The threat facing the global economy — including the Fed’s role in it — is expected to dominate the conversation next week as economists and government officials convene in Washington for the annual meeting of the International Monetary Fund and World Bank.

In a speech at Georgetown University on Thursday, Kristalina Georgieva, the managing director of the I.M.F., offered a grim assessment of the world economy and the tightrope that central banks are walking.

“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” Ms. Georgieva said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Noting that inflation remains stubbornly high and broad-based, she added: “Central banks have to continue to respond.”

The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.”

“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said.

Trade and Development Report said.

So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. Most officials expect to increase rates by at least another 1.25 percentage points this year, taking the policy rate to a range of 4.25 to 4.5 percent from the current 3 to 3.25 percent.

Even economies that are facing a pronounced slowdown have been lifting borrowing costs. The European Central Bank raised rates three-quarters of a point last month, even though the continent is approaching a dark winter of slowing growth and crushing energy costs.

according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases.

“Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week.

In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates.

“This unprecedented shock further destabilizes the weakest economies and makes their need for liquidity even more pressing, to mitigate the effects of widespread inflation and to support the most vulnerable households and social strata, especially young people and women,” Macky Sall, chairman of the African Union, told leaders at the United Nations General Assembly in September.

To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. And although they are focused on domestic goals, a severe weakening abroad could pave the way for less aggressive policy because of its implications for their own economic outlooks.

Waning demand from abroad could ease pressure on supply chains and reduce prices. If central bankers decide that such a chain reaction is likely to weigh on their own business activity and inflation, it may give them more room to slow their policy changes.

“The global tightening cycle is something that the Fed has to take into account,” said Megan Greene, global chief economist for the Kroll consulting firm. “They’re interested in what is going on in the rest of the world, inasmuch as it affects their ability to achieve their targets.”

his statement.

But many global economic officials — including those at the Fed — remain focused on very high inflation. Investors expect them to make another large rate increase when they meet on Nov. 1-2.

“We’re very attentive” to international spillovers to both emerging markets and advanced economies, Lisa D. Cook, a Fed governor, said during a question-and-answer session on Thursday. “But our mandate is domestic. So we’re very focused on inflation as it evolves in this country.”

Raghuram Rajan, a former head of India’s central bank and now an economist at the University of Chicago, has in the past pushed the Fed to take foreign conditions into account as it sets policy. He still thinks that measures like bond-buying should be pursued with an eye on global spillovers.

But amid high inflation, he said, central banks are required to pay attention to their own mandates to achieve price stability — even if that makes for a stronger dollar, weaker currencies and more pain abroad.

“The basic problem is that the world of monetary policy dances to the Fed’s tune,” Mr. Rajan said, later adding: “This is a problem with no easy solutions.”

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Live Updates: U.N. Secretary General Warns of ‘Colossal Global Dysfunction’

Credit…Dave Sanders for The New York Times

The annual diplomatic gathering at the United Nations this week places the spotlight on its top chief, António Guterres, the secretary general, who is responsible for persuading an increasingly fractured and skeptical world that the U.N. — and, by extension, his position — is still vital for international order and multilateralism.

In his opening remarks Tuesday, Mr. Guterres said that the world was in peril, and geopolitical divides were undermining international law, trust in democratic institutions and all forms of international cooperation.

“We cannot go on like this,” Mr. Guterres said. “We have a duty to act. And yet we are gridlocked in colossal global dysfunction.”

In remarks that pivoted between alarm and hope, the secretary general made demands for collective action. He warned of a world burning because of climate change and said the U.N. charter and the ideals it presents are in jeopardy, alluding to Russia’s invasion of Ukraine and the inequalities that have exploded as food and energy prices rise.

“Let’s have no illusions. We are in rough seas,” Mr. Guterres said in one of the most blunt speeches he has delivered to world leaders.

Mr. Guterres identified three areas where he said world leaders should come together: peace and security, the climate crisis and addressing inequality in developing countries.

The war in Ukraine, Mr. Guterres said, has “unleashed widespread destruction with massive violations of human rights and international humanitarian law.”

The conflict unexpectedly elevated Mr. Guterres’s role as a humanitarian mediator. He has bluntly condemned Russia for violating the U.N. charter and called for investigations into potential crimes against humanity in Ukraine. And early on, he opened investigations into the rippling affects of the war on rising food and energy and economic downturn.

But Mr. Guterres also reminded the audience of other crises still posing a threat to global stability, such as Afghanistan, Myanmar, the Democratic Republic of Congo, and Israel and Palestine.

Turning to climate, Mr. Guterres accused the fossil fuel industry of “feasting on hundreds of billions of dollars in subsidies and windfall profits” and called on the leaders of wealthy countries to issue additional levies to help vulnerable nations facing the irreparable damages of climate change.

“Today, I am calling on all developed economies to tax the windfall profits of fossil fuel companies,” he told the heads of state and other government officials gathered at the United Nations General Assembly hall. “Those funds should be redirected in two ways: to countries suffering loss and damage caused by the climate crisis, and to people struggling with rising food and energy prices.”

The call for action represents his most forceful comments yet on a lightning rod issue of loss and damage, which is polite diplomatic speak for reparations for poor countries that suffer the greatest effects of climate crisis but that bear little responsibility for it.

The issue of loss and damage financing is emerging as an important fault line in the upcoming climate negotiations in Egypt. The secretary general’s remarks sets up a potential showdown with the United States and the countries of Europe, who have long resisted the idea of a separate funding mechanism for loss and damage.

In the third part of his speech, Mr. Guterres emphasized the many challenges faced by developing countries, including food insecurity, debt and poverty, that has resulted in them “getting hit from all sides.”

“These cascading crises are feeding on each other, compounding inequalities, creating devastating hardship, delaying the energy transition, and threatening global financial meltdown,” Mr. Guterres said.

He called on banks to facilitate financial assistance for developing countries by lifting borrowing conditions and increasing their appetite for risk, while telling creditors to consider debt relief, particularly for climate funds. Mr. Guterres said the International Monetary Fund and major central banks must expand their liquidity facilities and currency lines significantly.

Somini Sengupta contributed reporting.

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Some States Could Tax Biden’s Student Loan Debt Relief

Some states tax forgiven debt as income, which means borrowers who are still paying down student loans could owe taxes on money taken off their bill.

President Joe Biden’s student loan forgiveness plan could lift crushing debt burdens from millions of borrowers, but the tax man may demand a cut of the relief in some states.

That’s because some states tax forgiven debt as income, which means borrowers who are still paying down student loans could owe taxes on as much as $10,000 or even $20,000 that was taken off their bill. In Mississippi, Minnesota, Wisconsin, Arkansas and North Carolina, forgiven student loans will be subject to state income taxes unless they change their laws to conform with a federal tax exemption for student loans, according to a tally by the Tax Foundation, a Washington, D.C.-based think tank.

That dismays Cathy Newman, a Louisiana State University graduate who just took a job teaching freshman biology at the University of Southern Mississippi in Hattiesburg. She figures she could end up owing a few hundred dollars of money that she could have kept had she stayed in Louisiana.

Newman said she can come up with the cash because she has a good job, but she knows of a lot of other borrowers who will still be stuck in difficult financial positions even with their loans forgiven.

“If they stay in the state, they could end up with a pretty hefty tax burden if things don’t change,” Newman said. “I won’t be happy if I have to do it. I can do it. But a lot of people can’t.”

More than 40 million Americans could see their student loan debt cut or eliminated under the forgiveness plan President Biden announced late last month. The president is erasing $10,000 in federal student loan debt for individuals with incomes below $125,000 a year, or households that earn less than $250,000. He’s canceling an additional $10,000 for those who also used federal Pell Grants to pay for college. But it only applies to those whose loans were paid out before July 1, which leaves out current high school seniors and students who will follow them.

Although having $10,000 or $20,000 in loan payments eliminated will be a boon over the long term to borrowers who qualify, those in the affected states might be required to declare that as income. Depending on a state’s tax rates, the taxpayer’s other income and the deductions and exemptions they’re able to claim, that could add up to several hundred extra tax dollars that they’ll owe.

Spokespeople for tax agencies in several states — including Virginia, Idaho, New York, West Virginia, Pennsylvania and Kentucky — told The Associated Press that their states definitely won’t tax student loans forgiven under President Biden’s program. Revenue officials in a few other states said they needed to do more research to know.

Newman, 38, went into debt to pay for graduate school. She had already set herself up for relief under the federal Public Service Loan Forgiveness program, though that requires five more years of teaching on top of the five she already taught at the University of Louisiana Monroe. President Biden’s program would cut $10,000 off her debt load when it takes effect, but under existing Mississippi tax law, the relief won’t come free.

“It’s not a huge burden for me, but it could be for a lot of other people, which is what I’m worried about, especially if it’s unexpected, and I think a lot of people don’t realize that,” Newman said.

Any relief in states that would tax the forgiven debt would have to come from their Legislatures. Leaders of the Minnesota Legislature and Democratic Gov. Tim Walz have indicated in recent media interviews that there’s broad support for a fix, which could come during the 2023 session, or even earlier on the remote chance of a special session.

In Wisconsin, Democratic Gov. Tony Evers’ administration plans to propose a fix in the state budget next year, but that would have to be approved by the Republican-controlled Legislature. And Evers needs to get reelected in November before he can formally make that request. Republican legislative leaders and Evers’ GOP challenger, Tim Michels, did not reply to messages seeking comment on the student loan tax issue.

However, in Mississippi, the chairman of the state Senate committee in charge of taxes said he’s willing to take a look when the Legislature convenes next year. Republican state Sen. Josh Harkins, of Brandon, said he needs to learn more about what his state’s tax laws say on debt forgiveness.

“I’m sure people will want to look at adjusting that or making some changes in the law, but a lot of factors have to be considered,” Harkins said, noting that Mississippi enacted its biggest-ever tax cut earlier this year and adding that he wants to gauge the impact of inflation before making big tax policy decisions. “This all just hit in the last week.”

Additional reporting by the Associated Press.

Source: newsy.com

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Student Loan Forgiveness Is Complicated, Because This Is America

If we want higher education to cost less, we should make it cheaper when people enroll.

But that’s not how we do things in the United States, where the first rule of personal finance is that it should never be simple.

Instead, we befuddle people with a menu of a half-dozen retirement accounts. We fetishize the tax code and its deductions and credits and refunds. We name gold, silver and bronze health insurance plans after precious metals but award no medals for clearing the enrollment hurdles.

And so it goes with President Biden’s executive action around student loan debt cancellation. The potential $20,000 in relief per person gets the headlines. But the sleeper element here is a new income-driven debt repayment plan that would help many people pay much less of their student loan debt over time, if they’re not big earners.

choose among H.M.O., P.P.O., P.F.F.S., S.N.P., H.M.O.-P.O.S. and M.S.A. plans. The Centers for Medicare & Medicaid Services website has an acronym glossary with 4,420 entries, because personal finance is its own language. You learn as you go, or not at all.

Pamela Herd is a professor at Georgetown University’s McCourt School of Public Policy, with an expertise in these “administrative burdens.”

With certain social welfare benefits, Professor Herd explained in an interview this week, the original program designers believed that obstacles were appropriate. Anyone desperate enough should find a way to muddle through and prove their poverty, or so the logic went.

More recently, administrative burdens have resulted from the conviction that private sector actors — who are often seeking profits — would be the most efficient intermediaries between people and federal programs that involved money.

You see it in those Medicare Advantage Plans, and it was a feature of federal P.P.P. loans during the early stages of the pandemic. Rather than give employers money up front to keep people on the payroll, there were forgivable loans that required frazzled small business owners to beg a banker to bum rush a balky government website on their behalf.

And so it goes with the federal student loan system.

Both the income-driven repayment plans that have existed for years and a special debt cancellation program for public servants are already poster children for administrative burdens. Tracking your progress is a part-time job, complete with self-help Facebook groups of frustrated debtors and companies to help people manage the process.

And wouldn’t you know it? There are several third parties to which the federal government has outsourced the work of collecting student loan payments and enforcing the rules.

would go to 5 percent from 10 percent of discretionary income; the amount of a person’s income that doesn’t meet the definition of discretionary would rise; and there would be a new, more generous way of calculating how balances shrink or grow over time. There are plenty of reasons to be skeptical that something this complex would roll out smoothly or quickly.

And it would not be cheap. Estimates from the Penn Wharton Budget Model put the 10-year cost of the new repayment plan at anywhere from $70.3 billion to over $450 billion, depending on the implementation details and how students and schools change their borrowing and tuition-setting behavior. Again, it’s complicated.

By comparison, Mr. Biden had proposed spending $45.5 billion over five years to make up to six semesters of community college free nationwide. That would have paid for most of the cost, with states contributing the rest. No debt for tuition, no hoops to jump through.

Politics got in the way of free community college, and the Inflation Reduction Act that Mr. Biden signed last month did not include it. Instead, students who borrow would get a subsidy on the back end through the more generous repayment program, years later, if they know it exists, enroll without incident, clear every hurdle over a decade or two and their loan servicer doesn’t make a hash of it.

There are bad words and associated acronyms that we could use to sum all of this up as we scream into the void. But our framing could just as easily center on a single word: Respect.

Professor Herd surprised me this week when she said the word in passing. I asked her to elaborate.

“Respect includes everything from respecting people’s time to not treating them as if they are trying to cheat or game a system,” she said. “It’s about treating them as if they are full-fledged citizens and human beings who have basic rights to access services and benefits for which they’re eligible.”

It seems simple enough. But too much of our personal finance infrastructure becomes adversarial through its complexity. The “prove it” nature of Mr. Biden’s executive action, with its income measurements and repeated checking in with third-party servicers, does not help, as generous as it may turn out to be for people who would eventually pass muster.

Disrespect is calling student debt cancellation “forgiveness” when it’s really an apology for a dysfunctional higher education financing system. Disrespect is doing little to make tuition cheaper on the front end of this process. Disrespect is letting many for-profit schools continue to put people of color deep into debt for certificates or degrees that don’t mean much in the labor market.

Disrespect guarantees full-time employment for personal finance journalists, too. I’m lucky to have the work, but it shouldn’t be necessary in the first place.

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Who Qualifies For Biden’s Student Loan Forgiveness Plan?

Many Republicans criticized the announcement, arguing it will make inflation worse by giving people more money to spend.

Millions of Americans could soon take advantage of President Joe Biden’s decision to provide student debt relief.

“All of this means people can start to finally crawl out from under that mountain of debt,” said President Biden.

And that means millions also have questions about how it all works. So, let’s break down four key elements, starting with the biggest headline — loan forgiveness.  

The administration will eliminate $10,000 in student debt for people making up to $125,000 a year, or $250,000 for married couples. The debt forgiveness increases to $20,000 for anyone who received a Pell Grant. And parents who took out federal loans to pay for a child’s education will also qualify for relief.  

The White House says 60% of borrowers received a Pell Grant, meaning a majority of people will be eligible for the maximum amount of relief.  

But appearing on Newsy’s Morning Rush, Education Secretary Miguel Cardona said the plan has wider benefits for the nation.

“Everyone knows someone that right now is struggling with college debt. Lifting, helping those people up, it helps the whole community. And, you know, it’s helping other Americans and that’s what we’re trying to do here,” said Sec. Cardona.

Next, the Department of Education is temporarily changing the Public Service Loan Forgiveness program to make it easier to qualify.

That allows people who work for government organizations, military, or qualifying non-profits to have any remaining debt forgiven after they make 10 years of payments.

“Think of a service member who defers their student loan payment while they’re deployed. The system is so restrictive that their active-duty service didn’t count as ‘public service’ and their loan isn’t forgiven as promised. It’s outrageous,” said President Biden.

The Biden administration is retroactively expanding the type of payments that qualify. But eligible borrowers must apply before Oct. 31 this year to take advantage of the change.

Third, the Biden administration is proposing a change to income-driven repayment plans. Once finalized, the new rule will cap monthly payments at 5% of income left after taxes and essential living expenses. And the program will cover the loan’s monthly interest, ensuring your total balance due won’t increase as long as you’re making your monthly payments.  

“We’re not going to ask folks to pay for more than they can afford; That’s going to make higher education much more accessible. And we’re going to cap the interest, too. I’ve heard from so many Americans that the interest is what kills them, it just keeps compounding. Well, we’re putting an end to that,” said Sec. Cardona.

And finally, the Biden administration is extending the pause on student loan payments one last time. No one is required to make a monthly payment on their student loans until January 2023.

Not everyone is happy with the president’s announcement. Some progressives wanted him to cancel more debt. Others argue he should be taking steps to reduce the cost of going to college.  

Many Republicans criticized the announcement, arguing it will make inflation worse by giving people more money to spend, will increase the country’s debt, and is unfair to Americans who already paid off their loans.  

“It’s very unfair to people who took other pathways in life that didn’t require them to take out a lot of loans, so maybe people that went into business immediately, people that went into trades, they made those decisions to not have that debt and now the debt’s being put on them,” said Florida Gov. Ron DeSantis.  

The White House says if every eligible borrower applies, 43 million Americans will benefit from the student debt cancellation.

Source: newsy.com

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Exclusive: Japan seeks to organise Sri Lanka creditors’ meeting on debt crisis

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TOKYO, Aug 26 (Reuters) – Japan is seeking to organise a Sri Lanka creditors’ conference, hoping it could help solve the South Asia nation’s debt crisis, but uncertainties cloud the outlook for any talks, three people with knowledge of the planning said.

Tokyo is open to hosting talks among all the creditor nations aimed at lifting Colombo from its worst debt crisis since independence, but it is not clear whether top creditor China would join and a lack of clarity remains about Sri Lanka’s finances, one source told Reuters.

Japan would be willing to chair such a meeting with China if that would speed up the process for addressing Sri Lanka’s debt, estimated at $6.2 billion on a bilateral basis at the end of 2020, this source said.

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President Ranil Wickremesinghe told Reuters last week that Sri Lanka would ask Japan to invite the main creditor nations to talks on restructuring bilateral debts. He said he would discuss the issue with Prime Minister Fumio Kishida in Tokyo next month, when he is expected to attend the funeral of the assassinated former premier Shinzo Abe. read more

Tokyo, the number two creditor, has a stake in rescuing Sri Lanka, not just to recoup its $3 billion in loans but also its diplomatic interest in checking China’s growing presence in the region.

S&P Global this month downgraded Sri Lanka’s government bonds to default after it missed interest and principal payments. The island nation of 22 million people off India’s southern tip, with debt at 114% of annual economic output, is in social and financial upheaval from the impact of COVID-19 pandemic on top of years of economic mismanagement.

An International Monetary Fund (IMF) team met Wickremesinghe on Wednesday to discuss a bailout, including restructuring $29 billion in debt, as Colombo seeks a $3 billion IMF aid programme. read more

The president met the same day with Japan’s ambassador.

Tokyo believes a new “platform” is needed to pull creditors together, the sources said.

“Sri Lanka is running out of time since it defaulted on its debt. The priority is for creditor nations to agree on an effective scheme,” one source said.

“Japan is keen to move this forward. But it’s not something Japan alone can raise its hand and push through,” said the source, adding that the cooperation of other nations was crucial.

Japan’s Foreign Ministry declined to comment. Sri Lanka’s central bank and Finance Ministry did not immediately respond to requests for comment. An IMF spokesperson declined to comment.

NEW FRAMEWORK NEEDED

Concerns include rivalry and territorial tensions between big creditors China and India, while Sri Lanka would have to commit to reforming its finances and disclose more information about its debt, the sources said.

Last month, shortly after Wickremesinghe took office when his predecessor fled the country, Chinese President Xi Jinping wrote to him that he was “ready to provide support and assistance to the best of my ability to President Wickremesinghe and the people of Sri Lanka in their efforts”. read more

But the sources said getting Beijing’s cooperation on a debt restructuring was complicated by factors such as a large number of lenders and that China was baulking at taking a “haircut” on its loans and at reducing Colombo’s debt burden.

A Chinese foreign ministry spokesman told Reuters that Beijing was “willing to stand with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka respond to its present difficulties, relieve its debt burden and realise sustainable development.”

Japan hopes to see a new debt restructuring framework resembling one set up by the Group of 20 big economies targeting low-income countries. Sri Lanka does not fall under this “common framework” because it is classified as a middle-income emerging country.

“It must be a platform where all creditor nations participate” to ensure they all shoulder a fair share in waiving debt, another source said. The third said, “Until these conditions are met, it would be difficult for any talks to succeed.”

The common framework, launched by the G20 and the Paris Club of rich creditor nations in 2020, provides debt relief mainly through extension in debt-payment deadlines and reduction in interest payments.

Some people involved think an initial creditors’ meeting could be held in September, but one source said it would “take a little while, possibly several months”.

Restructuring talks are only possible after the IMF scrutinises Sri Lanka’s debt, the sources said.

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Reporting by Tetsushi Kajimoto and Takaya Yamaguchi in Tokyo; Additional reporting by Yoshifumi Takemoto and Kentaro Sugiyama in Tokyo, Uditha Jayasinghe in Colombo, Eduardo Baptista in Beijing and David Lawder in Washington; Writing by Leika Kihara and Tetsushi Kajimoto; Editing by William Mallard

Our Standards: The Thomson Reuters Trust Principles.

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Biden Announces Long-Awaited Student Debt Forgiveness Plan

President Biden is also extending a pause on federal student loan payments for what he called the “final time” through the end of 2022.

President Joe Biden on Wednesday announced his long-awaited plan to deliver on his campaign promise to provide $10,000 in debt cancellation for millions of Americans — and up to $10,000 more for those with the greatest financial need.

Borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, President Biden announced in a tweet. For recipients of Pell Grants, which are reserved for undergraduates with the most significant financial need, the federal government would cancel up to an additional $10,000 in federal loan debt.

President Biden is also extending a pause on federal student loan payments for what he called the “final time” through the end of 2022. He was set to deliver remarks Wednesday afternoon at the White House to unveil his proposal to the public.

If his plan survives legal challenges that are almost certain to come, it could offer a windfall to a swath of the nation in the run-up to this fall’s midterm elections. More than 43 million people have federal student debt, with an average balance of $37,667, according to federal data. Nearly a third of borrowers owe less than $10,000, and about half owe less than $20,000. The White House estimates that President Biden’s announcement would erase the federal student debt of about 20 million people.

Proponents say cancellation will narrow the racial wealth gap — Black students are more likely to borrow federal student loans and at higher amounts than others. Four years after earning bachelor’s degrees, Black borrowers owe an average of nearly $25,000 more than their White peers, according to a Brookings Institution study.

Still, the action is unlikely to thrill any of the factions that have been jostling for influence as President President Biden weighs how much to cancel and for whom.

President Biden has faced pressure from liberals to provide broader relief to hard-hit borrowers, and from moderates and Republicans questioning the fairness of any widespread forgiveness. The delay in his decision has only heightened the anticipation for what his own aides acknowledge represents a political no-win situation. The people spoke on the condition of anonymity to discuss President Biden’s intended announcement ahead of time.

The continuation of the coronavirus pandemic-era payment freeze comes just days before millions of Americans were set to find out when their next student loan bills will be due. This is the closest the administration has come to hitting the end of the payment freeze extension, with the current pause set to end Aug. 31.

Details of the plan have been kept closely guarded as President Biden weighed his options. The administration said Wednesday the Education Department will release information in the coming weeks for eligible borrowers to sign up for debt relief. Cancellation for some would be automatic, if the department has access to their income information, but others would need to fill out a form.

Current students would only be eligible for relief if their loans were originated before July 1, 2022. President Biden is also set to propose capping the amount that borrowers pay monthly on undergraduate loans at 5% of their earnings.

During the 2020 presidential campaign, President Biden was initially skeptical of student loan debt cancellation as he faced off against more progressive candidates for the Democratic nomination. Sens. Elizabeth Warren and Bernie Sanders had proposed cancellations of $50,000 or more.

As he tried to shore up support among younger voters and prepare for a general election battle against President Donald Trump, President Biden unveiled his initial proposal for debt cancellation of $10,000 per borrower, with no mention of an income cap.

President Biden narrowed his campaign promise in recent months by embracing the income limit as soaring inflation took a political toll and as he aimed to head off political attacks that the cancellation would benefit those with higher take-home pay. But Democrats, from members of congressional leadership to those facing tough reelection bids this November, have pushed the administration to go as broad as possible on debt relief, seeing it in part as a galvanizing issue, particularly for Black and young voters this fall.

Democrats are betting that President Biden, who has seen his public approval tumble over the past year, can help motivate younger voters to the polls with the announcement.

Although President Biden’s plan is changed from what he initially proposed during the campaign, “he’ll get a lot of credit for following through on something that he was committed to,” said Celinda Lake, a Democratic pollster who worked with President Biden during the 2020 election.

A survey of 18- to 29-year-olds conducted by the Harvard Institute of Politics in March found that 59% of those polled favored debt cancellation of some sort — whether for all borrowers or those most in need — although student loans did not rank high among issues that most concerned people in that age group.

Some advocates say President Biden’s plan still falls short.

“If the rumors are true, we’ve got a problem,” Derrick Johnson, the president of the NAACP, which has aggressively lobbied President Biden to take bolder action, said Tuesday.

“President Biden’s decision on student debt cannot become the latest example of a policy that has left Black people — especially Black women — behind,” he said. “This is not how you treat Black voters who turned out in record numbers and provided 90% of their vote to once again save democracy in 2020.”

John Della Volpe, who worked as a consultant on President Biden’s campaign and is the director of polling at the Harvard Kennedy School Institute of Politics, said the particulars of President Biden’s announcement were less important than the decision itself.

“It’s about trust in politics, in government, in our system. It’s also about trust in the individual, which in this case is President Biden,” Della Volpe said.

Republicans, meanwhile, see a political upside if President Biden pursues a large-scale cancellation of student debt ahead of the November midterms, anticipating backlash for Democrats — particularly in states where there are large numbers of working-class voters without college degrees. Critics of broad student debt forgiveness also believe it will open the White House to lawsuits, on the grounds that Congress has never given the president the explicit authority to cancel debt on his own.

The Republican National Committee on Tuesday blasted President Biden’s expected announcement as a “handout to the rich,” claiming it would unfairly burden lower-income taxpayers and those who have already paid off their student loans with covering the costs of higher education for the wealthy.

President Biden’s long deliberations have led to grumbling among federal loan servicers, who had been instructed to hold back billing statements while President Biden weighed a decision.

Industry groups had complained that the delayed decision left them with just days to notify borrowers, retrain customer service workers and update websites and digital payment systems, said Scott Buchanan, executive director of the Student Loan Servicing Alliance.

It increases the risk that some borrowers will inadvertently be told they need to make payments, he said.

“At this late stage I think that’s the risk we’re running,” he said. “You can’t just turn on a dime with 35 million borrowers who all have different loan types and statuses.”

Additional reporting by The Associated Press.

Source: newsy.com

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Student Loan Help For Millions Coming From Biden After Delay

The precise details of President Biden’s plan were reportedly still not finalized on the eve of the announcement.

President Joe Biden on Wednesday is set to announce his long-delayed move to forgive up to $10,000 in federal student loans for many Americans and extend a pause on payments to January, according to three people familiar with the plan.

President Biden has faced pressure from liberals to provide broader relief to hard-hit borrowers, and from moderates and Republicans questioning the fairness of any widespread forgiveness. The delay in Biden’s decision has only heightened the anticipation for what his own aides acknowledge represents a political no-win situation. The people spoke on the condition of anonymity to discuss Biden’s intended announcement ahead of time.

The precise details of President Biden’s plan, which will include an income cap limiting the forgiveness to only those earning less than $125,000 a year, were being kept to an unusually small circle within the Biden administration and were still not finalized on the eve of the announcement.

Down-to-the-wire decision-making has been a hallmark of the Biden White House, but the particular delay on student loans reflects the vexing challenge confronting him in fulfilling a key campaign promise.

The plan would likely eliminate student debt entirely for millions of Americans and wipe away at least half for millions more.

The nation’s federal student debt now tops $1.6 trillion after ballooning for years. More than 43 million Americans have federal student debt, with almost a third owing less than $10,000 and more than half owing less than $20,000, according to the latest federal data.

The continuation of the pandemic-era payment freeze comes just days before millions of Americans were set to find out when their next student loan bills will be due. This is the closest the administration has come to hitting the end of the payment freeze extension, with the current pause set to end Aug. 31.

Wednesday’s announcement was set for the White House after President Biden returns from vacation in Rehoboth Beach, Delaware. The administration had briefly considered higher education schools in the president’s home state for a larger reveal, but scaled back their plans.

President Biden was initially skeptical of student loan debt cancellation as he faced off against more progressive Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., who had proposed cancellations of $50,000 or more, during the 2020 primaries.

As he tried to shore up support among younger voters and prepare for a general election battle against then-President Donald Trump, candidate Biden unveiled his initial proposal for debt cancellation of $10,000 per borrower, with no mention of an income cap.

President Biden narrowed his campaign promise in recent months by embracing the income limit as soaring inflation took a political toll and as he aimed to head off political attacks that the cancellation would benefit those with higher take-home pay. But Democrats, from members of congressional leadership to those facing tough re-election bids this November, have pushed the administration to go as broad as possible on debt relief, seeing it in part as a galvanizing issue, particularly for Black and young voters this fall.

The frenzied last-minute lobbying continued Tuesday even as President Biden remained on his summer vacation. Senate Majority Leader Chuck Schumer, D-N.Y., one of the loudest advocates in recent years for canceling student loan debt, spoke privately on the phone with Biden, imploring the president to forgive as much debt as the administration can, according to a Democrat with knowledge of the call.

In his pitch, Schumer argued to President Biden that doing so was the right thing to do morally and economically, said the Democrat, who asked for anonymity to describe a private conversation.

Inside the administration, officials have discussed since at least early summer forgiving more than $10,000 of student debt for certain categories of borrowers, such as Pell Grant recipients, according to three people with knowledge of the deliberations. That remained one of the final variables being considered by President Biden heading into Wednesday’s announcement.

Democrats are betting that President Biden, who has seen his public approval rating tumble over the last year, can help motivate younger voters to the polls in November with the announcement.

Although President Biden’s plan is narrower than what he initially proposed during the campaign, “he’ll get a lot of credit for following through on something that he was committed to,” said Celinda Lake, a Democratic pollster who worked with Biden during the 2020 election.

She described student debt as a “gateway issue” for younger voters, meaning it affects their views and decisions on housing affordability and career choices. A survey of 18- to 29-year-olds conducted by the Harvard Institute of Politics in March found that 59% of those polled favored debt cancellation of some sort — whether for all borrowers or those most in need — although student loans did not rank high among issues that most concerned people in that age group.

Some advocates were already bracing for disappointment.

“If the rumors are true, we’ve got a problem,” Derrick Johnson, the president of the NAACP, which has aggressively lobbied President Biden to take bolder action, said Tuesday. He emphasized that Black students face higher debut burdens than white students.

“President Biden’s decision on student debt cannot become the latest example of a policy that has left Black people — especially Black women — behind,” he said. “This is not how you treat Black voters who turned out in record numbers and provided 90% of their vote to once again save democracy in 2020.”

John Della Volpe, who worked as a consultant on President Biden’s campaign and is the director of polling at the Harvard Kennedy School Institute of Politics, said the particulars of President Biden’s announcement were less important than the decision itself.

“It’s about trust in politics, in government, in our system. It’s also about trust in the individual, which in this case is President Biden.”

Combined with fears about expanding abortion restrictions and Trump’s reemergence on the political scene, Della Volpe said student debt forgiveness “adds an additional tailwind to an already improving position with young people.”

Republicans, meanwhile, see only political upside if President Biden pursues a large-scale cancellation of student debt ahead of the November midterms, anticipating backlash for Democrats — particularly in states where there are large numbers of working-class voters without college degrees. Critics of broad student debt forgiveness also believe it will open the White House to lawsuits, on the grounds that Congress has never given the president the explicit authority to cancel debt on his own.

The Republican National Committee on Tuesday blasted President Biden’s expected announcement as a “handout to the rich,” claiming it would unfairly burden lower-income taxpayers and those who have already paid off their student loans with covering the costs of higher education for the wealthy.

“My neighbor, a detective, worked 3 jobs (including selling carpet) & his wife worked to make sure their daughter got quality college degree w/no student debt,” Rep. Kevin Brady, R-Texas, the top Republican on the House Ways and Means Committee, tweeted Tuesday. “Big sacrifice. Now their taxes must pay off someone else’s student debt?”

President Biden’s elongated deliberations have sent federal loan servicers, who have been instructed to hold back billing statements while he weighed a decision, grumbling.

Industry groups had complained that the delayed decision left them with just days to notify borrowers, retrain customer service workers and update websites and digital payment systems, said Scott Buchanan, executive director of the Student Loan Servicing Alliance.

It increases the risk that some borrowers will inadvertently be told they need to make payments, he said.

“At this late stage I think that’s the risk we’re running,” he said. “You can’t just turn on a dime with 35 million borrowers who all have different loan types and statuses.”

Additional reporting by The Associated Press.

Source: newsy.com

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The big default? The dozen countries in the danger zone

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LONDON, July 15 (Reuters) – Traditional debt crisis signs of crashing currencies, 1,000 basis point bond spreads and burned FX reserves point to a record number of developing nations now in trouble.

Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse.

Totting up the cost is eyewatering. Using 1,000 basis point bond spreads as a pain threshold, analysts calculate $400 billion of debt is in play. Argentina has by far the most at over $150 billion, while the next in line are Ecuador and Egypt with $40 billion-$45 billion.

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Crisis veterans hope many can still dodge default, especially if global markets calm and the IMF rows in with support, but these are the countries at risk.

ARGENTINA

The sovereign default world record holder looks likely to add to its tally. The peso now trades at a near 50% discount in the black market, reserves are critically low and bonds trade at just 20 cents in the dollar – less than half of what they were after the country’s 2020 debt restructuring.

The government doesn’t have any substantial debt to service until 2024, but it ramps up after that and concerns have crept in that powerful vice president Cristina Fernandez de Kirchner may push to renege on the International Monetary Fund. read more

Reuters Graphics

UKRAINE

Russia’s invasion means Ukraine will almost certainly have to restructure its $20 billion plus of debt, heavyweight investors such as Morgan Stanley and Amundi warn.

The crunch comes in September when $1.2 billion of bond payments are due. Aid money and reserves mean Kyiv could potentially pay. But with state-run Naftogaz this week asking for a two-year debt freeze, investors suspect the government will follow suit. read more

Ukraine bonds brace for default

TUNISIA

Africa has a cluster of countries going to the IMF but Tunisia looks one of the most at risk. read more

A near 10% budget deficit, one of the highest public sector wage bills in the world and there are concerns that securing, or a least sticking to, an IMF programme may be tough due to President Kais Saied’s push to strengthen his grip on power and the country’s powerful, incalcitrant labour union.

Tunisian bond spreads – the premium investors demand to buy the debt rather than U.S. bonds – have risen to over 2,800 basis points and along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s top three list of likely defaulters. “A deal with the International Monetary Fund becomes imperative,” Tunisia’s central bank chief Marouan Abassi has said. read more

African bonds suffering

GHANA

Furious borrowing has seen Ghana’s debt-to-GDP ratio soar to almost 85%. Its currency, the cedi, has lost nearly a quarter of its value this year and it was already spending over half of tax revenues on debt interest payments. Inflation is also getting close to 30%.

Reuters Graphics

EGYPT

Egypt has a near 95% debt-to-GDP ratio and has seen one of the biggest exoduses of international cash this year – some $11 billion according to JPMorgan.

Fund firm FIM Partners estimates Egypt has $100 billion of hard currency debt to pay over the next five years, including a meaty $3.3 billion bond in 2024.

Cairo devalued the pound 15% and asked the IMF for help in March but bond spreads are now over 1,200 basis points and credit default swaps (CDS) – an investor tool to hedge risk – price in a 55% chance it fails on a payment. read more

Francesc Balcells, CIO of EM debt at FIM Partners, estimates though that roughly half the $100 billion Egypt needs to pay by 2027 is to the IMF or bilateral, mainly in the Gulf. “Under normal conditions, Egypt should be able to pay,” Balcells said.

Egypt’s falling foreign exchange reserves

KENYA

Kenya spends roughly 30% of revenues on interest payments. Its bonds have lost almost half their value and it currently has no access to capital markets – a problem with a $2 billion dollar bond coming due in 2024.

On Kenya, Egypt, Tunisia and Ghana, Moody’s David Rogovic said: “These countries are the most vulnerable just because of the amount of debt coming due relative to reserves, and the fiscal challenges in terms of stabilising debt burdens.”

Kenya’s concerns

ETHIOPIA

Addis Ababa plans to be one of the first countries to get debt relief under the G20 Common Framework programme. Progress has been held up by the country’s ongoing civil war though in the meantime it continues to service its sole $1 billion international bond. read more

Africa’s debt problems

EL SALVADOR

Making bitcoin legal tender all but closed the door to IMF hopes. Trust has fallen to the point where an $800 million bond maturing in six months trades at a 30% discount and longer-term ones at a 70% discount.

PAKISTAN

Pakistan struck a crucial IMF deal this week. read more The breakthrough could not be more timely, with high energy import prices pushing the country to the brink of a balance of payments crisis.

Foreign currency reserves have fallen to as low as $9.8 billion, hardly enough for five weeks of imports. The Pakistani rupee has weakened to record lows. The new government needs to cut spending rapidly now as it spends 40% of its revenues on interest payments.

Countries in debt distress at record high

BELARUS

Western sanctions wrestled Russia into default last month read more and Belarus now facing the same tough treatment having stood with Moscow in the Ukraine campaign.

Belarus bonds

ECUADOR

The Latin American country only defaulted two years ago but it has been rocked back into crisis by violent protests and an attempt to oust President Guillermo Lasso. read more

It has lots of debt and with the government subsidising fuel and food JPMorgan has ratcheted up its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. Bond spreads have topped 1,500 bps.

NIGERIA

Bond spreads are just over 1,000 bps but Nigeria’s next $500 million bond payment in a year’s time should easily be covered by reserves which have been steadily improving since June. It does though spend almost 30% of government revenues paying interest on its debt.

“I think the market is overpricing a lot of these risks,” investment firm abrdn’s head of emerging market debt, Brett Diment, said.

Currency markets in 2022
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Reporting by Marc Jones; Additional Reporting by Rachel Savage in London and Rodrigo Campos in New York; Editing by Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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