Student-Loan Defaults Continue to Boost Delinquencies. Why This Matters. -- Barrons.com

Dow Jones
08/06

Megan Leonhardt

The number of Americans behind on their bills mounted in the second quarter, driven largely by the return of student-loan payments after a nearly five-year pause on reporting missed payments to collections.

Approximately 4.4% of U.S. accounts were in some stage of delinquency in the second quarter, up from 4.3% in the first quarter, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit report released Tuesday. That's a jump from the 3.2% of accounts struggling to pay their bills on time during the second quarter of 2024.

Much of the recent increase, however, is because delinquent student loans are finally being reported to credit bureaus, after a nearly five-year pause on collections due to the Covid-19 pandemic.

This comes as total debt among U.S. households rose by 1%, or roughly $185 billion, to $18.4 trillion during the three months ended in June, according to the New York Fed data. That's a bit faster than the 0.9% increase, or $167 billion, in the first quarter.

"Despite economic uncertainty, Americans seem to be holding steady. Debt and delinquencies ticked up slightly, but overall, this was a typical second quarter, except when it comes to student loans," writes Matt Schulz, LendingTree's chief consumer finance analyst.

Looking at debt balances in the second quarter, the bulk of the increase was driven by in mortgage debt, which climbed $131 billion to total $12.94 trillion at the end of June 2025. Home equity lines of credit (Helocs) rose by $9 billion to $411 billion. Heloc debt has risen for 13 consecutive quarters.

Credit-card balances rose by $27 billion in the second quarter, and now stand at $1.21 trillion in outstanding debt, which is 5.9% above the level reached a year ago.

Auto-loan balances rose by $13 billion in the second quarter, which was driven, in part, by many Americans pulling forward vehicle purchases ahead of expected higher tariffs. Loan originations were also up, helping push total auto debt to $1.66 trillion as of the end of June.

Student-loan balances ticked up by $7 billion the second quarter, compared with a $16 billion increase in the first quarter. But the second quarter is generally a slower one for student loans, and total outstanding debt was $1.64 trillion at the end of June.

One of the key measures of consumer financial health, the number of accounts in serious delinquency -- or more than 90 days past due -- ticked up during the second quarter. About 3% of accounts overall were seriously delinquent as of the end of June. New York Fed researchers noted when payments are 90 days past due, Americans struggle to make them current again.

Delinquencies are something to watch carefully, especially if economic conditions soften as expected during the back half of the year.

Looking more closely at specific types of accounts in serious delinquency, about 12.3% of credit card accounts were at least 90 days overdue, though that rate has been relatively stable throughout 2025. The number of mortgages and Helocs accounts that were more than 90 days past due in the second quarter did edge up slightly, but remain relatively solid compared with historic levels, according to New York Fed researchers.

"This quarter's flow of household debt into serious delinquency was mixed across debt types, with credit-card and auto loans holding steady, student loans continuing to rise, and mortgages edging up slightly," said Joelle Scally, Economic Policy Advisor at the New York Fed. "Despite the recent uptick in mortgage delinquency, overall mortgage performance remains strong by historical standards."

The overall number of accounts transitioning into early delinquent status with payments that were just 30 days late was just 0.9% in the second quarter, which was actually a bit lower than the 1.1% in the first three months of the year.

The number of student loans that went from current to delinquent, however, continued to tick up meaningfully. Relatedly, the number of accounts held by Americans under the age of 40 that are transitioning into serious delinquency continues to rise and is meaningfully higher than prepandemic rates.

"Most Americans are doing OK for now, but it wouldn't take much to shake that stability," Schulz wrote.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

(END) Dow Jones Newswires

August 05, 2025 12:42 ET (16:42 GMT)

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