U.S. student loan borrowers ran into trouble during the first quarter after the government lifted a long-running moratorium on debt repayment implemented during the COVID-19 pandemic, a report from the Federal Reserve Bank of New York said Tuesday.
As part of its quarterly review of household debt trends, the bank said that total level credit that had fallen into delinquency rose to 4.2% of outstanding loans, from 3.6% in the fourth quarter of last year, as part of an ongoing return to pre-pandemic trends.
Some 7.7% of student loans in the first three months of the year were 90 or more days delinquent versus just under 1% in the fourth quarter of 2024. Meanwhile, most other types of borrowing troubles were largely steady in the first quarter relative to the end of 2024.
In a blog posting, bank economists wrote that the rise in delinquency rates tied to return of required student loan payments is a return to the pre-pandemic trend, and they noted the ramifications of troubled student debt levels is “severe.”
The surge in student loan delinquencies was not a surprise given the end of the 43-month payment pause, which had led to a large decline in troubled loans. A government on-ramp to return to payments ended in October and as of the first quarter, the bank said troubled loans are concentrated in southern states, with older borrowers dominating the delinquent loans.
New York Fed economists noted the troubled student loan situation will bring economic pain, amid some uncertainty about how the situation will play out.
