Student loan and credit card delinquencies are surging. Here's why — and what it means

Americans have never had so much debt. 

U.S. household balances — including mortgages, credit cards, student, auto, and personal loans — reached a record-breaking $18.2 trillion in the first quarter of 2025, according to the Federal Reserve Bank of New York. That’s $4.06 trillion more than pre-pandemic levels. 

But rising household debt is neither abnormal nor necessarily bad. It’s been growing ever since the Fed began tracking balances in the 1960s, reversing course only for catastrophes such as the Great Recession in 2008. Growing debt signifies economic expansion, and as long as incomes and asset prices also grow, economists believe it's manageable.

To illustrate this correlation: In the years leading up to the 2008 financial crisis, growth in debt sharply outpaced the growth in income. The Household Debt Service Ratio (DSR) – the ratio of total required household debt payments to total disposable income— hit an unprecedented level of almost 16% by 2007.

The ratio has fallen since then because mortgages, which make up about 70% of household debt, have been declining. Meanwhile, following the Great Recession, robust wage growth had resumed by 2014.  The ratio was down to 11.2% by the first quarter of this year. That’s the lowest it has been since 1998 (excluding data for 2020-21, when wages were buoyed by pandemic-era stimulus checks). Relative to income, balances are actually lower than they’ve been for decades.

So, record-breaking debt is nothing to worry about? Well, not exactly.

Student loan debt is growing faster than income

Disaggregating the debt-to-income ratio by loan type shows a different picture. 

Data for student loan repayments isn’t accessible, but debt levels reached $1.797 trillion in the first quarter of 2025, while disposable personal income (annualized) was $22.26 trillion. That means student loan debt was roughly 7.3 % of total disposable income for U.S. households. That’s up from 3% in 2003 (when data began). The ratio was even higher in early 2020, hitting 9%, but fell slightly after the Biden administration approved more than $188 billion in student loan forgiveness.

This means student loan debt is growing faster than household incomes. For example: A U.S. bachelor’s degree holder saw a roughly 29% increase in median earnings from 2014 to 2024 in nominal terms. Meanwhile, federal student debt per borrower has grown 36% during that period, on average. 

A college degree can become “an anchor around your neck if the debt amount is just too great and it doesn't deliver a big enough boost to your earnings potential,” said Matt Schulz, chief credit analyst at LendingTree. 

The weight of this “anchor” on millions of borrowers is becoming clear as a pandemic-era pause on repayments winds down.

The Department of Education resumed collecting defaulted student loan payments in May. Missed federal student loan payments that were not previously reported to credit bureaus from 2020-24 have begun appearing in credit reports. Consequently, about 8% of student loans are seriously delinquent (90-plus days late on payments) as of April 2025. That’s 31% of all borrowers with a payment due, triple the pre-pandemic rate.

“It's always been the case that you go to college and, as a result, you secure a better future for yourself,” said Adam Rust, Director of Financial Services at the Consumer Federation of America. “But really, a lot of people are going and not getting that outcome. They're experiencing setbacks as a result.” 

The 5.8 million student loan borrowers who are 90-plus days delinquent could soon be in default, which creates a "waterfall effect," Rust said, as it will become harder to access an affordable loan or secure a mortgage.

Credit card delinquencies are surging

While overall debt-to-income may be at a record low, credit card delinquencies are surging.

Delinquency rates have doubled since the record lows of 2021. On one hand, this makes sense: Consumer credit has grown 20% since 2021. Stimulus-fueled excess savings drove down credit card balances during the pandemic, then, as the economy opened up, consumers depleted those savings. This has also reignited delinquencies.

But delinquency rates haven’t just rebounded — they’ve hit the highest levels in more than a decade. Even more concerning, the rate of credit card borrowers who transitioned to serious delinquency (90-plus days) is now at 2008 levels. Borrowers age 18-29 make up the biggest portion of this group. 

Potentially both a cause and symptom of rising serious delinquencies is the popularity of buy now-pay later loans, such as those offered by Klarna and Afterpay. These short-term loans financed 6% of e-commerce last year, triple the rate in 2020, and 80% of consumers using them are below 35, according to a Morgan Stanley survey. Morgan Stanley also found that most consumers are using loans for small purchases like clothes and food. LendingTree data shows that 1 in 4 lenders have used borrowed money to buy groceries.

“That surely seems like a sign of struggle, since those sorts of purchases aren't really what those loans were made for,” Schulz said.

Buy now-pay later providers only perform soft credit checks, so their loans can be accessed by consumers who may have been denied a credit card. This may be appealing as banks take a more cautious approach to lending amid surging debt balances. “Those on the margins might find that their options have dwindled a bit,” Schulz said.

Some experts are concerned this type of financing is leaving younger borrowers with more debt than they can afford. 

Buy now-pay later loans are not federally regulated, so delinquencies are not included in Fed data. However, Klarna has reported that its consumer credit losses swelled 17% in the first quarter from the same period a year earlier, hitting $136 million. In an April survey conducted by the credit platform LendingTree, 41% of users said they paid late within the last year, up from 34% the previous year. 

The cost of living may be one reason why consumers are turning to these loans: The U.S. rate of inflation hit 9.1% in 2022, the highest level since 1981, only falling closer to the Fed’s 2% target late last year. It has remained stubbornly above that target.

As a result, the central bank hiked interest rates to 5.5% in 2023, a level not seen since 2001. Borrowing costs remain historically high at 4.5%, akin to 2007 rates.

This may also explain surging delinquencies: Credit card debt has become more expensive to pay off.

But monetary policy is only part of the story. In response to rising debt, banks contend that they’re taking on more risk, so have also increased their profit margins. The average Annual Percentage Rate (APR) on credit cards almost doubled from about 12.9% to 22.8% between 2013 and 2023. And expensive lending affects low-income borrowers and those with existing debt most.  

“People talk about there being a challenge in accessing credit,” Rust said. “But I think the harder part is accessing affordable, safe quality credit.”

Schulz said that consumers weighed down by credit card debt should consider a 0% balance transfer credit card or a low-interest personal loan. And there's one option that's often overlooked: simply calling the card issuer and requesting a lower interest rate.

"The reduction can be far bigger than any rate cut that the Fed would make," Schulz said. "You have far more power over your money than you realize, if you're willing to wield it."