Age, Race, and Education Level Play Huge Roles in Loan Performance: Study

The study was released in June so it’s not necessarily new, but the conclusions reached by a pair of researchers at the Federal Reserve Bank of St. Louis are starting to get noticed. And the collections industry may want to take notice as well.

Households that are younger, less-educated, and non-white are more likely to fall behind on their debts that households that are older, better-educated and white, according to researchers William Emmons and Lowell Ricketts, who looked at 25 years of demographic data to reach their conclusion. Asian families had better payment histories than white families.

Families where the head of the household is under 40 are more than twice as likely to miss two consecutive monthly debt payments than families where the head of the household is over the age of 62, according to the report. Families where the head of the household only has a high school diploma are twice as likely to be seriously delinquent as families where the head of the household has a post-graduate degree.

The researchers attempted to account for bad choices and bad behavior and simply look at age, education level, and race as a barometer for predicting loan performance.

Young people, for example, may face greater immediate financial challenges with higher stakes than do older people; those with low levels of education may face fewer economic opportunities than those with high skills; and black and Latino families may start their financial lives at an inherent disadvantage.

For collection agencies, the more knowledge of an individual’s situation can help determine the correct strategy to collect. Considering the conclusions drawn in this report can provide additional context for an individual’s situation and also aid in charting the right way to maximize collections.