Over the past three years, the United States has witnessed a significant rise in interest rates, moving from 3% to around 8% on average for a home loan. This dramatic increase has had profound implications for 43 million Americans who collectively hold $2 trillion or more in adjustable debt. As a result, many individuals have suffered a substantial increase in their debt burden, particularly in the areas of auto loans, student loans, home loans, and credit card debt.

This financial strain could have been mitigated if leadership in Washington, D.C., had leaders taken steps to control interest rates and tax deductions for young people under 40, who are disproportionately impacted by debt.  According to the New York Fed, total household debt in the USA is about $17.69 trillion Mortgage balances increased by $190 billion this year to $12.44 trillion with about 10% of mortgages hammed with adjustable rates.

Below, we are only focusing on the data and debt burden that was increased on working families that is “adjustable in nature” and could have been mitigated by  those in control in Washington DC.

Here is the latest data available:

1. Student Loans: The value of outstanding student loans in the United States surpassed $1.73 trillion as of Q3 2023. Most of this debt consists of federal loans, and over 46 million Americans carry a student debt balance, with the average borrower owing around $30,000^..
2. Auto Loans Americans owe approximately $1.55 trillion on vehicle loans usually with adjustable interest and debt.^.
3. Adjustable Home Loans: About 10% of all home loans are adjustable with their interest rates around 8%  APR at this time.
4. Credit Cards: Credit card debt stands at over $1 Trillion, surpassing the pre-pandemic high of $927 billion².

Collectively, this is about $4.2 TRILLION that young people owe on loans if you add the 4 categories above.

Thus, the leaders of the USA overcharged our nations young working folks by a whopping $1 trillion in 3 years. The interest on $4,207 trillion at an 8% annual rate over 3 years is $1,093 trillion.

The Mechanics of Interest Rate Increases

Interest rates determine the cost of borrowing money. When rates are low, borrowing is cheaper, and conversely, when rates rise, borrowing becomes more expensive. Over the span of three years, this five-percentage-point increase has compounded the financial strain on borrowers.

Auto Loans

If you buy a $40,000 car with a 3% interest rate on a 5-year loan, the monthly payment would be approximately $718.75. If the interest rate increases to 8%, the monthly payment would be approximately $811.06. The difference in the monthly payment would be approximately $92.31 or another $1,107.70 per year.

Student Loans

Many student loans are fixed-rate, but a significant portion of private student loans and some federal loans are variable-rate, meaning they fluctuate with market interest rates. A $50,000 student loan at 3% interest results in a monthly payment of around $483 over a standard 10-year repayment plan. With the interest rate increased to 8%, the monthly payment balloons to approximately $606. Over the loan’s lifetime, this results in an incredible $14,760 in extra interest payments.

Home Loans

Home loans, or mortgages, represent the largest share of household debt. The increase in interest rates from 3% to 8% has been particularly devastating for new homebuyers and those looking to refinance.

For a $300,000 mortgage, the monthly payment at 3% interest would be about $1,265. At 8% interest, the monthly payment skyrockets to approximately $2,201. Over a 30-year loan, this difference amounts to an additional $336,960 in interest payments, making home ownership impossible for many Americans.

Credit Card Debt

Credit card debt is often the most costly due to its typically high interest rates. With the average credit card interest rate now exceeding 20%, the increases are extremely hurtful to those who need to borrow money to pay for food and essentials. For a $10,000 credit card balance: At 14% interest, the monthly payment would be approximately $897.87. At 25% APR interest, the monthly payment would be approximately $950.44. The difference in the monthly payments would be approximately $52.57. Each family would pay approximately $630.85 extra per year, which is essentially a tax on the poor.

Aggregate Impact & the Missed Opportunity for Relief

The burden of these increased costs could have been significantly reduced if policymakers had taken steps or executive orders to restrain interest rates specifically for young people under 40, who are more likely to have substantial home debt, auto debt, school debt, and credit card debt in the midst of the devastating inflation today.

Young adults are in a critical phase of building their financial foundations. Homeownership, education, and transportation are essential for their economic mobility and stability. By implementing targeted interest rate caps, tax subsidies, or expanded EITC Credits for this demographic, the federal government could have alleviated a significant portion of the financial strain.

Conclusion

To put it bluntly, if you divided $1 trillion in interest-overcharges and divide that amount by 43 million Americans, the government sucked an extra $23,255 out of every working family in America in just 3 years, which is worse than a tax. 

Everyone had to pay taxes on the income, and then give the leftover to the government and banks due to higher interest rates gouging the working poor.   The extra money was taken by the government, banks and Federal Reserve without any thought to the bankrupting of main street America. Further, this creates artificial inflation on the debt and robs all discretionary income from the working class and inner cities.

I spoke with a young cosmetologist and she just bought a car and is paying over 10% on the auto loan even with her husband in the military.  This is a disgraceful debt burden on hard working kids while much of America gets a tax-free income, tax free housing, tax free food,  and tax free health care in the form of public assistance and subsidies.

The rise in interest rates from 3% to 8% over the past three years has undeniably created a significant financial burden for millions of Americans. The additional interest payments, amounting to over $1 Trillion in new expenses for working families, could have been avoided with more proactive and targeted economic policies.

Sadly, Nearly 9% of credit card balances and 8% of auto loans (annualized) transitioned into delinquency which is passed on to working taxpayers and the national debt.   Addressing this issue now requires a multifaceted approach, including policy interventions, financial education, and support for debt management, to help alleviate the pressure on affected households and prevent similar situations in the future.
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Commissioner George Mentz JD MBA CILS CWM® is the first in the USA to rank as a Top 50 Influencer & Thought Leader in: Management, PM, HR, FinTech, Wealth Management, and B2B according to Onalytica.com and Thinkers360.com. George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a EU accredited graduate body that trains and certifies professionals in 150+ nations under standards of the: US Dept of Education, ACBSP, ISO 21001, ISO 991, ISO 29993, QAHE, ECLBS, and ISO 29990 standards. Mentz is also an award winning author and award winning graduate law professor of wealth management of one of the top 30 ranked law schools in the USA.