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After years of managing household budgets through the stress of the worst inflation in a generation, U.S. families are increasingly pressured by a different kind of financial squeeze: The cost of carrying debt, according to a Bloomberg News analysis. Two years after the Federal Reserve began hiking interest rates to tame prices, delinquency rates on credit cards and auto loans are the highest in more than a decade. For the first time on record, interest payments on those and other non-mortgage debts are as big a financial burden for U.S. households as mortgage interest payments. The figures suggest a difficult reality for the millions of consumers who are the engine of the U.S. economy: The era of high borrowing costs — however necessary to slow price increases — has a sting of its own that many families may feel for years to come, especially the ones that haven’t locked in cheap home loans. And the Fed, which meets next week for a policy decision, doesn’t appear poised to cut rates until later in 2024. As monthly debt payments take up more of workers’ paychecks, those consumers are more exposed to potential economic contractions. And the cost of money affects people’s perception of their own prosperity: A February paper from IMF and Harvard University researchers posits that the recent high cost of borrowing — which isn’t captured in inflation figures — is key to understanding why consumer sentiment remains lackluster even as inflation has moderated and businesses are hiring at a healthy pace.

Treasury Secretary Janet Yellen said she expects that a moderation in the rise of housing costs will help deliver lower inflation in 2024, Bloomberg News reported. Shelter costs carry the biggest weighting in the consumer price index, accounting for about a third. They made an outsized contribution to overall inflation in 2023, and that’s continued this year despite reports that new lease agreements have increased at a much slower pace or in some cases even declined. “It takes a while for that to filter into the CPI,” Yellen said Wednesday in an interview with Fox Business. “And so I have every expectation that the single largest contributor to inflation is going to be moving down over this year.” Government data released Tuesday showed that a key measure of inflation topped economists’ expectations for a second straight month in February. Though many goods continued to show price declines, a jump in gasoline helped drive the overall consumer price index 3.2% higher than a year ago. The core measure, which excludes food and energy and is viewed as a better guide to underlying price trends, rose 3.8%.

The White House is proposing tweaks to the student-loan program that could make the loans less costly for borrowers. As part of the White House budget proposal released Monday, the Biden administration is asking Congress to eliminate origination fees on student loans and make permanent a COVID-era law that excludes some student-loan forgiveness from income for tax purposes, MarketWatch.com reported. The proposals on student debt fit into the White House’s broader efforts to find ways to reform the student-loan system after the Supreme Court struck down President Joe Biden’s plan to cancel student debt for a wide swath of borrowers. The budget proposals are far from established law. Instead, the document is a signal to Congress and the public of the president’s priorities. Still, there may be appetite in Congress to take up some of the president’s proposals, including the plan to ax student-loan origination fees. Bipartisan legislation that would do just that is currently working its way through Congress. Federal loans for undergraduates carry a 1% origination fee. As a result of the fees, “students borrow a dollar but only get 99 cents for their educational expenses,” Undersecretary of Education James Kvaal told reporters Monday. Graduate students and parents using the government’s PLUS program pay an even steeper origination fee of 4%. The average graduate student in a two-year program pays roughly $1,287 in fees if they’re paying back the debt on a 10-year timeline, according to a 2023 analysis from the National Association of Student Financial Aid Administrators. For the average undergraduate student in a four-year program, that cost could come to $231 over 10 years, NASFAA found.

Even as unemployment remains historically low and recession fears fade, consumer credit scores are starting to buckle. The national average FICO score dipped to 717 as of October, down from 718 in July, according to data released Wednesday by FICO, an analytics company that evaluates the strength of borrowers, CNN.com reported. Although FICO scores remain near record highs — and well above pre-pandemic levels — this marks the first drop in a decade. “The effects of high interest rates and persistent inflation may be starting to weigh on consumers, especially those already struggling to manage their finances,” Can Arkali, FICO’s senior director of scores and predictive analytics, wrote in the report. FICO said the one-point drop in credit scores in late 2023 was driven by an increase in Americans missing payments and also by rising debt levels. The last time credit scores fell was between April and October 2013, when the average FICO score dropped by two points, to 690. Credit scores have steadily increased since then — even during the turmoil of the COVID-19 pandemic. Although job loss spiked during Covid, stimulus checks and forbearance from banks and credit card companies helped many consumers avoid financial trouble.

The Federal Reserve said yesterday that total consumer credit rose $19.5 billion in January, up from a slight $919 million gain in the prior month, MarketWatch.com reported. That translates into a gain at a 4.7% annual rate, up from an 0.2% rise in December. The increase was almost double expectations. Revolving credit, like credit cards, accelerated at a 7.7% rate after a 2.4% gain in December. Non-revolving credit, typically auto and student loans, rose 3.6% after a 0.6% drop in the prior month. That category of credit is typically much less volatile. The Fed's data does not include mortgage loans, which is the largest category of household debt.

The federal government is likely to win in its lawsuit against Strategic Financial Solutions, a debt negotiation company, according to a magistrate judge’s preliminary injunction granted this week that keeps it from operating, the New York Times reported. For years, Strategic Financial Solutions collected fees from thousands of low-income clients who enrolled with the company to negotiate down their debts. In January, the Consumer Financial Protection Bureau — along with the attorneys general of New York, Colorado, Delaware, Illinois, Minnesota, North Carolina and Wisconsin — sued Strategic and its operators, including its chief executive, Ryan Sasson, on civil fraud charges. In interviews with former employees and former customers of Strategic, many described the company as predatory and said its services often left people financially worse off. The company works with a nationwide network of accomplice law firms. Customers think they’re paying those firms to represent them in the high-risk process of debt settlement, but instead they are often funneled toward call-center workers with no legal training, and are sometimes unrepresented in legal proceedings. This week, a federal judge in the Western District of New York said that the debt-relief program run by Strategic and its associated law firms does not provide “appreciable economic benefit” to its customers, and that many who sign up for the “program are negatively impacted.”

President Joe Biden’s administration is announcing a final rule curtailing credit card late fees, one of a series of steps to try and drive down everyday costs for households that are weighing on his approval rating as he seeks reelection, Bloomberg News reported. The Consumer Financial Protection Bureau estimates its move to slash credit card late fees would save an average of $220 per year for 45 million people who incur such penalties. Currently, firms can charge $30 for a first missed payment, and up to $41 if a consumer misses a second payment within six months. The new rule, first proposed in February 2023, would now cap late fees at $8, unless a company can prove a higher fee is necessary to cover payment collection costs. If implemented as proposed, Bloomberg Intelligence analysis predicts credit card issuers could lose as much as $9 billion of their annual $12 billion in late fees. The measure is one of several announced at a Tuesday meeting of the White House Competition Council, where Biden spoke. The administration also said it finalized a rule intended to help farmers and ranchers against deceptive practices by meat processors, and a new effort by the Justice Department and the Federal Trade Commission to fight deceptive pricing practices.

Arizona Gov. Katie Hobbs (D) announced a program on Monday that will cancel $2 billion in medical debt for Arizonans, The Hill reported. “Today, I am so proud to announce that we are taking steps to retire medical debt for up to an estimated 1 million Arizonans,” Hobbs said at a press conference Monday. “That’s a fresh start, a new chapter and a huge weight taken off the shoulders for every single one of them.” Hobbs said that by using up to $30 million in American Rescue Plan Act funds, Arizona is “working with partners” at the nonprofit RIP Medical Debt to buy back “up to approximately $2 billion worth of medical debt held by Arizonans.” “Hard-working, middle class Arizonans should not be forced to have those difficult kitchen table conversations because of medical debt from conditions they cannot control,” Hobbs said. Hobbs’ announcement follows the unveiling of another plan to cancel medical debt by Connecticut Gov. Ned Lamont (D), which includes using $6.5 million in funds from the American Rescue Plan Act for the cancellation of $1 billion of medical debt, also working with a nonprofit that buys and eliminates debt.