Financial life in a big town

With little more than three months until the interest rates on federally subsidized student loans double, students are pushing lawmakers to help them out.

On July 1, the interest rate on federal subsidized loans will double to 6.8%. That means students taking out loans for the next school year will eventually dig deeper in their pockets to pay them off.

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Nearly 8 million students have subsidized student loans, which means the federal government subsidizes the interest rate for lower- and middle-income families based on financial need.

Without congressional help, students borrowing the maximum $23,000 in subsidized loans are poised to pay an extra $5,000 over a 10-year repayment period.

That’s why the consumer advocacy group U.S. Public Interest Research Group delivered 130,000 student petitions to lawmakers on Capitol Hill on Tuesday, asking Congress to stop the rates from doubling.

College degree = $650,000 more in earnings

"We’ve got 110 days to fix this problem," said Rep. Joe Courtney, a Connecticut Democrat, who is sponsoring a bill to extend current interest rates. "Middle class families, every single day, are struggling in terms of making sure their kids have a chance to succeed in life."

Subsidized student loan interest rates used to be 6.8%. But when Democrats took over the House in 2007, they passed phased-in cheaper rates for subsidized student loans. The rates fell to a current low of 3.4% for subsidized Stafford loans this past school year. The rates are scheduled to revert back to 6.8% for the 2012-2013 school year.

Student loans are a big deal. The Federal Reserve of New York last week reported that the $870 billion in student loan debt tops $693 billion in credit card debt and $730 billion car loan debt.

And with unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school, according to new data by Equifax. Last year, new student loans grew by 4%, the firm reported Tuesday in its National Consumer Credit Trends Report.

Additionally more students struggle to pay back those loans. Student loan delinquencies involving payments more than three months late rose 14.6% in 2011 from the year before, according to Equifax.

President Obama urged lawmakers in his State of the Union address to stop this student loan rate hike from going into effect. But the deficit-conscious Congress has yet to act, especially since extending the 3.4% rate would cost $5.6 billion a year, according to FinAid.org.

While the president has focused on expanding access to college for low- and middle-income children, lawmakers have taken several steps to whittle away at student aid.

Congress has eliminated subsidized loans for graduate students, as well as most discounts. They also cut $8 billion out of the Pell Grant program for low-income students and reduced the income threshold for eligibility for a full Pell Grant.

The impending higher interest rates on subsidized Stafford loans worries Samantha Durdock, a sophomore at the University of Maryland in College Park, who currently has $8,000 in subsidized Stafford loans and expects to borrow another $15,000.

"Even though graduation is several years away, I am worried about the amount of debt I will have," Durdock said at the Capitol Hill event. "If interest rates double, the extra debt might also impact my ability to pay basic expenses like rent." 

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Retail sales in the U.S. probably rose in February by the most in five months, spurred by the strongest demand for automobiles since 2008, economists said before a report today.

The 1.1 percent rise would follow a 0.4 percent gain in January, according to the median forecast of 81 economists surveyed by Bloomberg News. Excluding autos, purchases may have climbed 0.7 percent.

Sales at chains like Gap Inc. (GPS) and Target Corp. (TGT) last month beat analysts

A top European Central Bank official says the 17 countries that use the euro will probably see a “very mild recession” this year and that higher oil prices should not have a lasting impact on inflation.

Benoit Coeure, an ECB executive board member, told Japan’s Nikkei newspaper that growth was held back by scarce bank credit and necessary government budget-cutting because of problems with debt in some eurozone countries.

He added that higher oil prices and increased value-added taxes on consumer purchases in some countries had led the bank to raise its outlook for inflation but that “insofar as they are temporary, higher energy prices should not have a lasting impact on inflation.”

Coeure said that whether inflation rose over the longer term would depend on whether higher oil prices were reflected in higher wages, creating so-called second round effects or a wage-price spiral.

He said in an interview text made public Sunday that “there are good reasons to believe that second-round effects will be limited.”

Coeure is one of six members of the ECB’s executive board, the body that runs the bank day to day at its Frankfurt headquarters. He also sits on the 23-member governing council, which decides interest rates.

Higher prices have become part of the bank’s discussion of the economy in recent days thanks to higher prices for crude and an easing of the eurozone debt crisis with a successful debt reduction and second bailout for Greece. Fears of a deeper recession and financial crisis pushed inflation concerns to the background in the last two months of last year when the bank cut interest rates.

But inflation increased in February to 2.7 percent, above the bank’s goal of just under two percent, and ECB President Mario Draghi said at his news conference last week that it was likely to remain over 2 percent for all of this year before falling payday advance. For 2013 the bank projects inflation between 0.9 and 2.3 percent.

Draghi made renewed mention of the bank’s primary mission of keeping inflation under control, as spelled out in the basic EU treaty, saying that task was “of the essence.”

That, along with expectations of a mild rather than deep recession, lead some analyst to think the ECB will not lower its benchmark rate below the current record low of 1 percent and may leave them unchanged into next year. Lower rates help growth but can worsen inflation if done at the wrong time.

The bank has helped bring a period of respite from the eurozone debt crisis with two offerings of more than euro1 trillion ($1.32 trillion) in cheap, 3-year loans to banks. The loans added around euro500 billion net in new cash to the banking system, given that some of the money was moved to the new loan offering from previous ECB loan programs.

The money has helped weaker banks repair their finances and led some of them to buy government bonds. That lowered borrowing costs for indebted governments such as Italy and Spain. High borrowing costs fed by fears of default are what drove Greece, Ireland and Portugal to seek bailout loans from other eurozone countries and the International Monetary Fund.

The eurozone economy shrank 0.3 percent in the fourth quarter, and two quarters of negative growth is one definition of recession.

The ECB’s staff projections foresee growth between minus 0.5 percent and plus 0.3 percent this year.

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China reported its biggest monthly trade deficit in at least a decade in February as imports rebounded after a Lunar New Year holiday slowdown, but a broader measure showed global and Chinese demand both weakening.

Exports grew 18.4 percent over a year earlier to $114.5 billion, up from a 0.5 percent contraction in January, when factories were idled for a two-week holiday break, customs data showed Saturday. Imports jumped 39.6 percent to $145.9 billion, reviving after the previous month’s 15 percent decline.

China’s global trade deficit was $31.5 billion _ the biggest since at least the 1990s and a rare exception to a recent string of multibillion-dollar surpluses.

The deficit reflected China’s relatively strong growth amid Europe’s debt crisis and U.S. economic troubles. The economy expanded by 8.9 percent in the final quarter of 2011 and the government’s growth target this year is 7.5 percent.

But a broader measure, combining February’s strong showing with the January slump, showed growth in both imports and exports decelerating markedly.

January-February export growth slowed to 6.9 percent over the same two-month period last year, barely half of December’s 13.4 percent rate. Imports for the two months rose 7.7 percent, down from December’s 11.8 percent.

Analysts look at the combined period to offset the impact of the Lunar New Year, which comes at different times in January or February each year, distorting trade figures as producers rush to fill orders before closing for two weeks or more.

Chinese demand for oil, iron ore, other commodities and industrial components has cooled as export-driven factories see orders fall and Beijing tries to steer its overheated expansion to a sustainable level.

China often records a trade deficit for one month early in the year as factories restock after the holiday, but rarely as large as February’s. Last year, the only monthly deficit was $7.3 billion in February, while surpluses hit a high of $31.5 billion in July.

January’s trade declines were the sharpest since the 2008 global crisis.

China is one of the biggest importers and the top export market for many of its Asian neighbors and commodity suppliers as far away as Australia and Africa, which means cooling demand could have global repercussions.

The International Monetary Fund is forecasting 8.2 percent growth this year but has warned that could fall by as much as half if Europe, China’s biggest export market, suffers a severe decline in activity due to its debt woes.

Exports to the 27-nation European Union contracted by 1.1 percent in February from a year earlier to $19.4 billion, the General Administration of Customs of China reported. China’s trade surplus with Europe contracted by 79 percent to $1.6 billion.

Despite the surge in imports, China’s politically sensitive trade surplus with the United States rose by 1 percent to $8.1 billion.

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Markets were buoyant on Thursday on hopes Greece will get enough support from private investors in a crucial bond swap plan that aims to slash euro107 billion ($140 billion) off its national debt.

Athens is asking private creditors to swap their Greek bonds for new ones with a 53.5 percent lower face value, lower interest rates and longer maturity dates. The hope is that by lowering the amount of debt it has to repay, the country can gradually return to growth.

If not enough investors agree and the bond deal fails, the country could default on its debt in less than two weeks, prompting renewed turmoil in financial markets and knocking confidence in the global economic recovery.

Investors have until 10 p.m. local time (2000 GMT) to sign up, though official results aren’t expected until Friday morning. Only bonds held by private investors are part of the deal, meaning that amounts held by the European Central Bank and other central banks are exempt.

“The markets are in a better mood this morning supported by growing confidence that Greece will be successful this evening in its private sector debt swap,” said Jane Foley, an analyst at Rabobank International.

In Europe, the FTSE 100 index of leading British shares was up 1.3 percent at 5,866 while Germany’s DAX rose 2.1 percent to 6,810. The CAC-40 in France was 2 percent higher at 3,460. The euro was also buoyant, trading 0.6 percent higher at $1.3220.

Wall Street is poised for a solid open, too, with both Dow futures and the broader S&P 500 futures up 0.8 percent.

As well as keeping a close watch on Greece’s bond swap results, investors will monitor interest rate decisions from both the European Central Bank and the Bank of England to digest.

Both are expected to keep interest rates unchanged at 1 percent and 0 payday loans no faxing.5 percent, respectively.

Most interest will center on what ECB chief Mario Draghi says at his news conference about warnings from Germany’s Bundesbank about the risk the ECB has taken on by loosening rules for collateral on emergency loans to banks.

The ECB is credited with pulling Europe back from the debt crisis brink by offering a total of euro1 trillion ($1.32 trillion) to banks on Dec. 21 and Feb. 29. That eased a looming credit crunch, supported investor confidence, and caused borrowing rates to ease for financially weak countries like Italy and Spain.

Investors will also monitor another round of U.S. economic figures later. Most interest will center on the weekly jobless claims figures in the run-up to Friday’s nonfarm payrolls data for February. The payrolls figures often set the market tone for a week or two after their release _ a marked improvement in the U.S. jobs picture in recent months has buoyed hopes over the economic recovery in the U.S. and that’s fed through into the performance of stock markets all round the world.

Earlier in Asia, Japan’s Nikkei 225 index climbed 2 percent to 9,768.96. Hong Kong’s Hang Seng jumped 1.3 percent to 20,900.73 and South Korea’s Kospi edged up 0.9 percent to 2,000.76

In mainland China, the benchmark Shanghai Composite Index rose 1.1 percent to 2,420.28.

Oil markets tracked equities higher _ the benchmark New York rate was up 79 cents at $106.95 per barrel in electronic trading on the New York Mercantile Exchange.

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Kelvin Chan in Hong Kong contributed to this report.

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China set a 2012 target for inflation that

Oil prices rose slightly to near $107 a barrel Monday in Asia as simmering tensions over Iran’s nuclear program kept crude near 10-month highs.

Benchmark oil for April delivery was up 29 cents to $106.99 in electronic trading on the New York Mercantile Exchange. Brent crude was up 15 cents to $123.80 per barrel in London.

Crude jumped to $110.55, the highest since May, late Thursday after an unconfirmed Iranian media report of a pipeline explosion in Saudi Arabia. Saudi officials denied the report, which helped send crude down $2.14 to settle at $106.70 per barrel in New York on Friday.

“The magnitude of the response to the unfounded rumor highlights a tight crude supply situation that will be keeping the entire market highly responsive to even the smallest hint of a supply disruption,” energy consultant Ritterbusch and Associates said in a report.

Crude has risen from $96 last month amid investor fears that growing tension over Iran’s nuclear program will spark an armed conflict and disrupt global crude supplies. Analysts say Saudi Arabia and other oil producers do not have enough spare capacity to quickly make up for Iran’s 4 million barrels a day of crude.

Traders will also be closely watching the latest U.S. economic indicators this week. The economy has been showing signs of gradual improvement in recent months, which has bolstered investor optimism and pushed crude prices up from $75 in October.

Monthly employment data is scheduled to be released on Friday.

In other energy trading, heating oil added 0.2 cent to $3.20 per gallon and gasoline futures were up 0.7 cent at $3.28 per gallon. Natural gas fell 4.9 cents at $2.44 per 1,000 cubic feet.

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Gas prices are spiking. But this time, Detroit is ready.

When prices soared in 2008, the city’s three U.S. automakers were caught flat-footed. They didn’t have competitive small cars and relied on trucks and SUVs for profits. When gas prices peaked at $4.12 in July of that year, sales from the Big Three plummeted more than 20 percent. That same month, sales of the fuel-sipping Toyota Corolla jumped 16 percent.

Fast forward to February 2012. Overall U.S. auto sales rose 16 percent to 1.1 million last month, largely on the strength of Detroit’s small cars. The annual sales pace hit 15.1 million, the best rate in four years.

This time, the Detroit Three saw a 13-percent sales increase. The difference: They have spent billions since 2008 to roll out new models such as the Dodge Dart and Chevrolet Cruze.

The timing is fortunate. Buyers are shifting to small cars again. Twenty-three percent of new-car sales were small cars in February, up from 17.9 percent in December, according to auto information site Edmunds.com.

So far, the shift isn’t as dramatic as it was in 2008, when small-car sales leaped to 27 percent of the market in May as gas suddenly spiked to near $4 per gallon. But prices have never been as high for this time of year. The price of a gallon of gas is up 46 cents this year to an average of $3.74. Analysts say gas could hit $4.25 by late April.

It bodes well for Detroit, which has a newfound confidence that it can weather the pain at the pump.

“We are very well positioned as a company to thrive in a world of escalating gasoline prices,” Bill Ford, chairman of Ford Motor Co, told The Associated Press in a recent interview.

Sales of the Focus small car, which Ford rolled out last year, more than doubled to 23,350, making it the best February for the Focus in 12 years. The new Focus gets up to 40 mpg on the highway, seven miles per gallon better than the 2008 model. The company’s sales were up 14 percent in February compared to the same month last year.

The story is the same at General Motors Co. In July 2008, Honda Motor Co. sold 12,266 Fit subcompacts, besting the Chevrolet Aveo by nearly 5,000 cars. But GM recently replaced the unappealing, underpowered Aveo with the sportier Sonic, which gets up to 40 mpg on the highway and has luxurious options like heated side mirrors. The company sold 8,000 Sonics in February, outselling the Honda Fit and Toyota Yaris combined.

Don Johnson, GM’s U.S. sales chief, said that three years ago, just 16 percent of the cars and trucks GM sold got over 30 mpg on the highway. Now, it’s close to 40 percent.

“We believe that this puts us in a very strong competitive position,” Johnson said Thursday. GM’s sales rose 1 percent in February.

Even Chrysler Group, whose lineup is weighted toward SUVs and big cars, will become a bigger player in the small car market this spring, when the new Dodge Dart goes on sale. In the meantime, its Fiat 500 subcompact had its best month ever in February, helping Chrysler’s sales climb 40 percent.

Carl Galeana, who owns a Fiat dealership north of Detroit, said sales were flat in the first part of the month but picked up the last two weeks as gas prices jumped. Shoppers were constantly asking about the fuel economy of the 500, which can get up to 38 mpg on the highway, Galeana said.

“All of the sudden, boom! We’re starting to sell Fiats,” Galeana said.

Japanese carmakers are also benefitting. In 2008, they saw sales slide because they couldn’t make their most efficient cars, like the Toyota Prius hybrid, quickly enough to satisfy demands. But this February, Toyota’s sales rose, led by a 52-percent jump in the Prius hybrid. Honda’s sales were also up, thanks to a 36-percent increase for the small Civic.

Bigger vehicles from both U.S. and Japanese automakers are also less vulnerable to gas spikes, since they get better gas mileage than they did in 2008. Ford’s new Explorer SUV, which came out last year, sits lower and is more aerodynamic to save fuel. It gets up to 28 mpg on the highway; its 2008 predecessor didn’t even get 20. Honda’s new CR-V gets up to 31 mpg compared to 27 for the 2008 model.

But many buyers are still choosing to downsize. Dennis Beshear of Monument, Colo., recently bought a new Focus for his 100-mile round-trip commute to Denver. The advertising salesman now gets around 35 miles per gallon, up from just 21 mpg in the 2006 Nissan Murano crossover SUV he used to drive. He fills up the Focus every third day, compared with every day and a half with the Murano.

Gas prices were his main motive for buying.

“I had a feeling they were going to go up. They were just too good to be true,” he said.

For automakers, there’s tough competition ahead for small cars. They’re trying to make them more profitable by loading them up with pricey features such as leather seats and navigation systems. As a result, prices are rising. Vehicles sold for an average of $30,605 last month, up almost 7 percent from a year earlier, mostly due to more luxurious small cars, according to the TrueCar.com automotive website.

Companies that don’t move fast enough in the small-car market will be hurt.

The Honda Civic, Chevrolet Cruze and Ford Focus all gained market share in the compact car segment last month, with some of the sales coming at the expense of Toyota’s aging Corolla, said Jeff Schuster, senior vice president of forecasting for the LMC Automotive consulting firm. That’s a very different story than 2008, when the Corolla was the runaway best-seller in the segment.

The shift to smaller cars is becoming a regular pattern. Buyers also leaned toward smaller cars at the beginning of last year, when gas prices jumped 80 cents between February and May before moderating in the summer. Last March, when gas prices reached $3.74 per gallon, 23 percent of buyers purchased small cars. But they went back into bigger cars once gas prices eased.

Edmunds chief economist Lacey Plache said rising gas prices won’t make car buyers hold off on purchases altogether. That’s because they’re more confident about the jobs market and because cars on U.S. roads are getting so old that they have to be replaced. She says people will simply put more emphasis on fuel economy and cut back on the miles they drive.

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Ferrari will unveil its fastest street car ever at next month’s Geneva Motor Show.

The Ferrari F12berlinetta is intended to replace the 599, which is currently the automaker’s top-of-the-line production car. The 599 has a starting price of about $310,000. Pricing for the F12berlinetta has not yet been announced.

The new car will be powered by a 730-horsepower, 6.3-liter V12 engine. It will be capable of going from zero to 60 miles an hour in about three seconds — the fastest zero-to-60 time for any Ferrari — with a top speed of 211 miles per hour.

In addition to being faster, Ferrari said the F12berlinetta also more fuel-efficient. The new car uses 30% less fuel than the 599, which would put its combined city and highway fuel economy at about 17 miles per gallon.

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The F12berlinetta is a mid-front-engined coupe, Ferrari said. The engine is mounted as far back under the hood and as low as possible to optimize the car’s balance and center of gravity. Ferrari also promises "exceptional in-car space and comfort" despite an overall smaller size.

Last year, Ferrari had record sales and profits. It sold a total of 7,200 cars worldwide while earning a profit of $280 million. Almost 2,000 of the cars were sold in the United States, which was also a record for the brand.

Ferrari is almost wholly owned by Italy’s Fiat, which is partnered with Chrysler Group in the United States. 

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Official data show that Germany’s unemployment rate edged up to 7.4 percent in February, due to a spell of bitterly cold weather.

The Federal Labor Agency said Wednesday the unadjusted jobless rate was up from 7.3 percent in January. The number of people registered as unemployed was 3.11 million _ that’s 26,000 more than in January but 203,000 fewer than a year ago.

Germany’s job market is nonetheless remains in a good condition after two years of strong economic growth.

Its strength contrasts with high unemployment in economically weaker countries that have been hit hard by the eurozone debt crisis. Spain and Greece have jobless rates above 20 percent.

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