The latest report on overall household debt and credit by the Federal Reserve shows that American households, taken as a whole, are in solid financial shape. But clear pockets of weakness persist, with stress in auto and student loans especially acute for some.
Despite volatility in oil prices and economic growth, for the majority of homeowners’ finances are in a healthy state, the report showed. Mortgages make up the largest segment of consumer loans, constituting about 70 percent of the $19 trillion in U.S. household debt. Mortgage debt balances ticked down in the second quarter of the year. And most mortgage holders continue to benefit from fixed monthly payments, many of which were often financed or refinanced at low rates a few years ago.
This effect, which stems from the ubiquity of 30-year fixed-rate mortgages, has been a clear ballast for personal finances and a continued source of strength for the economy — even as elevated prices in general erode the purchasing power of both homeowners and renters.
Separate data released Wednesday showed that, when adjusted for inflation, recent wage gains have been erased. From July 2025 to July 2026, real average hourly earnings for workers have decreased.
Many would-be home buyers remain locked out of the largely frozen housing market, as a result of higher home prices and elevated mortgage rates. Another hurdle is strict underwriting standards from lenders who remain wary of providing credit to consumers with lower credit scores.
“The overall picture — the overall — has been remarkably resilient, when you look at debt and spending levels, but I think a lot of it is reflective of that ‘K-shaped’ economy,” said Sophia Kearney-Lederman, a senior economist at FHN Financial, referring to those households on the bottom leg of the metaphorical K having a much harder time than asset holders at the top.
”Wage growth has not kept up with inflation and those people are struggling and student loan holders have had a lot of ups and downs,” she added.
The Saving on a Valuable Education plan, a federal student loan repayment program, was put in place by the Biden administration to make monthly payments more affordable. Among other provisions, it reduced undergrad loan payment loads to 5 percent of a borrower’s discretionary income from 10 percent. And borrowers with original balances of $12,000 or less could have their remaining debt wiped out after just 10 years of payments, instead of the standard 20 or 25 years.
The tax bill that President Trump signed into law last year, and lawsuits the White House supported, looked to scrap the SAVE program; and those provisions went into effect on July 1, effectively ending SAVE.
The latest data from the Fed showed that the previous rapid acceleration in student loan debt balances cooled somewhat in the second quarter. But proponents of student loan forgiveness at leading nonprofits — such as Natalia Abrams, president of the Student Debt Crisis Center — say that 1 in 5 borrowers is now in default, and that they now expect those numbers will rise.
Auto loan balances also increased $28 billion in the second quarter to $1.7 trillion, and delinquencies rose slightly for auto loans, too. This is partly a function of how cars have become much more expensive since the pandemic, and how interest on car loans have become much more elevated since then as well.
“We haven’t seen these things creep into the bigger picture yet,” said Ms. Kearney-Lederman of FHN financial. “But it’s definitely something were watching, particularly the longer inflation stays elevated while the labor remains not awful but not great.”
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