Michael S. Derby

(Reuters) - U.S. student loan borrowers were in trouble in the first quarter as the government canceled a long-term suspension of debt repayments imposed by the Federal Reserve Bank of New York during the COVID-19 pandemic, a report from the Federal Reserve Bank of New York said.

As part of a quarterly review of the household debt trend, the bank said total credit as ongoing loans fell to 4.2% of outstanding loans, which was 3.6% in the fourth quarter of last year, as part of the ongoing returns of the pre-pandemic trend.

In the first three months of a year, about 8% of student loans were 90 days or more delinquent times in the fourth quarter of 2024, while 0.8% of loans were loans. Meanwhile, most other types of lending troubles are basically stable in the first quarter compared to the end of 2024.

Bank economists wrote in a blog post that the rise in illegal interest rates related to required student loan payments is a reward for pre-pandemic trends, noting that the consequences of this situation are “severe.”

Given the end of the 43-month payment pause, the surge in student loan defaults is not surprising, which has led to a sharp drop in troubled loans. The bank noted that the government returned payments to the government ended in October, and as of the first quarter, it noted that struggling loans were concentrated in southern states, with older borrowers leading the default.

New York Fed economists point out that troubled student loans will bring economic pain.

"Millions of borrowers face a sharp decline in credit profile, which will increase borrowing costs or severely limit their chances of mortgage and auto loans, such as mortgages and auto loans," the bank's blog post said. "It is unclear whether these fines will spill over into other credit products."

That being said, Fed researchers in New York warn how the trouble with student loans will be resolved as some borrowers may be caught off guard by returning payments and may quickly resolve their own measures. They say it may take several quarters to read clearly about student loan crimes.

The bank also noted that mortgage debt has moderate acceleration compared to the previous period. But bank researchers say they would not foresee any imminent crisis in this front due to tight bank lending standards and strong housing equity levels.

More broadly, New York Fed researchers believe that the overall situation of the household balance sheet is in a pretty solid state.

The first quarter data captured a period of rising uncertainty, as President Donald Trump's trade tariff regime exacerbated the economic outlook. During that period, economists raised their forecasts for recession odds, while predicting recalculation of inflationary pressures and rising unemployment. On Monday, the president retreated some of the toughest tariffs from Chinese import economists and has been cutting some of the more pessimistic forecasts.