Association for Public Policy Analysis & Management

Panel: The Prevalence and Cost of Unpaid Consumer Debt

(Poverty and Income Policy)

Debt in collections appears on one-third of all credit reports in the U.S. The prevalence of unpaid obligations coincides with rising levels of outstanding auto loan and student loan debt. It also accompanies an increasing public awareness of non-loan debt from fees & fines, unpaid bills, and medical expenses – as well as growing income and wealth inequality.

Such a high volume of unpaid debt signals widespread family financial struggles. While in general using credit can bolster growth and mobility, taking on too much debt – often done out of necessity and sometimes unknowingly – creates an excessive burden for many. Loan defaults prompt higher costs, court judgements, and wage and tax refund garnishments. Even bankruptcy as a last resort tends to leave filers without much relief.

This panel explores consumer debt defaults, collections, and bankruptcy filings in the U.S. The panel’s first paper, “Forced to Walk a Dangerous Line: The Causes and Consequences of Debt in Black Communities,” discusses the full life-cycle of troublesome consumer debt through the lens of systemic racial inequality. It highlights causes, including stagnant wages and low wealth, then details consequences like re-enforcing cycles of credit card dependence, involvement in the criminal justice system, collections harassment, and bankruptcy.

The second paper, “Falling Behind - Bank Data on the Role of Income and Savings in Mortgage,” examines the relationship between income shocks, financial buffers, and mortgage default. It uses mortgage data at the borrower level joined to deposit account data. It highlights the important connection between a negative income shock and default regardless of equity, income level, or debt-to-income ratios. Authors suggest implications for loan products and housing policy.

The third paper, “Consumer Debt: A Cross-Sector Framework for Solutions,” points to a framework for identifying and understanding solutions to consumer debt problems in the U.S. It synthesizes a cross-disciplinary investigation into the topic by a network of experts, all engaged through two waves of Delphi surveys. Results emphasize the importance of preventing debt from getting into collections, and of reforming the debt collections industry.

In the face of high economic inequality in the U.S., debt has become both more necessary and more burdensome for families struggling financially. Together these papers cover the causes of, consequences of, and strategies to solve that burden. They contribute to the field by drawing attention to the often-troubled final stages of debtor-creditor relationships. They further de-silo the issue, treating total debt burdens as a whole rather than as individual categories of credit. This panel will promote conversations about future research and program design that can relieve families of their unpaid debt and its related costs.