The Shadow of America’s 'K-Shaped Economy' Deepens, Raising Red Flags Over Student Loan and Credit Card Debt Delinquencies

[Financial News] U.S. household debt remained largely unchanged, but student loan delinquencies and credit card debt burdens continued to weigh on consumers, highlighting widening gaps across income groups.
According to the Household Debt and Credit Report released by the Federal Reserve Bank of New York on the 12th local time, total U.S. household debt stood at $18.8 trillion at the end of the first quarter of this year, up $18 billion from the previous quarter.
While total debt was broadly flat, deterioration in the student loan segment stood out. After federal student loan repayments, which had been paused during the COVID-19 pandemic, resumed in October 2023, delinquency indicators have remained elevated. The share of student loan balances more than 90 days past due rose from 9.6% in the fourth quarter of last year to 10.3% in the first quarter of this year, and 2.6 million borrowers had loans that were more than 120 days delinquent and transferred to the U.S. Department of Education's debt resolution process. The transition rate into severe delinquency was 10.9%. Although that was lower than the previous quarter's 16.2%, it remained high compared with other loan types.
Credit card debt totaled $1.25 trillion. It fell by $25 billion from the previous quarter, mainly due to seasonal factors after the year-end shopping season, but rose by $70 billion from a year earlier. The 90-day delinquency rate was 7.10%, roughly unchanged from 7.13% in the previous quarter.
The New York Fed said that "student debt accounts for only a small share of the overall credit market, so the risk of delinquencies spilling over into other assets is limited." However, it also pointed to multi-debt distress, in which student loan borrowers simultaneously struggle to repay other obligations such as credit cards and auto loans, as a risk factor.
The report warned that "thanks to a solid labor market, households' overall financial conditions remain stable, but low-income households are under pressure from high prices and high interest rates," adding that "the 'K-shaped' divide by income level will become a major risk going forward."
whywani@fnnews.com Hong Chaewan Reporter