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PRELIMINARY: Delinquent Debt: How Vulnerable Were U.S. Households before the COVID-19 Shock

by Matthew Familglietti and Carlos Garriga
Posted online May 11, 2020

The COVID-19 pandemic represents an unprecedented shock to households and policymakers. As policymakers implement new legislation and lending facilities to combat the economic downturn, there are many direct and indirect channels through which COVID-19 can affect households in the United States. Some direct channels include loss of employment due to the shuttering of the economy, mobility restrictions, and adverse health outcomes relating to the pandemic. These direct effects of the pandemic harm consumers through loss of income by placing severe financial stress as the situation limits the ability of consumers to pay off existing debts.

Recent work at the Federal Reserve Bank of St. Louis has explored linkages between consumer credit card distress, vulnerable employment sectors, and the spread of COVID-19 infections.1 They find that employees in service sectors such as food services and accommodation were more vulnerable to financial distress and that COVID-19 began spreading in communities that were less financially stressed. In this essay, as the spread of COVID-19 in the United States has intensified in the past several weeks, we explore trends in household leverage in recent years through March 2020, the onset of the COVID-19 pandemic, by measuring the dynamics and geographies of shares of delinquency in different debt categories. This allows us to assess whether the average household is ready financially for the pandemic.

To create a snapshot of U.S. household debt at the onset of the pandemic, we use the Federal Reserve Bank of New York/Equifax CCP dataset to measure the amount of household debt and the quantity of credit lines currently open for consumers. For the sake of this analysis, we define delinquent debt as any credit line that has not been paid for at least two months. We measure the number of credit lines that are delinquent as a share of the total number of credit lines to determine how widespread credit delinquency is among households for a variety of household debt measures.

In Figure 1, we plot the share of consumer credit lines delinquent in the United States for six different types of debts commonly accrued by households. The top left panel plots the total number of consumer credit lines delinquent as a share of the total number of credit lines. This share has been rising in the past two and a half years, a source of concern for households to weather the adverse effects of the COVID-19 pandemic. While the top-left panel suggests that the overall household debt situation has worsened in recent years, it does not provide a depiction of what kinds of debt are driving this trend. The remaining five panels provide a rough decomposition of the top-left panel into five distinct consumer debt types.

Figure 1

What is notable looking at the panels of Figure 1 is that the share of delinquent credit lines have increased across most types of consumer debt. In particular, auto finance loans, consumer finance credit lines, and student loans are particularly likely to be delinquent. For example, by 2020:Q1 approximately 14% and over 16% of auto loan and student loan lines, respectively, were delinquent. In contrast, the share of delinquent mortgages has been declining the past two years and is currently below 2%.

These trends are concerning especially from an inequality perspective. A decreasing share of delinquent mortgages and an increasing share of delinquent consumer finance, student loans, and auto loans suggests that wealthier consumers, such as homeowners, were in a stable and improving financial situation prior to the pandemic. In contrast, younger consumers with student loans and/or without enough liquidity to purchase automobiles outright were increasingly unable to service their debt, even before the full effects of the economic shutdown were felt. There is some increasing evidence of pressure by college students and parents to reduce or waive tuition and room and board costs for the last quarter of the academic year and to make adjustments for the academic year in 2020-21.2

After examining the aggregate U.S. trends, it is natural to wonder whether there is much variation among states or if debt delinquency is consistent across geographies. To explore this issue, we plot a map of the United States showing the share of consumer credit lines delinquent as of March 2020 in Figure 2. It is very clear that there are significant regional trends in this cross-section. In particular, the more affluent states in the Northeast and the West Coast have relatively low delinquent debt shares. In contrast, the Sunbelt states from the American Southeast, extending to Nevada and Arizona have disproportionately large shares of delinquent debt.

Figure 2

This geographic heterogeneity in debt delinquency has important policy implications for new lending facilities and legislation as policymakers try to determine where debt and liquidity relief are most required. In the Eighth District, several states such as Kentucky and Tennessee have large shares of delinquent consumer credit lines that are among the highest in the country.

The analysis in this essay demonstrates that there were notable dynamics in delinquent debt shares in the lead-up to the COVID-19 pandemic and that there is significant geographic variation of delinquent consumer debt. In particular, it is likely that less-affluent consumers (such as those with large auto finance loans or student loans) were struggling with payment prior to this unprecedented shock and that they may not be able to make payments.

Beyond the consumer level, it appears as though less-affluent states, particularly in the South and including states in the Eighth District, have more consumers that have delinquent credit lines. Policymakers have responded with various measures including the CARES Act, which included provisions for deferring debt payments on federally backed mortgages and student loans for extended periods. However, given these trends, more focused debt relief may need to arrive for consumers without mortgages and other kinds of debt, and consumers in specific geographic regions.


1 See Athreya, Mather, Mustre-del-Río, and Sánchez (2020) Part 1 and Part 2 of a recent series of essays.

2 See this survey of schools facing pressure

Preliminary, incomplete. To cite, please request author’s permission.  

© 2020, Federal Reserve Bank of St. Louis. These views do not reflect the opinion of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 

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