"The uneven burden of money's higher cost"-- Christian Science Monitor

A very informative article- Get ready for higher interst rates! Of course, it's the poorest and those who borrow to attend college who will get hit the hardest.


from the March 21, 2005 edition

The uneven burden of money's higher cost

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – The cost of being a borrower is rising.

<snip>

The steady Fed rate hikes means costs have risen for many financial institutions who are now passing that added expense on to their borrowers.
Mr. Zandi estimates the rate hikes over the past year have cost consumers about $15 billion. Another four rate increases this year would mean that money would cost about $25 billion more than last spring. This would be equal to about .3 percent of consumer spending, which grew by 6 percent last year. "It's small but measurable," says Zandi. "It's one more reason to think consumers will not be leading the way as they have in recent years, and this will be particularly felt by lower- and middle-income households."
About two-thirds of all "sub-prime loans," mostly made to lower- and middle-income people, moves up and down with changes in interest rates.

<snip>

On July 1, more than $200 billion in education loans will have their interest rates reset by lenders. Currently, students are paying 2.77 percent on their loans and parents are paying 4.17 percent. Based on where interest rates are today, those rates would be reset to 4.49 percent for students and 5.9 percent for parents. On a $20,000 loan, borrowers would pay an extra $2,000 more in interest over the life of the loan, according to Sallie Mae, the nation's largest provider. (Students can lock in a lower rate if they consolidate their loan before July 1. This commits them to pay off the loan over a long term, perhaps as long as 30 years.)

<snip>

Car buyers will also notice the higher rates. Last year, some 17 million new cars were purchased and 42 million used cars. According to CNW Research, some 70 percent of new cars were bought with some kind of loan.

Nationally, the average rate on a car loan has risen from 5.21 percent last March to 6.32 percent today, according to bankrate.com. On a $20,000 loan to be repaid over 60 months, the higher rates would add $500 to the cost of the loan, estimates Brian Reed, a vice president of Capital One Auto Finance in San Diego which is charging 4.99 percent for its loans. "With interest rates rising, consumers need to have the same rigor in researching the financing of the car as they do for the price of the vehicle," says Mr. Reed.

<snip>

http://www.csmonitor.com/2005/0321/p01s01-usec.html

The inflation that would cause would hurt the lower classes a great deal more than slightly higher debt service costs.

But the Bush administration has created an economy that will breed rampant inflation over the next few years as the world wakes up to the reality that America has become SO fiscally irresponsible that it may default on its Treasury notes or it may pay back its borrowers with worthless, banana republic-style funny money.

One of the big factors that has brought us to this point is massive tax cuts for the rich. The well-off will be able to weather a financial crisis. It's the borrowing class and the students who will feel the most pain.