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Implications of Consumer Debt for Families Served by Child Support

Borrowing has become a common element of family finances. The ability to borrow can assist families in smoothing consumption, purchasing necessary goods and services that their current income will not allow, investing in human capital, and acquiring expensive but necessary items such as appliances, automobiles, and housing. At the same time, because debt is expected to be repaid, it may also lead to economic distress and, potentially, reduced consumption or ability to meet ongoing financial obligations. Research in the child support domain has not yet examined credit access and debt among noncustodial parents (NCPs) and potential implications of NCP indebtedness for child support order amounts, payment, compliance and arrears.

Using data spanning 2015–2023 from CARES, KIDS, and Unemployment Insurance (UI), the Department of Corrections, and mainstream and subprime credit history data from the Ohio State University of Wisconsin Consumer Credit Panel (OSU-UW CCP), we examine credit and debt for 267,679 NCPs with an active child support order during this period. We provide new information on the types and amounts of debts held by NCPs, the prevalence of debt strain and limited access to credit among NCPs, and associations with child support outcomes. We document differences by NCP income, race, education, and marital status.

We find that debt is common among NCPs, with credit cards being the most frequent form of debt (35% of NCPs) and mortgages being associated with the largest debt balances (average of $154,000 for those with a mortgage). Both overall debt and secured debt are more prevalent among more advantaged NCPs, whereas debt in collections and bankruptcy are more common among less advantaged NCPs. This is consistent with greater credit access among more advantaged NCPs, and greater difficulty meeting expenses and/or repaying debt for less advantaged NCPs. On the whole, we find that about 55% of NCPs experience debt strain and 58% experience limited access to credit (i.e., low credit score or no credit history), and that rates thereof are particularly high among more disadvantaged NCPs. Comparing the periods before and after order establishment, we find higher rates of alternative financial services (AFS) loan-taking, debt in collections, bankruptcy, and poor credit scores following order establishment, especially among NCPs with orders above 10% of their income. Finally, we find that NCPs with debt strain and limited credit make modestly lower subsequent payments and have modestly higher subsequent arrears.

Categories

Arrears & Related Policy, Child Support, Child Support Policy Research, Economic Support, Financial Security, Orders & Payments, WI Administrative Data Core

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