First things first. We have instituted a new comment system that should be smoother and easier for you to use!
Rather than click over to the blog to comment on our Money and Markets articles, you can now get the discussion going right on our website. Your comments will show up at the bottom, allowing you and your fellow readers to learn all you can in this topsy-turvy market.
Now, let’s talk about President Obama’s latest student loan push. I wrote just a couple weeks ago how student loan debt is crushing today’s graduates.
They’re coming out of college with an average of $29,400 in debt — or more than $1.1 trillion in total. That’s hampering the economy by reducing discretionary income, preventing potential first-time home buyers from stepping up, and suppressing the entrepreneurial spirit this country was built on.
|President Obama ordered the Education Department to extend monthly repayment caps to nearly 5 million student borrowers by Dec. 2015.|
The Money and Markets community blamed many different causes, and proposed some novel potential solutions. Then yesterday, Obama weighed in with an executive order that will dramatically expand programs aimed at reducing the student loan debt burden.
As a result, some 5 million additional borrowers will qualify for a program that limits debt payments to 10 percent of their income. That benefit was previously available only to borrowers who took out their loans after October 2007.
Obama also plans to ramp up education and outreach programs to get more students to participate — and to encourage them to pay their loans on time. Only 1.6 million people have taken advantage of one key relief program, a fraction of the 37 million Americans who have some kind of student debt.
Since government-backed loans account for roughly 85 percent of all student loans, federal actions have wide-reaching effects on current and former students. But there are some key caveats.
“Students are graduating with a trillion-plus-dollar monkey on their backs … and that’s going to have a whole host of negative impacts on the economy.”
First, the new rules won’t kick in until late 2015. Second, broader legislation that would allow students to refinance loans — whether government-backed or private — remains stalled. Senator Elizabeth Warren of Massachusetts is the bill’s main backer, but Republican opposition has so far blocked her efforts.
A key sticking point is the cost to taxpayers. Warren wants to raise taxes on richer Americans to pay for the bill, which could boost federal spending by $58 billion over the next decade. But ideological opponents say that it’s unfair to tax non-borrowers to pay for college debt relief.
In other words, it’s not clear yet how much relief students will see — and how much it will cost the country overall. The only thing that is certain? Students are graduating with a trillion-plus-dollar monkey on their backs … and that’s going to have a whole host of negative impacts on the economy. We should all expect the political fights over potential solutions to get rowdier as time goes on.
So what do you think? Is Obama’s latest proposal a good one? Should the president offer even more aggressive debt relief … or not? Do colleges need to shoulder more of the burden or blame, or should young Americans just be forced to suck it up and pay their bills? And how will the student debt burden impact the economy and your investments?
Weigh in by putting your thoughts in the comment section below.
|OUR READERS SPEAK|
Regarding the market advance and the reasons behind it, many of you believe it’s based on misguided assumptions, bad data and poor monetary policy.
Reader Peggy P. questioned the accuracy of the data showing more than 200,000 jobs being created the past few months, for instance. She said: “These numbers are a total joke. I know the newspapers play it up, but I don’t make decisions based on government numbers anymore.”
Reader John P. added that monetary policy has been an abject failure in terms of promoting a healthy economy, instead creating a two-tiered system in America. His comments:
“The experiment with money printing is essentially over. It’s a proven failure unless you consider the increase to the One-Percenters and the falling wages and lousy jobs gotten by the Ninety-Nine-Percenters to be some sort of ‘triumph’ for America. The very definition of a Third World country is one where a few thousand families live in the lap of luxury while the rest fight for the leftover table scraps.”
So what about you? Is the market advance built on a solid foundation? Or are we destined to give up these gains because the underlying economy simply doesn’t justify them? Comment below if you want to!
|OTHER DEVELOPMENTS OF THE DAY|
The “JOLTS” survey on jobs showed that the U.S. had 4.46 million positions waiting to be filled in April. That was up 289,000 from a month earlier and the highest since September 2007. Federal Reserve Chairman Janet Yellen is known to follow this data series closely.
While I’m at it, the National Federation of Independent Businesses (NFIB) survey that covers small businesses pointed toward an improvement in conditions. The group’s optimism index rose 1.4 points to 96.6 in May — the best reading in almost seven years.
The Wall Street Journal reported that the Government Pension Investment Fund in Japan is going to jack up its allocations to stocks and foreign bonds later this year.
So why should you care? Because it manages a whopping $1.26 trillion in assets for 70 million Japanese investors! If the fund raises its stock allocation to 17 percent from 12 percent, and its foreign bond allocation to 16 percent from 11 percent, it could funnel tens of billions of additional dollars into stocks and non-Japanese bonds.
Does it make sense to channel more money into those assets when volatility has collapsed and asset prices are at very high levels? That’s a question for the rest of us.
And who can forget the massive Japanese shopping spree for overseas assets in the late 1980s and early 1990s? Japanese investors bought up California’s Pebble Beach golf course, and New York City’s Rockefeller Center. Then Japan’s real estate and stock markets began to collapse — and a “lost decade (or two!)” followed in that country.
Reminder: We have instituted a new comment system that should be smoother and easier for you to use! Rather than click over to the blog to comment on our Money and Markets articles, you can now get the discussion going by putting your thoughts in the comment section below.
Your comments will show up at the bottom, allowing you and your fellow readers to learn from each other in this topsy-turvy market!
Until next time,