so that credit agencies take note.

It was reported that people with student loans represent 14% of the total 1.7 million consumers with active credit accounts over the past six months in Puerto Rico.

According to the study, titled “The Impact of Economic Aid and Programs on the Consumer Credit Profile in Puerto Rico,” the average credit score for consumers on the island is 707 (out of a maximum of 850), which is considered a good credit score or, in technical terms, prime minister.

If the average credit score in Puerto Rico is taken into account and the scenario of 88 points lower as a result of the end of the moratorium program, the credit score for the majority of those with student loans in Puerto Rico would drop to 619, which would represent a reasonable credit history, according to Curbelo.

“It has a negative impact and everything will depend on the profile of each consumer. For example, consumers who only have eight accounts on their credit file open and of those eight accounts, four of which are student loans, they have half. “If you pay them well, it won’t be a problem at all,” Curbelo explained.

classification	Percentage of consumers	Average age	Open credit accounts	Open student loans
Super Prime (781-850)	7.65%	43	10	3
Prime Plus (721-780)	11.57%	38	9	3
Prime Minister (661-720)	29.07%	37	8	4
Near Prime (601-660)	19.60%	36	8	4
Mortgage (300-600)	31.96%	35	6	3

Student debt per person is increasing

According to Curbelo, in a seven-year period, student loan balances in Puerto Rico have nearly doubled, which is reflected in total debt, at this line, of more than $10,390 million at the end of the first quarter of 2024. Thus, Puerto Rico's student loan balance has risen – on average – by about $734.3 million annually, according to Negocios calculations.

The average balance per capita is about $35,400 in the first three months of the year, which represents another increase compared to the same period of the previous year, when it was about $33,000, according to the study.

“We're concerned about what student loans are and what their impact will be on students in Puerto Rico once they graduate, because there's a lot of talk about it in the United States, but here in Puerto Rico, it's like no one's asking about it,” one university professor told us.

The TransUnion director stated to questions from El Nuevo Día that the growth trend in the level of student debt in Puerto Rico is almost the same as that observed in the United States.

Comparing the island's total student debt stock to the same quarter in 2023, which was about $9.7 billion, there was an increase of 7.1%. However, when measured against the same period in 2017, when the total balance was estimated at $5.25 billion, the increase was more than 97%.

In a recent interview with this newspaper about rising student loans in Puerto Rico, Miguel Marin Foster, president of the General Student Council of the University of Puerto Rico (UPR), Río Piedras Campus, warned that “more young people will choose not to obtain a baccalaureate degree that leads to studies Higher to avoid falling into debt with the loan.”

Given these findings, Chairman Puerto Rico Banking Association (ABPR) Zuemi Alvarez Rubio stated that if the credit score is affected by student loans, the banking sector will have to conduct a more in-depth analysis of the credit history of these consumers when they request financing or complete certain transactions in progress.

“I think that institutions, after reporting student loans, will have to do a more in-depth individual analysis of that person to be able to know how much that student can pay. I cannot eliminate everyone who causes “I have problems, but I can do a better analysis.”

Credit card usage is rising dramatically

In 2023 and so far this year, all lines of credit in Puerto Rico have increased, with credit cards being the fastest growing sector. While in 2023, the average number of credit lines per consumer on cards issued by commercial banks and department stores was 0.41 and 0.53, respectively. This year, consumers have borrowed more and now have almost two ratios, with the index rising to 1.95 and 1.45 respectively.

As of March of this year, the average balance on credit cards from banks in Puerto Rico was $1,590, while the balance on cards issued by U.S. commercial banks, for the same period, was $1,453, according to TransUnion.

Meanwhile, the level of delinquencies in other types of credit remains at historically low levels, according to TransUnion, with 2.22% in auto loans; 0.67% on credit cards; 1.8% in personal loans and 1.81% in real estate loans, respectively.