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.”
What to Know About Student Loan Debt Relief
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What to Know About Student Loan Debt Relief
Many will benefit. President Biden’s executive order means the federal student loan balances of millions of people could fall by as much as $20,000. Here are answers to some common questions about how it will work:
What to Know About Student Loan Debt Relief
Who qualifies for loan cancellation? Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in debt cancellation.
What to Know About Student Loan Debt Relief
What’s the first thing I need to do if I qualify? Check with your loan servicer to make sure that your postal address, your email address and your mobile phone number are listed accurately, so you can receive guidance. Follow those instructions. If you don’t know who your servicer is, consult the Department of Education’s “Who is my loan servicer?” web page for instructions.
What to Know About Student Loan Debt Relief
How do I prove that I qualify? If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, you should not need to do anything else. Still, keep an eye out for guidance from your servicer. For everyone else, the Education Department is expected to set up an application process by the end of the year.
What to Know About Student Loan Debt Relief
When will payments for the outstanding balance restart? President Biden extended a Trump-era pause on payments, which are now not due until at least January. You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer before then for specifics on what you owe and when payment is due.
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.
Fourteen states now require high school students to take a financial literacy course before graduating.
You’ve probably seen the memes by now, poking fun at how we learned concepts in math class that didn’t exactly prepare us to be financially responsible.
But some schools, like West High School in Denver, Colorado, are listening.
That’s where Daniel Walter teaches a financial literacy course, created at the request of parents in the wake of the pandemic.
The demand for financial literacy education spans far beyond Colorado, though. In fact, a total of fourteen states now require students to take a course before graduating.
Michigan, Georgia, and Florida are three of the most recent states to join this growing trend.
Experts told Newsy that learning about financial literacy in school is a welcome step in the right direction.
Experts also say this is something that students of all ages can learn about. But they point out that learning about the concepts of saving or investing alone can’t guarantee financial success.
Requiring one course to graduate is a good start, but they’d like to see more.
Inflation is high and has been for months. It’s weighing on consumer confidence, making policymakers nervous and threatening to eat away at household paychecks well into 2022.
This is the first time many adults have experienced meaningful inflation: Price gains had been largely quiescent since the late 1980s. When the Consumer Price Index climbed 7 percent in the year through December, it was the fastest pace since 1982.
Naturally, people have questions about what this will mean for their pocketbooks, their finances and their economic futures.
Closely intertwined with price worries are concerns about interest rates: The Federal Reserve is poised to raise borrowing costs to try to slow down demand and keep the situation under control.
furniture and camping gear.
That rapid consumption is running up against constrained supply. Factories shut down early in the pandemic, and in parts of Asia, they continue to do so as Omicron cases surge. There aren’t enough containers to ship all of the goods people want to buy, and ports have become clogged trying to process so many imports.
expanding their profits.
In theory, competition should eat away at extra earnings over time. New firms should jump into the market to sell that same products for less and steal away the customer. Existing competitors should ramp up production to meet demand.
But this may be a unappealing time for new firms to enter the market. Established companies may be hesitant to expand production if doing so involved a lot of investment, because it is not clear how long today’s strong demand will last.
“It is a very uncertain environment,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “A new firm stepping in is a lot of investment, with a lot of financial risk.”
Until companies can produce and transport enough of a given product to go around — as long as shortages remain — companies will be able to raise prices without running much risk of losing customers to a competitor.
In past periods of inflation, do employers typically increase wages or award higher-than-average yearly increases to help employees offset inflation? If so, in what industries is this practice most common? — Annmarie Kutz, Erie, Pa.
There is no standard historical experience with wages and inflation, Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said during an interview with The New York Times on Twitter Spaces last week.
lower-wage service industries have been competing mightily for workers in recent months, and pay is climbing faster there.
“The history isn’t so clear that cost of living translates into higher wages, but that’s largely because inflation has been low and stable for a very long time,” Ms. Daly said.
in December projected that price gains will drop back below 3 percent by the end of the year, and will level off to normal levels over the longer term.
are adjusted for inflation, so those should keep pace with price gains. Bonds that pay back fixed rates do less well during periods of inflation, while stock investments — though riskier — tend to rise more quickly than consumer prices. Ms. Benz recommends holding assets across an array of securities, potentially including inflation-protected securities such as some exchange-traded funds or Treasury Inflation Protected Securities, commonly called TIPS.
Inflation F.A.Q.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation costs and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains could also lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“It argues against having too much in cash,” Ms. Benz said. “That’s too much dead money.”
Readers wonder how government policymakers will react.
We currently have low unemployment, strong wage growth (largely through attrition / voluntary retirements), easy monetary policy and now rising inflation. What are other periods of time when the United States had these conditions? How did things work out then? — Harshal Patel, Moorestown, N.J.
Jared Bernstein, a member of the White House Council of Economic Advisers, pointed to the post-World War II period as a reference point for the present moment.
“Demand was strong, and supply was constrained,” he said in an interview. “That’s a very instructive path for us.”
The good news about that example is that supply eventually caught up, and prices came down without spurring any greater crisis.
Other, more worried commentators have drawn parallels between now and the 1970s, when the Fed was slow to raise rates as unemployment fell and prices rose — and inflation jumped out of control. But many economists have argued that important differences separate that period from this one: Workers were more heavily unionized and may have had more bargaining power to push for higher wages back then, and the Fed was slow to react for years on end. This time, it’s already gearing up to respond.
about price controls in a recent article, and vocal minority think the 1970s experience unfairly tarnished the idea and that it might be worthwhile to reopen the debate.
“This is a great suppressed topic,” said James K. Galbraith, an economist at the University of Texas. “It was absolutely mainstream from the start of World War II until the Reagan administration.”
If inflation is being caused by supply chain problems, how will raising interest rates help? — Larry Harris, Ventura, Calif.
Kristin J. Forbes, an economist at the Massachusetts Institute of Technology, said that a big part of today’s inflation ties to roiled supply chains, which monetary policy can’t do much to fix.
But trade is actually happening at elevated levels even amid the disruptions. Factories are producing, ships are shipping, and consumers are buying at a rapid clip. It is just that supply is not keeping up with that booming demand. Higher interest rates can relieve pressure on demand, making it more expensive to buy a boat or a car, cooling off the housing market and slowing business investment.
“A good part of the supply chain problems, you can’t do anything about,” Ms. Forbes said. “But you can affect demand. And it is the combination of the two which determines inflation.”
For two years, the stock market has been largely able to ignore the lived reality of Americans during the pandemic — the mounting coronavirus cases, the loss of lives and livelihoods, the lockdowns — because of underlying policies that kept it buoyant.
Investors can now say goodbye to all that.
Come 2022, the Federal Reserve is expected to raise interest rates to fight inflation, and government programs meant to stimulate the economy during the pandemic will have ended. Those policy changes will cause investors, businesses and consumers to behave differently, and their actions will eventually take some air out of the stock market, according to analysts.
“It’s going to be the first time in almost two years that the Fed’s incremental decisions might force investors or consumers to become a little more wary,” said David Schawel, the chief investment officer at Family Management Corporation, a wealth management firm in New York.
At year’s end, the overarching view on Wall Street is that 2022 will be a bumpier ride, if not quite a roller coaster. In a recent note, analysts at J.P. Morgan said that they expected inflation — currently at 6.8 percent — to “normalize” in coming months, and that the surge of the Omicron variant of the coronavirus was unlikely to lower economic growth.
16 percent gain during the first year of the pandemic. The index hit 70 new closing highs in 2021, second only to 1995, when there were 77, said Howard Silverblatt, an analyst at S&P Dow Jones Indices. Shares on Friday fell slightly.
The market continued to rise through political, social and economic tensions: On Jan. 7, the day after a pro-Trump mob stormed the U.S. Capitol, the S&P set another record. Millions of amateur investors, stuck at home during the pandemic, piled into the stock market, too, buying up shares of all kinds of companies — even those that no one expects will earn money, like the video game retailer GameStop.
What to Know About Inflation in the U.S.
Wall Street also remained bullish on business prospects in China despite Beijing’s growing tension with the United States and tightening grip on Chinese companies. Waves of coronavirus variants, from Delta to Omicron, and a global death toll that crossed five million did not deter the stock market’s rise; its recovery after each bout of panic was faster than the previous one.
“2021 was a terrific year for the equity markets,” said Anu Gaggar, the global investment strategist for Commonwealth Financial Network, in an emailed note. “Between federal stimulus keeping the economy going, easy monetary policy from the Fed keeping markets liquid and interest rates low, and the ongoing medical improvement leading to surprising growth, markets have been in the best of all possible worlds.”
400 private companies raised $142.5 billion in 2021. But investors had sold off many of the newly listed stocks on the New York Stock Exchange or Nasdaq by the end of the year. The Renaissance IPO exchange-traded fund, which tracks initial public offerings, is down about 9 percent for the year.
Shares of Oatly, which makes an oat-based alternative to dairy milk, soared 30 percent when the company went public in May but are now trading 60 percent lower than their opening-day closing price. The stock-trading start-up Robinhood and the dating app Bumble, two other big public debuts, were down about 50 percent for 2021.
supply chain disruptions stemming from the pandemic. Prices for used cars skyrocketed amid a global computer chip shortage. As Covid-19 vaccination rates improved, businesses trying to reopen had to raise wages to attract and retain employees. Consumer prices climbed 5.7 percent in November from a year earlier — the fastest pace since 1982.
But even when “inflation” had become a buzzword worthy of a headline in The Onion, the stock market appeared slow to react to price increases.
“The market is on the side that inflation is transitory,” said Harry Mamaysky, a professor at Columbia Business School. “If it’s not and the Fed needs to go in and raise interest rates to tame inflation, then things could get a lot worse in terms of markets and economic growth.”
And that is what the Fed has signaled it will do in 2022.
When interest rates go up, borrowing becomes more expensive for both consumers and companies. That can hurt profit margins for companies and make stocks less attractive to investors, while sapping consumer demand because people have less money to spend if their mortgage and other loan payments go up. Over time, that tends to deflate the stock market and reduce demand, which brings inflation back under control.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation costs and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains could also lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Mr. McBride said the values of many stocks were being supported by extremely low yields on Treasury bonds, especially the 10-year yield, which has held to about 1.5 percent.
“If that yield moves up, investors are going to re-evaluate how much they’re willing to pay for per dollar of earnings for stocks,” he said. Even if corporate profits — which were strong in 2021 — continue to grow in 2022, he added, they are unlikely to expand “at a pace that continues to justify the current price of stocks.”
quicken the pace of pulling back on that aid, set to finish in March.
“The nightmare scenario is: The Fed tightens and it doesn’t help,” said Aaron Brown, a former risk manager of AQR Capital Management who now manages his own money and teaches math at New York University’s Courant Institute of Mathematical Sciences. Mr. Brown said that if the Fed could not orchestrate a “soft landing” for the economy, things could start to get ugly — fast.
And then, he said, the Fed may have to take “very aggressive action like a rate hike to 15 percent, or wage and price controls, like we tried in the ’70s.”
By an equal measure, the Fed’s moves, even if they are moderate, could also cause a sell-off in stocks, corporate bonds and other riskier assets, if investors panic when they realize that the free money that drove their risk-taking to ever greater extremes over the past several years is definitely going away.
Sal Arnuk, a partner and co-founder of Themis Trading, said he expected 2022 to begin with something like “a hiccup.”
“China and Taiwan, Russia and Ukraine — if something happens there or if the Fed surprises everyone with the speed of the taper, there’s going to be some selling,” Mr. Arnuk said. “It could even start in Bitcoin, but then people are going to start selling their Apple, their Google.”
The stock market’s rally during the pandemic has been nothing short of amazing. But rising interest rates are raising the question of how long this bull market can last.
In the 12 months through March, the average general stock mutual fund tracked by Morningstar returned nearly 66 percent — a remarkable rebound after a three-month loss of nearly 22 percent at the start of last year.
The turnaround came after the Federal Reserve stepped in with support for financial markets and the economy, fueling much of the stock market’s exuberance with low interest rates.
But with the economy taking off, rates have begun to rise. At the start of a new quarter, it is a propitious moment to ask, how long can these strangely prosperous times last?
My crystal ball is no clearer now than it has ever been, alas, and I can’t time the market’s movements any better than anyone else. But this certainly a good time to assess whether you are well positioned for a possible downward shift.
As always, the best approach for long-term investors is to set up a portfolio with a reasonable, diversified asset allocation of stocks and bonds and then live with it, come what may.
Our quarterly report on investing is intended to help. If you haven’t been an investor before, we’ve included tips on how to get started. Here you will find broad coverage of recent trends, guidance for the future and reflections on personal finance in a challenging era.
It’s been a long, fine run for the stock market but a great deal of the upswing has depended on low interest rates, and in the bond market rates have been rising. Investment strategists are taking a wide array of approaches to deal with this difficult problem. For now, the bull market rides on.
Bonds provide ballast in diversified portfolios, damping the swings of the stock market and sometimes providing solid returns. Because bond yields have been rising — and yields and prices move in opposite directions — bond returns have been suffering lately. But adding a diversified selection of international bonds to domestic holdings can reduce the risk in the bond side of your investments.
Yes, the markets and the economy are complicated. That often puts people off, and stops them from taking action that can help them and their families immeasurably: investing.
But investing need not be complicated. A succinct article gives pointers on how to get started, and on how to navigate the markets for the long haul.
After a piece of virtual art known as a nonfungible token — an NFT — sold at auction for $70 million recently, NFTs have suddenly became an asset that you can invest in. Our columnist prefers real dollars.
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In the latest round of legislative proposals, some states are merely encouraging the teaching of financial skills while a few would make the subject a graduation requirement. Ohio, for instance, is considering a proposal that would require high school students to pass a half-credit class in personal finance in order to graduate. The class must be taught by a teacher trained in the subject matter.
The bill would also create a fund to help pay for training to teach the subject, said State Senator Steve Wilson, a Republican and former banking executive who co-sponsored the bill. He said he was hopeful that the bill would be voted out of committee this month.
“Kids come out of school having no clue about financial literacy,” Senator Wilson said. “You go out into the world greatly disadvantaged.”
Many financial literacy advocates consider a full-semester course the gold standard for personal finance instruction. Rebecca Maxcy, director of the Financial Education Initiative at the University of Chicago, said many courses focused mainly on skills, like writing a check or filing taxes. While those lessons can be helpful, she said, it’s important for courses to include discussions of how personal values and attitudes about money influence behavior, as well as an examination of the financial systems and potential barriers that students will encounter in the world of money.
Questions like “Who benefits when you open a bank account?” can prompt meaningful discussions, she said.
Some curriculum options, however, offer more condensed, basic instruction.
Everfi, a digital instructional company, offers a free seven-session program for high school financial literacy. Students take interactive, self-guided lessons in topics like banking, budgeting and college financing.
Sidney Strause, a freshman at Marshall University in West Virginia, said she had taken Everfi’s course as a junior in high school. The lessons were assigned as part of another course she was taking, and typically took 45 minutes to an hour to complete.
