About 37 million borrowers will have to start paying back their student loans after a 3 year hiatus. Let’s discuss what that means.
Millions of student-loan borrowers will soon restart paying back their loans. This is equivalent to a Four or Five Percent Pay Cut according to Wells Fargo.
The typical monthly loan payment will be between $210 and $314, Wells Fargo estimated using data collected in 2019.
The return of loan payments will take more of a bite out of many borrowers’ budgets than a single year of dramatic rises in inflation did. From December 2021 to December 2022, the income of a typical U.S. household decreased on average by 1% when adjusting for inflation, according to estimates from the economists Thomas Blanchet, Emmanuel Saez and Gabriel Zucman.
Supreme Court Strikes Down Student Debt Cancellation, Cites Nancy Pelosi
The US Supreme Court wisely struck down President Biden’s executive power garb that usurps powers granted by the Constitution to the legislative branch of government. The 77-Page Supreme Court Decision was 6-3.
A paragraph on page 23 (PDF page 28) caught my eye.
… (quoting Gonzales v. Oregon, 546 U. S. 243, 267–268 (2006)). As then-Speaker of the House Nancy Pelosi explained: “People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.” Press Conference, Office of the Speaker of the House (July 28, 2021).
If you thought Nancy Pelosi never made any sense, you stand corrected.
On June 30, I commented Supreme Court Strikes Down Student Debt Cancellation, Cites Nancy Pelosi
Hoot of the Day
Despite being warned in advance, by Nancy Pelosi, President Biden called the decision “unthinkable”.
Precisely because he could not think, Biden kept upping the ante with more and more delays culminating in debt forgiveness.
Biden doesn’t think. Instead he lets Elizabeth Warren do his thinking for him. Warren’s handwriting is all over the unthinking president’s handling of student debt. And her signature is all over Biden’s Marxist nominees to the Fed.
Elizabeth Warren May as Well Be President, She Makes All Biden’s Calls
On December 28, 2021 I made the case Elizabeth Warren May as Well Be President, She Makes All Biden’s Calls
Joe Biden’s nominee for the Comptroller of the Currency Saule Omarova on oil, coal and gas industries: “We want them to go bankrupt if we want to tackle climate change.”
No one should be surprised by this even though Biden is not bright enough to find these Marxist nut cases on his own.
See the above link for details on who is making Biden’s calls.
And check out this Tweet by Saule Omarova praising Russia.
“Say what you will about old USSR, there was no gender pay gap there.“
Mercy!
Student Debt Repayment is Highly Disinflationary
Yesterday, I commented, “Nothing is more inflationary than paying people to do nothing.”
The opposite is true here. Nothing is more disinflationary than making people pay for something that used to be “free”.
Student debt cancellation wasn’t really free, of course, it was just spread out to make it a big deal for some and a very tiny deal to the rest.
Real Disposable Personal Income and Real PCE
Real Personal Income Chart Notes
- Real means inflation adjusted by the PCE price index.
- PCE stands for Personal Consumption Expenditures.
- Transfer payments are free money handouts such as Social Security, Medicare, Medicaid, and the three huge rounds of fiscal stimulus.
Excluding transfer payments, real income has gone nowhere. But the huge handouts led to equally huge jumps in income and spending.
The Fed has been struggling with inflation ever since. Demographics adds to the problem.
Student Debt Repayment Magnitude
The impact of the cancellation will have nowhere near the impact of three rounds of inflation causing fiscal stimulus.
Free money went nearly everywhere. Student debt forgiveness was targeted at a much smaller audience.
Do Rising Wages Tend to Increase Inflation?
The above discussion ties in with my post yesterday, Do Rising Wages Tend to Increase Inflation?
Think of three rounds of fiscal stimulus as paying people to do nothing. After a three year hiatus to students, repayment mandates will feel like making people pay for something that was once free.
Student debt repayment will impact spending but it’s nothing compared to fiscal stimulus handouts.
It’s a five percent pay cut for 37 million people but it will also stimulate overall consumer spending. Most will not be able to reduce expenses enough to offset the “pay cut”. Therefore, they will spend more in aggregate.
What’s with the chart? Mish appears to be graphing real DPI and real PI ex transfers with real PCE per capita. Fix it.
Resumption of student loan debt servicing is not necessarily disinflationary. It may just lower the savings rate.
Correct
Surprised No one else caught this.
Had some columns mislabeled.
Will fix today
Life is not fair. Never has been. Never will be. Better to accept it and get on with improving your own life as best you can, rather than focusing on what is happening to others. Because you will never be able to control what happens to others.
People who complain when others have good luck, get a break, or have success are wasting their time.
Fortunately, we live in a country where there is opportunity to create your own success. Best to focus your time on that.
good point papa. i chuckle when political nit wits use the term marxist in usa. the only institution in pax amerika remotely marxist is the VA and USA military. babies born on bases and buried in gov cemeteries and fed and clothed with gov issued clothing. yes, i understand they do the job of keeping our world wide imperial pursuits going. i don’t think they do much defending of us people or land. 9.11.01 was 100% blowback from our forward operations of bombing innocents for oil and other pursuits………….MARXISM. HA HA HA.
Wonder if the latest Biden scheme announced Friday to forgive $39 billion of college loans (around 10 percent of the earlier proposed giveaway) will get thrown into SCOTUS also?
Haha I wonder if biden could tell everyone to default then pardon them.
It wouldn’t surprise me.
But he can’t pardon in civil courts.
The Dow 3M : after eight months there is no close > Oct 2022 high. There might be a weekly/ monthly bull trap, but there isn’t on 3M, not yet.
SPX 3M : July is higher than Apr. If July closes SPX will drop. Once it starts u never know how far it can go.
If July closes > Apr high SPX will rise at least until Oct 3M bar or Jan 2024.
It’s business : 5% discount, 60 days terms, on $1.8T invoice, paying 7% interest, after 3 years delay. The bottom line ==> the Boiden gov reduces transfer money on the cusp of recession. COLA, SNAP, medicare… next.
The arguments about dead beats or those that paid off their student loans is reminiscent of those at the founding of this country when states such as Virginia had paid off most or all of their Revolutionary War debt and many or all of the Northern states had not. The arguments by the Southern states are all too familiar to those that have paid off their student debt or are near paying it off.
It is clear that many students upon graduation can’t enter into a commensurate position or starting salary that those in the Gen X or Baby Boomer Generations did. This is the fault of the political, economic and social elites in large part because they ran this country into the ground with tax give aways to the top 1% and bankrupted this nation with the endless wars and rising defense budgets after the end of the Cold War.
It becomes a fortiori egregious when comparing the loan forgiveness to the increase in the wealth and income gap that has occurred during the pandemic years and continues. In 2021 alone billionaire wealth grew 7% whilst labor income for production and non-supervisory personnel grew .833% over the same time frame.
I really don’t understand Tony’s mentality here. It’s like saying that little Jimmy got polio and ended up crippled therefore no one should benefit from the polio vaccine, everyone should simply suffer the way Jimmy did.
Except all the people that didn’t get polio went on to live their lives and build amazing things…some became doctors others engineers and some maybe soldiers that went off to fight in a war.
At some point we will have cures for cancer, being angry that someone you loved died from cancer before the cure was made available shouldn’t make you hate everyone that gets the cure.
And the obvious common rebuttal will be “no one forced you to take out loans…”
Well no one forces you to take social security or medicare at 65 yet everyone in that age group signs up for the free socialist goodies as soon as they can. The vast majority of loans come from the government anyway so the whole system is socialist.
I can make the argument that social security and medicare probably won’t be there for me when I retire, therefore no one should get social security or medicare.
Wrong.
I know of many students that upon graduation are earning twice what I was making.
Lest we forget, the Northern states had Alexander Hamilton and his Bank, the Southern states did not.
If you sign up for Social Security you do not have to sign a contract that requires you to take the money every month. If you sign a contract for a loan you do have to make the payments. Or you used to.
“At some point we will have cures for cancer, being angry that someone you loved died from cancer before the cure was made available shouldn’t make you hate everyone that gets the cure.”
Great analogy, and, at some point we’re going to have to socialize education.
Multi-national mega-caps will have no incentive to hire educated
Americans factoring tuition into their wages when every other country in the world has no such cost.
This was obvious back in 2008, a friend of mine’s coding team was fired from a data company, he was kept on for another year to remotely train their foreign replacements.
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That’s 2000’s bogeyman. Didn’t work out that way, and nobody that makes anything but crappy Salesforce-like software can make it work. Time zones and language and culture are hard to overcome.
Considering the Great Reset is coming, those countries governments may no longer be able to afford free college education.
And of course not one single comment about how to profit from this student loan situation. I’ve been keeping an eye on Navient Corporation since they are the largest student loan processor. The December 2024 OTM $20 calls have a juicy premium of 14% but I’ll wait cuz sleepy Joe can change the rules on a dime.
I dunno, the chart didn’t do much during, nor has it budged much since, not sure this particular sector is playable.
In most cases, where a topic is under discussion in a public forum like this, the smart money’s already made their move, if any move is there.
I wonder if anyone took advantage of the no-interest accruement situation to pay down their student debt all this time?
Or has everyone been sitting tight, waiting for forgiveness for their sins of irresponsibility?
The wise play would have been to put an amount that matched the monthly payment into an investment that generated some interest income. No sense paying off what might be forgiven, but there probably weren’t many ants and most were grasshoppers during the past 3 years.
I suspect it was not much different in Aesop’s time.
Apparently, in Aesop’s time unlike now, there were more ants than grasshoppers.
37 mil of 330 mil @ .95% equates to 0.56% of consumption.
Cash (Keynes) tends to be more immediate than Monetary, so assuming Powell et all pay attention, this could curtail the next hike…who knows.
Also – Not sure why the topic’s here, but –
“… Say what you will about old USSR, there was no gender pay gap there. Market doesn’t always “know best.” link to t.co
— Saule Omarova
This is incorrect, seems like she’s resorting to anecdotal hyperbole with a personal misconception, I just did a simple Google on “Russian gender pay gap” and nothing corroborates this.
The “Russian Economic Journal” has Russia gender gap at 25%, Statista has them at just under 24%, HSE University in Moscow has it at 30% to 35%.
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In the old USSR, they may not have had a pay gap for the same job, but the men got the managerial jobs and the women didn’t. Russia was patriarchal for a long time before it became Communist.
How about all of those who scrimped and did without in order to pay back his or her student loans? Now, a politician comes along and is able to “forgive” certain loans. What a total injustice and should be illegal. Of course, there are no laws for politicians. Despicable.
Those who paid off their debts are debt-free and not in trouble. The irresponsible continue to shoulder debts and have to deal with it. Perhaps they can take solace in student debt forgiveness, but a lot won’t qualify for this latest campaign stunt.
At some point, student debt forgiveness WILL happen, because its growing like crazy and its all government-sponsored. That is, it wouldn’t exist without government blessing, and therefore it should be a government blessing to get rid of it.
But really, at some point the debt is so vast and depressionary, that it will destroy the economy as a whole. At that point, the old truth comes into play: “debts that cannot be paid will not be paid.”
“But really, at some point the debt is so vast and depressionary, that it will destroy the economy as a whole.”
Sooner than later.
We’re the only developed country with no government provided college, it’s a serious problem in competitiveness, Globalization was never given enough thought.
I hear you and agree but it begs the question, if all the other countries in the world have free or subsidized college, why is it that all the developments of the modern world happen in the U.S.?
Why is the world dependent on Apple, Google, Microsoft, Hollywood, Boeing, GE, etc. And don’t get me started on all the financial engineering too from collateralized debt obligations to CMBS and other exotic trading instruments like digital currencies.
Almost everything is originally designed, architected, and created in the US then gets ships off overseas for manufacturing and subsequent copying of intellectual property.
The rich want the poor to find the system that makes them rich… simple as that.
The US is by far the most proficient at taking money from the future and spending it today. Occasionally on worthwhile things.
MPO,
“Almost everything is originally designed, architected, and created in the US then gets ships off overseas ….”
A majority of our current technological superiority is residual from DARPA (thanks to Eisenhauer), but even now signs are cropping up that other countries are beginning to match us. As in the case of Boeing losing ground to Airbus, or CERN. We shut down Fermilab funding and CERN LHC is taking it’s place in Switzerland.
Quantum/particle research is yielding some truly freakish developments, not just computers, but discoveries in material properties and EMR. Most of it’s happening outside America.
In the cold war, Congress was gung-ho to surpass Russian technology, now they’re gung-ho to complain about “wasteful spending” on projects they have little understanding of.
China’s giving college to students to grow it’s industry, We’re bitching about spending or groaning it’s not fair, not good.
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“ We’re the only developed country with no government provided college, it’s a serious problem in competitiveness”
And yet at about 44% with a tertiary education we are way above most of the OECD. Don’t let that get in the way of a good talking point for yet another unaffordable entitlement.
High School is “free”. Where has that gotten US?
The people who want to learn and prosper will find a way. Cancelling student debt will on encourage more people to go binge drinking for four years and then expect someone else to pick up the tab.
“The old folks home at the college”-Bob
Community college (at least in CA) is incredibly cheap. Students can go there for a year or two, get general education units, and then transfer to a UC or CSU. This is a lot cheaper than 4 years of university.
We’re the only developed country with 30% third world illiterate population who cannot be educated beyond 3rd grade.
Mortgages are govt sponsored so they should also be forgiven. Just because students irresponsibly into debt and get a useless degree they shouldn’t be responsible. Are you working for Bernie.
I paid cash for my house. I’d like some free services as well.
Yeap student loans housing crisis in 2008 etc etc. who has two thumbs and has not been bailed out by the government. “ this guy”
I highly doubt Biden ever though it would pass SCOTUS muster, Pelosi was spot on and he’s not stupid.
I’m betting an advisor coughed it up to buy time to buffer the Fed’s rate hikes.
So, yeah, buying votes…and, isn’t appeasing voters what an elected official should do?
To me, “Despicable” is Congress or the senate using fear tactics to convince folks that austerity, but not taxes on the wealthy, in the midst of the worse recession since the Great Depression is despicable.
“Despicable” is allowing banks to self regulate in the lead up to ’08, or allowing pharma to promote opioids as “non-addictive”, telling the public smoking is safe, or that we can never depend on EV’s because oil’s the only choice we have, semi-automatic assault rifles without background checks aren’t a problem ….all of these in exchange for campaign funds from profiting entities.
THAT is despicable.
Like usual your facts are just your own erroneous opinions. You cannot buy a semi automatic rifle or any gun without a background check. Before you post your usual fabricated facts get a grip. BTW, the number of people murdered per year per FBI statistics with ALL rifles is about 400 vs about 40000 gun deaths a year. More people are murdered with hammers. Geez, libtards never let facts get in the way of formulation their ideas.
“You cannot buy a semi automatic rifle or any gun without a background check. Before you post your usual fabricated facts get a grip”
Flat out wrong, try a little research before you react all knee-jerk, slick.
Private sellers aren’t required under Federal law, states control it, and for example, in Florida There is no limit to the number of firearms that can be transferred in a single transaction.
Drug cartels send straw buyers, and voila, a “well armed militia” not intended by the Constitution.
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I wonder how many die from government policy? Hundreds of thousands of Russians and Ukrainians because of US policy prolonging the war, homeless dying from exposure because of unaffordable housing via government and low interest rates making housing unaffordable or maybe suicides form ptsd resulting from government wars. That’s only a few, there are more.
Nah.
Despicable is stealing an Englishman’s speech and passing it off as your own.
They can lay it at the feet of the bribed Supreme Court. It was all perfectly timed. Trump would still be in office if he were capable of orchestrating such things. Whining just wasn’t enough.
Who bribed the 3 Marxist women on the Supreme Court to write fantasy based dissenting opinions, not based in the Constitution or law?
In the last election there was Twitter corruption, Facebook corruption, Google corruption FBI corruption, DOJ corruption, Intelligence Agency corruption, mainstream media corruption, etc., interfering in our election. If not for all that corruption, Trump would still be in office.