Tag: Student loans

The Federal Reserve may not cut interest rates just yet. Here’s what that means for your money

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Economists expect the Federal Reserve to leave interest rates unchanged at the end of its two-day meeting this week, even though many experts anticipate the central bank is preparing to start cutting rates in the months ahead.

In prepared remarks earlier this month, Federal Reserve Chair Jerome Powell said policymakers don’t want to ease up too quickly.

Powell noted that lowering rates rapidly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

But in the meantime, consumers won’t see much relief from sky-high borrowing costs.

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In 2022 and the first half of 2023, the Fed raised rates 11 times, causing consumer borrowing rates to skyrocket while inflation remained elevated, and putting households under pressure.

With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” said Silvio Tavares, CEO of credit scoring company VantageScore.

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

Even once the central bank does cut rates — which some now expect could happen in June — the pace that they trim is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.

“Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.

Here’s a breakdown of where consumer rates stand now and where they may be headed:

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, McBride said.

“If the Fed cuts rates twice by a quarter point, your credit card rate will fall by half a percent,” he said.

Mortgage rates

Fifteen- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. But anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

Rates are already significantly lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is around 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate, and those rates remain high.

“The reality of it is, a lot of borrowers are paying double-digit interest rates on those right now,” McBride said. “That is not a low cost of borrowing and that’s not going to change.”

Auto loans

Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

Federal student loans

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

Savings rates

While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.

Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he advised. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”

Currently, one-year CDs are averaging 1.73%, but top-yielding CD rates pay over 5%, as good as or better than a high-yield savings account.

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Explained | The U.S. student loan crisis and Joe Biden’s new cancellation plan

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The story so far: United States President Joe Biden has already released a new plan to cancel billions in student loan debt after the conservative majority Supreme Court of the U.S. (SCOTUS) in a 6-3 decision on June 30 blocked his ambitious plan to cancel $430 billion in debt.

Although Mr. Biden has said the alternative plan is consistent with the Supreme Court ruling, it could still face a legal challenge, while the fate of millions of American borrowers — who may have to start repaying their loans once a pause on repayment lifts — hangs in the balance.

How big is the U.S. student loan debt?

As per the latest Federal Reserve figures, more than 45 million Americans owe a total of $1.77 trillion in student debt to the U.S. government. As per the Congressional Research Service (CRS), approximately 63% of the U.S. population over the age of 25 has at some time enrolled in some level of higher education and roughly 17% of the country’s population aged 18 or above has federal student loans. Meanwhile, the median student loan debt is just above $17,000.

Research by the nonprofit College Board suggests that over the past three decades, the cost of higher education has risen sharply in the U.S., doubling at private four-year colleges and universities and rising even further at public four-year schools. Between 2006 and 2019, the outstanding balance of student loans has nearly quadrupled.

In the U.S., the federal government is the primary source of student loans, running several loan programmes to help students and their families finance higher education.

These loans are authorised under Title IV of the Higher Education Act of 1965 (HEA). Under primary loan programmes, the U.S. government makes loans using federal capital, meaning funds from the U.S. Treasury Department, after which the outstanding loans become assets of the federal government.

What are repayment options for borrowers?

Once a student borrows a federal loan, they enter into a contractual obligation to repay the loan with interest. They can sign up for specific repayment plans, with repayment periods spanning a decade or more. Under a standard 10-year repayment plan, a borrower has to make 120 equal payments of principal and interest spread over a decade.

Then there are Income-driven repayment (IDR) plans, the kind that President Biden wanted to alter in order to cancel student debt. Such plans cap the monthly payment installments at a share of the borrower’s discretionary income, say 10%- 15%; extend the repayment period over a span of 20 or 25 years, and forgive or write off any unpaid principal and interest remaining after that period.

What was Mr. Biden’s original student debt cancellation plan?

The plan, announced in August 2022, was supposed to cancel $10,000 in federal student loan debt for those making less than $125,000 a year or households making less than $250,000. The recipients of the government’s Pell Grant, who usually need more financial assistance, were to get an additional $10,000 worth of their debt forgiven.

College students qualified if their loans were disbursed before July 1. The plan made 43 million borrowers eligible for some debt forgiveness, with 20 million possibly having their debt erased entirely, according to the Biden administration.

The White House said 26 million people had applied for debt relief, and 16 million people already had their relief approved. As per the Congressional Budget Office, the program would cost about $400 billion over the next three decades.

The Education Department also proposed to improve the existing income-driven plan mentioned above, capping monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, down from the current 10%. The administration claimed that the plan would mean lowering of the average annual student loan payment by more than $1,000 for both current and future borrowers.

Why did the plan run into trouble?

There were two legal challenges to the plan which landed in the Supreme Court—one involving six Republican-led States and the other filed by two students.

In the case filed by the students, they argued, among other things, that the Biden administration didn’t go through the proper process in enacting the plan. Texas-based U.S. District Judge Mark Pittman, appointed by former President Donald Trump, opined that Mr. Biden overstepped his authority. To cancel the debt, the Biden government relied on the Higher Education Relief Opportunities for Students Act, commonly known as the HEROES Act, which was enacted in the aftermath of the 9/11 attack and allows the Secretary of Education to waive or modify terms of federal student loans during times of war or national emergency. The White House cited the COVID-19 pandemic as a national emergency.

The ruling, however, argued that the HEROES Act did not accord the Secretary the authority for mass debt cancellation. The judge said it only granted flexibility during national emergencies, adding that it was unclear whether debt cancellation was a necessary response to the COVID-19 pandemic, which Mr. Biden had by then declared as over.

As for the suit by the six States— Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina— a lower court dismissed it, ruling that the States could not challenge the programme as they were unable to show that they wereharmed by it.

However, the case went to a panel in the U.S. Court of Appeals for the 8th Circuit, where all judges Republican President appointees, which put the programme on hold the next day. After this, the Supreme Court agreed to weigh in.

On June 30, SCOTUS held that the administration needs Congress’ endorsement before undertaking such a costly programme. The majority rejected arguments that the bipartisan 2003 HEROES Act gave Mr. Biden the power he claimed.

“Six States sued, arguing that the HEROES Act does not authorize the loan cancellation plan. We agree,” Chief Justice John Roberts wrote for the court.

Justice Elena Kagan dissented, joined by the court’s two other liberal judges, writing that the majority of the court “overrides the combined judgment of the Legislative and Executive Branches, with the consequence of eliminating loan forgiveness for 43 million Americans.”

What is the Biden administration’s new plan and what’s next for borrowers?

The president announced on the day of the Court ruling that the Education Secretary had initiated a new rulemaking process for the alternative plan, this time using the Secretary’s authority under the Higher Education Act, 1965, the law governing most federal student loan programmes, as mentioned above.

“I’m announcing today a new path consistent with today’s ruling to provide student debt relief to as many borrowers as possible as quickly as possible,” Biden said. “We will ground this new approach in a different law than my original plan, with the so-called Higher Education Ac,” the President said. The plan is also going to take longer as the actual process of negotiated rule making could take as far as fall this year.

While the President contends the new path is consistent with the Court’s opinion, legal scrutiny could be expected. Meanwhile, advocate and legal scholar Luke Herrine, an assistant professor of law at the University of Alabama, wrote in a 2019 paper that the “compromise and settlement” authority, a clause in the HEA, empowers the Secretary of Education with the broad authority to “compromise, waive, or release’’ federal student debt.

Instead of the current Revised Pay as You Earn (REPAYE) plan, the income-driven plan Mr. Biden’s original programme sought to alter, the administration has proposed the new Saving on a Valuable Education (SAVE) plan. “This income-driven repayment plan will cut borrowers’ monthly payments in half, allow many borrowers to make $0 monthly payments, and save all other borrowers at least $1,000 per year,” says the factsheet on the plan. 

The specifics remain the same— requiring borrowers to pay half the current share of discretionary income at 5%. Instead of forgiving loan balances after 20 years of annual payments, this plan also forgivesoutstanding principal after 10 years. Additionally, the plan seeks to raise the amount of income that is considered non-discretionary and therefore is protected from repayment. As for borrowers currently facing uncertainty, the President says they will be able to enroll for SAVE later this summer, “before any monthly payments are due.” Borrowers who sign up or are already signed up for the REPAYE plan will be automatically enrolled.

Mr. Biden also announced an alternative to the pause on student loan repayments scheduled to restart at the end of the summer: a temporary 12-month “on-ramp” for repayment, from October 1, 2023 to September 30, 2024, during which missed loan payments will not harm borrowers’ credit and the threat of default will be temporarily removed.

What are the arguments for and against broad loan cancellation?

Numerous federal student loan repayment and forgiveness programmes providing targeted relief to individuals in certain circumstances currently exist. However, proposals for broader-scale student loan debt relief—including cancellation of all or a portion of federal student loan debt—have gained considerable attention in recent years.

As the cost of education increases while wages stagnate, it has become harder for students to pay off their loans. Studies also point out how federal grants and scholarships have not kept pace with the increasing cost of education and attendance.

President Biden has explained the need for loan cancellation by arguing that higher education “should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity.” A White House factsheet notes that middle-class American borrowers struggle with high monthly payments and “ballooning balances that make it harder for them to build wealth, like buying homes, putting away money for retirement, and starting small businesses.”

CRS Research also points to the composition of borrowers, of which “black students were more likely to borrow Title IV” HEA loans for undergraduate and graduate education “relative to any other racial or ethnic subgroup”. It also finds that certain groups of borrowers (Black, American Indian, and lower-income borrowers) have made less progress in paying down the original principal of debt when compared with other borrowers.

The government also noted how student debt burden falls disproportionately on Black borrowers. “Twenty years after first enrolling in school, the typical Black borrower who started college in the 1995-96 school year still owed 95% of their original student debt,” the White House factsheet on student debt reads.

On the other hand, critics of broad-based cancellation of loans point out how one-time loan cancellation may fail to address the underlying causes of crushing loan debt. One major cause is the skyrocketing cost of education and the need for an overhaul of the system. Another factor flagged by studies is the increasing availability and utilization of loan repayment plans that allow borrowers to make monthly payments lower than the interest accruing on their loans, meaning negative amortization ​​which may result in a larger outstanding loan balance over time.

Analysts have highlighted that policies providing across-the-board loan cancellation may result in higher-income households receiving more cancellation benefits compared to lower-income households when the total dollar amounts cancelled or the savings in annual debt service payments are looked at. Besides, large cancellation plans may also significantly impact federal budgets and debt.

(With inputs from Reuters, Associated Press)

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White House budget assumes student-debt forgiveness will move forward

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Borrowers across the country are in financial limbo as they wait for the Supreme Court to decide whether the White House’s student-debt cancellation plan is legal. But the Biden administration’s own financial planning presumes the initiative will survive the courts. 

As part of the Department of Education’s funding request to Congress for $2.7 billion for the Office of Federal Student Aid, officials took the costs and savings into account of President Joe Biden’s plan to cancel up to $20,000 in student debt for a wide swath of borrowers, Undersecretary of Education James Kvaal said on a conference call with reporters Thursday.  

The “budget assumes that we will move forward,” with the plan, Kvaal said. 

The fiscal-year 2024 funding request unveiled Thursday marks the latest salvo in a battle over the money Congress will give FSA. If the courts allow the Biden administration’s debt-relief plan to move forward, FSA would be charged with implementing it. That’s made FSA funding a flashpoint for congressional Republicans in recent months. But FSA is also responsible for almost every aspect of the financial-aid and student-loan system, something that could be put at risk if the office doesn’t get enough money from Congress. 

Biden administration officials didn’t provide much detail on the call with reporters about how debt cancellation impacted the Department of Education’s request for funding for FSA. Implementing the debt-relief plan would likely be a cost, but wiping borrowers off the books could also save the agency money because there would be fewer accounts to deal with. 

“My assumption is that if you take cancellation into account, the budget request would be smaller than it would be if you assume cancellation is not happening,” said Sarah Sattelmeyer, the project director for education, opportunity and mobility in the Higher Education Initiative at New America, a think tank.  

That could create challenges if the court strikes down debt cancellation, she said. “The bottom line is, really we need to make sure there are sufficient resources for any situation that might happen with FSA,” she said. “That’s the most important because when there aren’t sufficient funds, students and borrowers bear the brunt of that.” 

Like the IRS, FSA may not ‘seem sexy,’ but it’s important

Though FSA is not a household name, the office is in charge of all sorts of seemingly wonky tasks that touch almost every student and borrower. FSA oversees the Free Application for Federal Student Aid, which college students use to apply for loans and grants; it disperses student loans to borrowers; manages the companies collecting student-loan payments; monitors colleges for wrongdoing and more. 

That’s why many researchers and student-loan borrower advocates were concerned when Congress level-funded FSA last year, despite a request from the Department of Education for an uptick of $800 million. Congressional Republicans touted the decision as providing “no new funding for the implementation of the Biden administration’s student-loan forgiveness plan.” 

Dominique Baker, an associate professor of education policy at Southern Methodist University, compared FSA to the Internal Revenue Service. “It doesn’t always seem sexy,” to lawmakers to increase funding for these types of bodies, she said, but a lack of funds can have a real impact. 

She cited delays in borrowers qualifying for relief under already existing programs as one impact of an underfunded FSA. Last year, the Department of Education said that student-loan servicers weren’t properly tracking the number of payments borrowers made toward qualifying for forgiveness under certain student-loan repayment plans.   

“It is important to ensure that college is affordable,” Baker said. “It is sometimes easier to talk about funding pieces that make college more affordable than it is to talk about compliance and regulatory bodies that are ensuring that this one piece of paper that gets shuffled over to this other desk happens in a timely manner.” If it doesn’t, she added, “you will accidentally pay five months of extra loan payments past when your debt should have been canceled.”  

Over the past few years, FSA has been asked to do even more than what’s typically required. Many of the Biden administration’s initiatives to improve the student-loan experience, including making it easier for borrowers to access Public Service Loan Forgiveness and proposing sweeping changes to the way borrowers repay their student loans, fall under FSA’s purview. 

In addition, FSA is in the middle of overhauling its student-loan servicing contracts in an aim to provide a better experience for borrowers. Things like giving more direction to student-loan servicers about how they communicate with borrowers about their loans, and ensuring student-loan companies are more responsive to issues borrowers and regulators have raised in litigation, are part of that effort and will require resources, said Clare McCann, a higher-education fellow at Arnold Ventures.

“All of that is incredibly important to making sure borrowers are going to have a smooth transition back into repayment, when that does happen,” she said. 

It’s too early to say which of these priorities could be at risk because of Congress’ decision to level-fund FSA last year, Sattelmeyer said. “We don’t have a great idea yet of the tradeoffs FSA is going to make, but they’re going to have to make tradeoffs,” she said. 

For fiscal-year 2024, the Biden administration has asked for a $620 million increase over the amount that Congress enacted for fiscal-year 2023. And if FSA doesn’t get that funding increase, researchers and advocates worry the office will continue to have to make tradeoffs that could hurt students and borrowers.

“D.C. is and remains a political town,” Sattelmeyer said of the possibility that the department’s funding increase for FSA could fall victim to the same forces that scuttled it last year. “I can’t predict the future, but I can say that it is really important to message,” through the budget, “that FSA needs additional resources,” she said. “It’s also important for practitioners and advocates and others in this space to be pushing for additional resources.” 

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GoFundMe fundraisers for college tuition are up by more than 50% over last year

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College students are increasingly turning to crowdfunding to help cover their education expenses, according to new data from the fundraising platform GoFundMe.

GoFundMe fundraisers for tuition money are up more than 50% compared to last year, and both college and trade school fundraising are up 30%, a GoFundMe spokesperson said.

The rise in students seeking donations comes as the cost of higher education is in the national spotlight. The U.S. Supreme Court this week heard arguments in two cases involving President Joe Biden’s stalled student-loan cancellation plan, which could help an estimated 40 million borrowers erase up to $20,000 each in student-loan debt.

The average published price for tuition, fees, room and board at a four-year private college is $53,430 for the 2022-23 school year, up from $51,690 in 2021-22, according to the College Board’s Trends in College Pricing and Student Aid report. 

Tuition and fees at four-year private colleges are 4.5 times higher than they were in 1992-93. For in-state students at public four-year universities, the average published tuition, fees, room and board for 2022-23 is $23,520, up from $22,700 in the previous year.

Changes in the published price, or sticker price, “tend to garner the most media attention,” the College Board said in its report. “However, it is important to note that the majority of undergraduate students do not pay the full sticker price.” 

College tuition hasn’t risen as fast as other prices amid roaring inflation, but higher education remains unaffordable in the U.S., and has been for a long time, said Robert Kelchen, a higher education professor at the University of Tennessee, Knoxville. The uptick in tuition-related GoFundMe campaigns is another sign that concern about college affordability is now “front and center” in Americans’ consciousness, more than it was five or 10 years ago, Kelchen said.

While schools have kept tuition increases relatively low over the past few years, other costs associated with college have shot up, especially living expenses, he noted. “Housing, dining, things like that, whether you’re on campus or off, they’ve both gotten more expensive,” Kelchen said.

Students use a combination of their own money, grants (which don’t have to be repaid), and loans to cover their education bills. More than half (54%) of bachelor’s degree recipients graduated with debt in 2020-21, and the average debt was $29,100, according to the College Board.

Reducing the financial burden

Reducing the financial burden created by higher education would require one or both of two major changes, Kelchen said. “You either have to give students more money to go to college, or you have to try to make providing an education less expensive, so spend less money per student on education.” He added, “It’s the same issue we run into with healthcare. The cost of providing it has gone up, and people don’t want to pay it. It’s expensive.”

The parallel to healthcare costs is relevant in the context of GoFundMe: people often turn to the platform for help paying medical bills, often after a surprise diagnosis or accident. Similar to how GoFundMe campaigns serve as financial Band-Aids for systemic issues, canceling student-loan debt would be a “temporary fix” that would not solve the root causes of why students take out debt, Kelchen noted.

GoFundMe promotes itself as a solution for cash-strapped students, referring to itself as “the leader in online education fundraising” on its site. It says it hosts more than 100,000 education fundraisers per year, raising more than $70 million annually. GoFundMe offers tips on how to host a successful fundraiser for college costs, suggesting that students promote their fundraiser to alumni of their school and share their “hopes and aspirations” in their fundraiser story.

Students considering using crowdfunding for college costs should first make sure they understand how their school will treat the money when calculating their financial aid package, said Karen McCarthy, vice president for public policy and federal relations at the National Association of Student Financial Aid Administrators. Donations made to personal GoFundMe fundraisers are generally considered to be “personal gifts” which, for the most part, are not taxed as income in the United States, a  GoFundMe spokesperson said. GoFundMe charges a transaction fee of 2.9% + $0.30 per donation. 

Students who’ve sought donations on GoFundMe recently include a Sacramento nursing student who said she needed to pay off a $4,600 balance before she could take her exit exam and graduate from her program; a sophomore art student in Santa Fe who said an “unexpected circumstance” left him with a $3,176 fee bill; and a student looking for $3,800 to finish her culinary degree at a Virginia community college.

Several of the tuition-related campaigns on GoFundMe appear to be for students in financial straits because of unanticipated setbacks. One silver lining of the pandemic is that colleges and universities have become more equipped to help students cope with such financial emergencies, McCarthy said. That’s because when federal pandemic relief money was flowing to college campuses, schools handed out emergency grants to students. In tracking how the money was spent, schools learned a lot about the types of surprise costs that can sometimes force students to drop out of college, McCarthy said.

Pandemic relief money is gone now, but some schools have set up their own emergency grant funds to help students bridge sudden financial gaps. “A lot of institutions really became aware of the emergency needs that their students have and how they might move forward in meeting those needs,” McCarthy said. “The development of some of those emergency-aid programs may help students meet those needs so they don’t have to resort to things like crowdfunding.”

See also: This 72-year-old hopes to retire one day — as soon as she raises enough money on GoFundMe

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The Federal Reserve is about to hike interest rates one last time this year. Here’s how it may affect you

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The Federal Reserve is expected on Wednesday to raise interest rates for the seventh time this year to combat stubborn inflation. 

The U.S. central bank will likely approve a 0.5 percentage point hike, a more typical pace compared with the super-size 75 basis point moves at each of the last four meetings.

This would push benchmark borrowing rates to a target range of 4.25% to 4.5%. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

Why a smaller rate hike may be ‘pretty good news’

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases. 

“For most people this is pretty good news because prices are starting to stabilize,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School. “That’s going to bring a lot of reassurance to households.”

However, “there are some households that will be hurt by this,” she added — particularly those with variable rate debt.

For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

But it doesn’t stop there.

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What the Fed’s rate hike means for you

Another increase in the prime rate will send financing costs even higher for many other forms of consumer debt. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

“Credit card rates are at a record high and still increasing,” said Greg McBride, chief financial analyst at Bankrate.com. “Auto loan rates are at an 11-year high, home equity lines of credit are at a 15-year high, and online savings account and CD [certificate of deposit] yields haven’t been this high since 2008.”

Here’s a breakdown of how increases in the benchmark interest rate have impacted everything from mortgages and credit cards to car loans, student debt and savings:

1. Mortgages

Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

“Though they are falling, mortgage rates are still at a more than 10-year high,” said Jacob Channel, senior economic analyst at LendingTree.

The average rate for a 30-year, fixed-rate mortgage currently sits at 6.33%, down from mid-November, when it peaked at 7.08%.

For would-be buyers, a 30-year, fixed-rate mortgage on a $300,000 loan would cost about $1,283 a month at last year’s 3.11% rate. If you paid today’s 6.33% instead, that would cost an extra $580 a month or $6,960 more a year and another $208,800 over the lifetime of the loan, Channel calculated.

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rises, the prime rate does, as well, and these rates follow suit. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.3% from 4.24% earlier in the year.

2. Credit cards

Credit card annual percentage rates are now more than 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

“Even those with the best credit card can expect to be offered APRs of 18% and higher,” said Matt Schulz, LendingTree’s chief credit analyst.

But “rates aren’t just going up on new cards,” he added. “The rate you’re paying on your current credit card is likely going up, too.”

Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, making it even harder for those carrying a balance from month to month.

If the Fed announces a 50 basis point hike as expected, the cost of existing credit card debt will increase by an additional $3.2 billion in the next year alone, according to a new analysis by WalletHub.

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.05%, up from 3.86% at the beginning of the year, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6.05% instead of 3.86% could cost consumers roughly $5,731 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s primarily causing an affordability crunch, McBride said.

4. Student loans

The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 2.99% to 14.96%, and 2.99% to 14.86% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

5. Savings accounts

On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” said Ken Tumin, founder of DepositAccounts.com.

“Banks make money off of customers who don’t monitor their interest rates,” Tumin said.

With balances of $1,000 to $25,000, the difference between the lowest and highest annual percentage yield can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, according to an analysis by DepositAccounts.

Still, any money earning less than the rate of inflation loses purchasing power over time. 

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