To answer this question: Are you already seeing an uptick in demand for subprime credit products (auto loans, credit cards, personal loans) since student loan payments resumed? We've seen a sharp increase in people applying for car title loans over the past few months. These individuals would have previously qualified for a personal loan from their bank, but now their student loan delinquencies are affecting their credit reports. Many of these applicants had decent credit scores as of earlier this year, but now that their student loans are showing as delinquent, they can't get approved for any unsecured loan. When they need cash, they're often forced to turn to secured loans, such as a title loan, as we typically don't require good credit to qualify.
When people discuss alternative data for lending, they usually mean utility payments or rent history. The most powerful alternative data, however, is the behavioral data that platforms like Meta and Google have been using for years to drive sales. We use these signals to predict if someone will buy a product. Lenders are now realizing this same data is a powerful predictor of creditworthiness, often better than a FICO score that just took a hit from a student loan delinquency. A credit score is a lagging indicator. It tells you about a past problem. A person's digital behavior is a real-time signal of their current financial health and intent. Are they searching for jobs, engaging with financial planning tools, or showing stable online purchase patterns? These are all signs of recovery. Smart lenders won't just target a broad 'subprime' category. They'll use the sophisticated targeting of ad platforms to find individuals whose behavior signals they are on the path to repayment.
When I look at this student loan crisis, I think of the mortgage blow up that happened in 2008, but there are some major differences. Throughout the Great Recession, subprime borrowers were first and foremost left out of the regular lending products: no one would lend to those with ruined credit, end of story. Nowadays, there is a similar situation by which 2.2 millions of borrowers had dropped more than 100 points in their scores. In 2009 2011, the hard-money business of ours went off because the mainstream lenders went out of business overnight. Bank financing became unattainable even to the real-estate investors with a good credit. The current crisis with student-loans is cutting out a similar credit desert. The nine million borrowers whose credit scores are soaring will require alternative funding as experienced during the recession. The disparity is tempo and magnitude. The mortgage crisis took months to develop; the effect of the student-loan formed in weeks following the ending of the payment pause. I am already getting more questions where investors who were concerned by bad credit are looking. They are resorting to personal finance since banks will not have anything to do with them. These borrowers normally have a consistent source of income as opposed to recession, when joblessness was the primary issue, but have poor credit due to student loans. That predisposes them to be better borrowers in the private market compared to the unemployed borrowers that were observed in 200810.