By coinnews 
00:00 Speaker A
The New York Fed’s latest household debt and credit report revealed student loan delinquencies jumped in the first quarter of the year. Student loan balances grew by $16 billion. And the data shows an uptick in the rate at which balances went from current to delinquent. That comes after the Department of Education mandated that missing loan payments would once again be reported to credit bureaus after a nearly five-year pause. As a result, 7.74% of aggregate student debt was reported 90 plus days delinquent in the first quarter compared to less than 1% in the fourth quarter of 2024. And now, experts are concerned about the possible spillover effects of rising student loan delinquencies on other debt. Here with more, we’ve got Ted Rossman, who is the Bankrate senior industry analyst here. Ted, let’s just start with the data and how many borrowers will now find themselves in delinquencies here. What is the significance of that?
02:00 Ted Rossman
It’s very significant because student loans stick with you. I mean, obviously we should pay all of our debts back, but something like credit card debt is easier to discharge in bankruptcy. Student loans, not so much. They can garnish your wages, they can take your tax refunds, they can take your other government benefits like Social Security. You really can’t wiggle out of that one. So it is really significant that about one in four student loan borrowers are delinquent right now. Close to one in 10 are seriously delinquent. This is the tip of the iceberg because we had that long payment pause and then there was the one year on-ramp and then it’s 270 days from there that you’re considered in default. So really July 1st is a date to watch. That’s really when we’re going to start to see these defaults accumulate. It’s been a long time coming.
03:48 Speaker A
And so just like that, we’re back into some of the levels that we haven’t seen since pre-pandemic. So how does this compare to some of the characteristics that we had seen in the broader, both employment environment, as well as what’s the payment environment were looking like, how many people could actually pay down their debt at that period of time and now, compared with how many people are going to be faced with setting a strategy, making sure that they can keep to that strategy here.
04:40 Ted Rossman
Delinquencies have gone up on a variety of loan products in recent years. Credit card delinquencies right now are at their highest point since 2011, according to the New York Fed. The growth rate has slowed in recent months, so things are maybe stabilizing a bit, but still, 12% of credit card balances are seriously delinquent. So that is definitely an issue. Auto loans are a problem, especially in the subprime space. Subprime auto delinquencies are worse now than they were during the financial crisis. There’s sort of this ticking time bomb of student loan delinquencies. There’s very much a spillover effect because if you don’t have the money to pay the student loans, maybe you’re also running up the credit card, or maybe you’re behind on your car loan. A lot of this is overlapping. It’s not really a macro threat because, overall, banks knew some of this was coming. The overall debt to income ratio is not so bad on a historical basis. At the household level though, this is highlighting some of that economic inequality. There are definitely a growing number of households that are in financial distress and falling behind and and that definitely bears watching, even at a time when the overall economy is probably better than many realize. These pockets of trouble are growing.
06:48 Speaker A
And so with that in mind, you you bring up something which was really interesting, especially considering what we’ve heard from the banks previously and how they assessed household balance sheets. As you think about what this impact could be on household balance sheets, what it could look like on spending and the retail companies that this could also impact here. What are some of the most exposed areas economically?
07:34 Ted Rossman
About one in eight households have student loans. The average monthly payment is around $350 a month, and so many people got used to not paying that for a while that now it’s just really become a bigger problem. The costs for other things went up, and we could see ripple effects for numerous sectors. A lot of people tell us they’re pulling back on discretionary spending, things like travel, dining, live entertainment. 54% say they’re cutting back. Now what’s interesting is that disconnect between sentiment and reality because people say they’re cutting back, but the TSA is processing a record number of air travelers, and bar and restaurant sales were up 8% year over year last month, according to the Census Bureau. So what people say is diverging from what they’re doing. The end result could be more diminished savings and more debt loads because if people don’t have the money for these things, but they’re spending anyway, it’s feeding that credit card debt beast, which is problematic. Those balances are near record highs, and interest rates are as well.
09:17 Speaker A
Ted, good to see you. Thanks so much for taking some time.
09:23 Ted Rossman
No problem. Thank you.