By Ray Birch
WASHINGTON— A quiet but growing storm is gathering on consumer balance sheets, and it's being driven by student loan delinquencies—threatening to shake not just household finances, but the broader economy and the liquidity stability of credit unions, one economist asserts.
According to Brian Turner, president and chief economist at Meridian Economics, nearly two million borrowers are expected to default on their student loans in July alone. By the end of September, another three million are at risk, just as the economy begins to feel the cooling effects of higher interest rates and rising consumer debt burdens.
“The government may start garnishing wages as early as this month,” Turner warned. “And when you couple that with rising mortgage, credit card, and auto loan debt, you start to see how quickly household balance sheets become stressed.”
Welcome To The Real World
Student debt now hangs like an anchor for many borrowers, particularly those who financed degrees with uncertain job prospects or unrealistic financial expectations. According to U.S. News & World Report, the average student loan balance is around $30,000, with a typical monthly payment between $200 and $299. That may not sound overwhelming—especially over a 10- or 15-year term—but in the context of rising living costs and stagnant wage growth, it's proving unmanageable for many, Turner said.
“People are prioritizing the basics: food, shelter, and transportation,” Turner said. “Student loans often are placed on the back burner.”
Indeed, household consumer debt now consumes 5.5% of disposable income, the highest level since 2020. That doesn’t even include mortgage obligations, which chew up another 5.8%.
“It’s a matter of how someone manages their household debt and lives within their means,” Turner said. “That will definitely require some sacrifice and may still not be enough.”
The Ripple Effect
The economic consequences are already surfacing. In June, credit and debit card spending per household rose just 0.2% year-over-year, down from 0.8% in May. Retail spending grew slightly, but services spending declined for the third consecutive month—a sign that households are tightening their belts.
And for credit unions, this could be the beginning of a deeper challenge, Turner suggested.
“The other important factor is maintaining a higher level of surplus liquidity,” Turner emphasized. “For the rest of 2025, loan growth is dictated by the level of share growth - noting volatility in core deposits will continue through the rest of the year. To ignore this standard would create the same liquidity chaos of 2021-2024 for those credit unions that did not follow these same guidelines we put out then and found themselves with liquidity problems that caused cost of funds to more than double for some.”:
What Credit Unions Can—And Must—Do
While student loan exposure among credit unions is limited—just $6.9 billion in non-guaranteed student loans, representing 0.4% of total loans and 2.6% of net worth—there’s still credit risk to monitor. And most of that exposure is concentrated in larger credit unions, according to Turner.
Turner said student loan delinquencies are a warning signal, not a main cause of risk for credit unions. But the broader consumer stress they indicate is very real—and that’s what credit unions need to prepare for, he said.
“There is a little credit mitigation risk still associated with student loans that credit unions should consider—especially in light of rising delinquency in most other consumer loan portfolios,” Turner said. “In the meantime, credit unions should make sure at least 87% of current loan originations retained are at an aggregate B+ credit underwriting for the remainder of 2025.”