Household and Student Debt Growing, Says Report

The New York Federal Reserve just revealed its latest Quarterly Report on Household Debt and Credit, offering an insight into consumer habits amid the ongoing pandemic.

The report showed that household debt increased by $87 billion, or 0.6%, in the third quarter of 2020, more than offsetting the decline seen in the previous quarter. That brings U.S. household debt to $14.35 trillion in the third quarter.

“The data likely reflect improvements in economic activity and the labor market, as well as the positive impacts of relief measures provided through CARES Act provisions or offered voluntarily by lenders. Mortgage originations, including refinances, continued on their upward trend as homeowners continue to take advantage of the low-interest-rate environment,” said the Fed Reserve about the increases.

Many American households benefited from the CARES Act, which offered a temporary boost of $600 a week to unemployment compensation as well as one-time payments of $1,200 per adult and $500 per child to Americans.

Mortgage balances shown on consumer credit reports on Sept. 30 were at $9.86 trillion, an $85 billion increase from the second quarter of 2020. Balances on home equity lines of credit saw a $13 billion decline. This is the 15th consecutive decrease of home equity lines of credit since the fourth quarter in 2016, bringing the outstanding balance to $362 billion.

“Mortgage originations, including refinances, continued on their upward trend as homeowners continue to take advantage of the low interest-rate environment,” said Donghoon Lee, research officer at the New York Federal Reserve.

There was an additional $1.05 trillion in newly originated mortgage debt in the third quarter of 2020. The report also showed that on 0.6% of current mortgages, balances became delinquent in the third quarter. The low number of delinquent mortgages shows the continuing trend of very low delinquency transitions due to borrowers enrolling in forbearance programs under the CARES Act.

On the heels of weaker consumer spending during the second quarter, credit card balances declined slightly in the third quarter. Credit card balances decreased by $10 billion after consumer spending fell by $76 billion in the second quarter. This decline is the steepest for card balances seen in the history of the Federal Reserve report, a reflection of the ongoing weakness in consumer spending as well as active paydowns by cardholders.

Student loan debt showed an increase in the third quarter. The debt number posted a $9 billion increase to $1.55 trillion in the third quarter. About 6.5% of aggregate student debt was 90 or more days delinquent or in default in the third quarter. This is a lower level of student debt delinquency than normal. The lower delinquency reflects a Department of Education decision to report the current status on loans eligible for CARES Act forbearances.

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