U.S. student loan borrowers ran into trouble during the first quarter after the government lifted a long-running moratorium on debt repayment implemented during the COVID-19 pandemic, a report from the Federal Reserve Bank of New York said Tuesday.

As part of its quarterly review of household debt trends, the bank said that total level credit that had fallen into delinquency rose to 4.2% of outstanding loans, from 3.6% in the fourth quarter of last year, as part of an ongoing return to pre-pandemic trends.

Some 7.7% of student loans in the first three months of the year were 90 or more days delinquent versus just under 1% in the fourth quarter of 2024. Meanwhile, most other types of borrowing troubles were largely steady in the first quarter relative to the end of 2024.

In a blog posting, bank economists wrote that the rise in delinquency rates tied to return of required student loan payments is a return to the pre-pandemic trend, and they noted the ramifications of troubled student debt levels is “severe.”

The surge in student loan delinquencies was not a surprise given the end of the 43-month payment pause, which had led to a large decline in troubled loans. A government on-ramp to return to payments ended in October and as of the first quarter, the bank said troubled loans are concentrated in southern states, with older borrowers dominating the delinquent loans.

New York Fed economists noted the troubled student loan situation will bring economic pain, amid some uncertainty about how the situation will play out.

CREDIT STANDINGS AT RISK

“Millions of borrowers face steep declines in their credit standing which will increase borrowing costs or severely limit their access to credit like mortgages and auto loans,” the bank’s blog posting said. “It is unclear whether these penalties will spill over into other credit products.”

That said, New York Fed researchers cautioned that some borrowers may have been caught off guard by the return to payments and may sort themselves out quickly. It could take several quarters to get a clear read on the student loan delinquency situation, they said.

In a report from early May, Morgan Stanley economists said renewed debt payments will likely slow growth marginally and add to a challenging outlook.

"We were already looking for consumer delinquencies and defaults to rise modestly again in 2026 due to tariff uncertainty, slower growth, higher inflation, and modestly higher unemployment," the research note said. "Higher cash outflows for student loans and default collections increase the risk from here."

The Trump administration said late last month it will aggressively work to ensure student loans are repaid, targeting five million borrowers who they say are in default and four million who are late on their loans. Education Secretary Linda McMahon said then that "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies."

The Biden administration sought to release many borrowers from their student loan burdens during the pandemic but was regularly overturned by courts in that effort.

The New York Fed also said in its release there's been a modest acceleration of mortgage debt moving into serious delinquency during the first quarter relative to the prior period. But bank researchers said they don’t foresee any looming crisis on this front amid tight bank lending standards and strong levels of home sector equity levels.

More broadly, the New York Fed researchers view the overall state of household balance sheets as standing in a pretty solid situation.

HARD START TO THE YEAR

The data for the first quarter captured a period of rising uncertainty and souring public moods as President Donald Trump’s trade tariffs regime has scrambled the economic outlook. During that period economists upped projections of recession odds while forecasting a reacceleration in inflation pressures and rising unemployment. With the president’s retreat on Monday of some of the most draconian tariffs on Chinese imports economist have been paring back some of their more pessimistic forecasts.

The New York Fed report also showed that total household debt levels in the first quarter rose 0.9% to $18.2 trillion versus the prior quarter. Mortgage balances rose by $199 billion to $12.8 trillion and credit card balances fell by $29 billion to $1.18 trillion over the same period. Student loan balances rose by $16 billion from the prior quarter to $1.63 trillion.

First quarter auto loan balances ticked down to $1.64 trillion, down $13 billion from prior quarter. The New York Fed noted the decline in outstanding levels was only the second time that’s happened since the second quarter of 2011.