Overall credit troubles in the U.S. increased modestly during the fourth quarter as some parts of the mortgage market saw accelerated fraying, amid ongoing difficulties for student loan borrowers, the New York Federal Reserve said in a report released on Tuesday.
When it comes to delinquency rates, "overall, mortgages continue to perform well by historical standards and have risen recently only after having reached artificially low levels during the (COVID-19) pandemic," economists at the regional Fed bank said in a blog post accompanying the release of its quarterly household debt report.
On average, 1.3% of mortgages became seriously troubled last year, "a share that looks very similar to the averages observed outside of the period around the 'Great Recession'" nearly 20 years ago.
The economists, however, wrote that "in lower-income areas and in areas experiencing worsening labor markets or housing market conditions, we are seeing mortgage delinquencies grow at a fast pace."
The report shows that even as the U.S. economy continues to perform well overall, an increasing number of people, mainly on the lower-income spectrum, are facing challenges amid a slowing labor market and high cost of living. Meanwhile, higher-income households are doing fine and supporting the overall expansion on the back of their spending.
"We know that higher-income households ... tend to own real estate and tend to own stocks ... and securities, and those assets have been going up in value, and increases in wealth do support spending over time," Fed Chair Jerome Powell said in a press conference after the end of the U.S. central bank's January 27-28 policy meeting. Meanwhile, those with lower incomes are looking to "economize" their spending, he said.
STUDENT LOAN PROBLEMS
The New York Fed data showed the rate of mortgages flowing into serious delinquency during the fourth quarter stood at 1.4%, up from 1.09% in the final three months of 2024. That figure compared with a 3.3% transition rate for all borrowing during the fourth quarter, which itself was up from the 1.7% rate during the final quarter of 2024.
Total debt delinquencies "worsened" in the fourth quarter, with 4.8% of loans in some sort of trouble, the New York Fed said. Troubled loans in the third quarter stood at 4.5%.
"We would characterize overall that delinquency rates have, especially for non-mortgage debt, that they've really stabilized or leveled off," a New York Fed researcher said in a conference call to discuss the report.
Student loans, however, continued to stand as the most challenged part of the household credit sector.
The New York Fed said 9.6% of student loans are three months or more delinquent, "reflecting continued effects from the resumption of payment reporting following the extended pandemic forbearance period." It also noted that the flow of student loans into serious delinquency stood at a heady 16.2%, versus 0.7% in the closing three months of 2024.
Total household debt levels stood at $18.8 trillion in the fourth quarter, up $191 billion, or 1%, from the prior quarter. Total borrowing for 2025 rose by $740 billion and was up $4.6 trillion since the close of 2019, before the pandemic struck.
Student loan balances hit $1.7 trillion in the final three months of 2025, up $11 billion from the prior quarter. Credit card balances were $1.3 trillion, up $44 billion from the third quarter. Fourth-quarter auto loan balances were $1.7 trillion, up $12 billion from the third quarter.
