A Federal Reserve report shows credit stress rising unevenly across U.S. households, with lower-income borrowers and student loan holders facing the sharpest pressures.
By yourNEWS Media Newsroom
U.S. household credit conditions deteriorated modestly in the fourth quarter of 2025, with particular stress emerging in parts of the mortgage market and persistent problems continuing for student loan borrowers, according to a report released Tuesday by the New York Federal Reserve.
In an accompanying blog post to its quarterly household debt report, economists at the regional Fed bank said that mortgage delinquency rates remain relatively healthy by long-term standards but are beginning to rise after having fallen to unusually low levels during the COVID-19 pandemic.
“Overall, mortgages continue to perform well by historical standards and have risen recently only after having reached artificially low levels during the pandemic,” the economists wrote. On average, 1.3 percent of mortgages became seriously delinquent last year, a rate the bank said closely resembles levels seen outside the period surrounding the Great Recession nearly two decades ago.
However, the report noted that mortgage stress is accelerating in specific segments of the country. “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 economists said.
The findings underscore a widening divide in household financial conditions, even as the broader U.S. economy continues to perform relatively well. According to the New York Fed, lower-income households are increasingly struggling amid a slowing labor market and persistently high living costs, while higher-income households remain financially resilient and continue to support overall economic growth through 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,” Federal Reserve Chair Jerome Powell said during a press conference following the conclusion of the central bank’s Jan. 27–28 policy meeting. At the same time, Powell said lower-income households are increasingly being forced to “economize” their spending.
Data from the New York Fed show that the share of mortgages transitioning into serious delinquency during the fourth quarter rose to 1.4 percent, up from 1.09 percent in the final three months of 2024. Across all forms of household borrowing, the transition rate into serious delinquency reached 3.3 percent in the fourth quarter, compared with 1.7 percent in the prior quarter.
Overall, 4.8 percent of household loans were delinquent in some form during the fourth quarter, up from 4.5 percent in the third quarter. Despite the increase, a New York Fed researcher said during a conference call that delinquency rates—particularly for non-mortgage debt—appear to be stabilizing. “We would characterize overall that delinquency rates have, especially for non-mortgage debt, that they’ve really stabilized or leveled off,” the researcher said.
Student loans remain the most troubled segment of the household credit market. The New York Fed reported that 9.6 percent of student loans were at least three months delinquent, reflecting ongoing effects from the resumption of payment reporting after an extended pandemic-era forbearance period. The flow of student loans into serious delinquency surged to 16.2 percent in the fourth quarter, compared with just 0.7 percent in the final quarter of 2024.
Total household debt reached $18.8 trillion in the fourth quarter, an increase of $191 billion, or 1 percent, from the prior quarter. Household borrowing rose by $740 billion over the course of 2025 and has increased by $4.6 trillion since the end of 2019, before the pandemic.
Student loan balances totaled $1.7 trillion at the end of 2025, up $11 billion from the previous quarter. Credit card balances climbed to $1.3 trillion, an increase of $44 billion, while auto loan balances reached $1.7 trillion, up $12 billion from the third quarter.
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