While the American economy is posting strong growth indicators and the lowest unemployment rates since the late 1960s, those improvements have yet to be felt among the nation's working class, which is shouldering the highest debt load in American history. Last quarter, American household debt reached $13.5 trillion, shattering the previous high from 2008-- just before the recession-- by more than $800 billion, according to NBC News.
The record debt load, coupled with an unusual jump in student loan delinquencies, could signal an impending downward trend in the economy. After a period of improvement in student loan delinquencies, the rate of serious delinquency of 90 days or more jumped from 8.6 percent to 9.1 percent last quarter. This change, along with the rising rate of credit card debt nonpayment since last year and a six-year trend in the rise of auto loan nonfeasance, raises red flags across the board for economists. Last quarter saw the largest jump in overall U.S. delinquency rates in seven years, according to Reuters.
Most of the total household debt is taken up by mortgages, which compose $9.1 trillion of the total household debt, but non-housing balances grew by $88 billion in the third quarter. Household debt has risen steadily for more than four years and is currently more than 21 percent higher than the trough in 2013. The $219 billion rise in total debt is the largest quarterly jump since 2016.
Some other troubling signs are emerging in the relationship between the current state of household debt and that of its previous peak before the recession, as borrowers are far more creditworthy and lenders are far more stringent than they were in 2008. This trend threatens to unsettle policymakers at the Fed and elsewhere.
The greatest culprit in the current rise of delinquency appears to be student loan debt, where income-based repayment plans appear to be ineffective in easing consumer debt burdens. Unlike credit card and auto loan lenders, student loan lenders have not relaxed their lending standards in recent years. Older borrowers in their 30s and 50s drove the jump in student loan delinquency, which economists consider a measure of market stress and use to predict the likelihood of defaults.
Mortgage delinquency transitions also worsened slightly. With the Federal Reserve rate hike and their promise to gradually raise rates to combat inflation during the economy's growth phase, mortgage originations are growing as borrowers seek to lock in lower rates while they still can.
The Quarterly Report on Household Debt and Credit is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual – and household – level debt and credit records drawn from anonymized Equifax credit data.