Younger borrowers are taking on more debt

August 5, 2025

Nominal household debt rose 1% quarter-over-quarter to a total of $18.4 trillion in the second quarter of 2025, according to the Federal Reserve Bank of New York’s Household Debt and Credit report. That is a touch above the 0.8% average quarterly increase since 2023. Younger borrowers (aged 18-49) took on more debt in the second quarter after reducing their debt in the first quarter.

Delinquencies of any duration ticked up slightly to 4.41% of total outstanding debt from 4.35% in the first quarter. That is the highest rate since the first quarter of 2020 before the pandemic.

However, consumer balance sheets are holding steady. Delinquencies rose much less between the first and second quarters of the year. The sharp increase in delinquencies we saw in the first quarter leveled out in the second quarter.

Seriously delinquent (90 days or more) student loans surged to 10.2% in the second quarter from 7.7% in the first quarter; they were 0.5% in the fourth quarter of last year. Seriously delinquent student loans are now only a touch below the 10.8% share in the first quarter of 2020. COVID-era forbearance meant that those student debt delinquencies were not reported to credit bureaus from the second quarter of 2020 during the pandemic through the start of fiscal 2025, which began on October 1.

The federal government is winding down the Saving on a Valuable Education plan (SAVE), an income-based repayment plan. That means that nearly eight million student loan borrowers will begin accruing interest on their loans starting in August. Monthly payments are expected to rise once courts resolve legal challenges.

Research found that student loan borrowers increased their mortgage, auto and credit card borrowing six months after student debt forgiveness in 2021. Debt rose by nearly 9 cents for each dollar forgiven. We are expecting that accumulation of credit by student loan borrowers to reverse now that those loans need to be serviced.

A resumption of student loan interest accrual, payments and defaults, along with declining credit scores, is expected to reduce new debt origination. That is yet another headwind for consumer spending in the near term, which came to a virtual standstill in June.

Mortgage balances rose by 1%, or $131 billion, just below the 1.6% increase last quarter. Borrowers of all ages increased their mortgage balances. New mortgage delinquencies were flat at 3.7% in the second quarter. New seriously delinquent mortgages ticked up to 1.3% from 1.2%.

An accompanying blog from the Federal Reserve Bank of New York found that delinquencies have increased since 2021 in Federal Housing Administration (FHA) loans; these are granted to individuals with lower credit scores and require a smaller down payment. A larger share of these borrowers resides in southern states. Delinquencies have declined so far this year to 4.1% from 4.3% at the end of last year.

Credit card balances rose $27 billion, or 2.3%, after falling 2.4% in the first quarter. Newly delinquent loans fell to 8.6%, down slightly from 8.8% the previous quarter and 9.1% in the second quarter of last year. Serious delinquencies slipped to 6.9% from 7% last quarter.

Real disposable personal income growth was unchanged in June, while payroll gains remained subdued in July. This week's senior Loan Officer Opinion Survey (SLOOS) by the Federal Reserve found that consumer credit card demand had weakened, while banks tightened lending standards for credit cards.

Auto debt rose 0.8% in the second quarter, reversing the 0.8% decline the previous quarter. Borrowers of all ages and credit scores took on more auto debt. Similar to credit cards, both new and serious delinquencies fell in the quarter. Vehicle sales picked up more than expected in July, as vehicle producers have been slower than other big-ticket producers to raise their prices. New vehicle prices are already out of reach for most households. Problems with affordability are expected to worsen as tariffs work their way through supply chains.

More consumers tapped home equity lines of credit (HELOCs). The balance grew by $9 billion, marking the thirteenth quarterly gain in a row. Total balances are $411 billion, the highest since late 2018. HELOCs allow homeowners to access record levels of home equity, especially as most seniors prefer to age in place. A drop in home values could curb those gains in some parts of the country later this year.

Foreclosures were flat while bankruptcies grew in the second quarter. Both remain well below pre-pandemic levels, another sign that the rise in debt thus far remains manageable.