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Americans tidied up their household balance sheets to start 2025, cleaning up some credit card and auto loan debt, new data showed Tuesday.
However, the debt outlook for millions of student loan borrowers was much grimmer: Past-due student loans hit credit reports for the first time in five years, tanking credit scores in the process.
The latest snapshot of how economy-powering consumers are managing their debt loads was released Tuesday by the Federal Reserve Bank of New York, in the closely watched Quarterly Report on Household Debt and Credit.
During the first quarter, total household debt increased by $167 billion, just 0.9%, to $18.2 trillion, according to the report. Credit card and auto loan balances fell by $29 billion and $13 billion, respectively.
Aggregate delinquency rates increased to 4.3% from the fourth quarter and to a level in line with what was seen pre-pandemic, New York Fed data shows. Flows into delinquency (30 days or more late) and serious delinquency (90-plus days) held fairly steady with the fourth quarter.
The first quarter typically sees a pullback in credit card debt as consumers rein in post-holiday spending and pay off those purchases.
“Don’t be fooled by the modest decrease,” cautioned Ted Rossman, Bankrate senior industry analyst. “Credit card balances and interest rates remain near record highs, and Americans’ total consumer debt load is a record $18.2 trillion.”
Mortgage and student loan balances also hit fresh records last quarter, Rossman wrote in commentary issued Tuesday. Mortgage and student loan balances established fresh records in Q1, while credit card and auto loan debt fell slightly.
Also, he noted, credit card balances are 54% higher than they were four years ago and auto loan balances have risen by 19%.
Higher debt balances are to be expected, especially since the New York Fed data is not adjusted for inflation. Also playing a role are factors such as population growth, the rise of e-commerce (which relies on credit versus cash) and strong consumer spending.
The drop in car loan balances, which fell on a quarterly basis for the first time since 2011, did surprise analysts and economists.
“I think it’s a combination of people not buying (cars) because of high interest rates and high prices and also just the amount of uncertainty that we have had in the economy the last few months,” Matt Schulz, chief consumer finance analyst at LendingTree, told CNN Business in an interview. “That may have spurred people to hunker down a little bit.”
Those spending patterns changed in recent weeks as consumers rushed to purchase new vehicles ahead of President Donald Trump’s sweeping tariffs. Those loans could take a month or two before they’re reported, Schulz said.
It was expected that both student loan balances as well as delinquency rates would likely shoot higher from the fourth quarter.
The pandemic provided a reprieve for millions of student loan borrowers, as stimulus checks and payment pauses allowed many of them to bring down their balances. Others’ loans, however, were stuck in limbo as the Biden administration’s plans for student loan forgiveness hit a wall of legal challenges.
The 3.5-year payment pause ended in September 2023; however, an additional provision under the Biden administration provided a one-year “on-ramp” where borrowers were shielded from negative effects of a missed payment. That grace period ended September 30, 2024, and missed payments started hitting credit reports.
“It’s not an organic progression that has gotten us here; it has been a very sudden change in circumstances that, in the grand scheme of things, feels like it was overnight,” Charlie Wise, senior vice president and head of global research and consulting at TransUnion, told CNN Business in an interview.
“We’re asking consumers who have not had to make a payment for five years to start making payments, and many of them weren’t prepared for that,” he added. “Their incomes probably changed; their spending has probably changed. They may have much higher obligations, they may have mortgage payments, they may have higher rent. Their lifestyles have changed and all of a sudden now, they’re being required to add this additional payment in almost overnight.”
Student loan delinquencies jumped to 7.74% from 1% following the ending of a pandemic-era pause of reporting past-due loans on credit reports, according to the New York Fed report.
The highest rates of student loan delinquency occurred in southern states, with Mississippi having the largest share of borrowers who have at least one student loan in serious (90 days or more) delinquency, the analysis showed.
A quarter of the borrowers who were in any stage of delinquency were over 40 years old, according to New York Fed researchers.
And while more than half of the newly delinquent borrowers already had subprime credit scores, 2.4 million others had scores above 620 and saw average negative score changes north of 140 points, New York Fed research showed.
Those with credit scores greater than 720 had their scores tumble by an average of 177 points.
Such a drop could knock a super prime borrower down to subprime status, TransUnion’s Wise said.
“Which means that those consumers who previously would have had very good access to most credit products, including mortgages, now will have a much more difficult time getting credit — if at all,” Wise said.
This story has been updated with additional information.
