Joe Biden, the Student Loan Crisis, and the Problem with Economic Stimulus
November 20 | 2020
Last week, for the first time since the stock market began its precipitous fall in February, the Dow Jones Industrial Average stabilized above 29,000 points.
By Monday, November 16th, the Dow had surpassed all previous records, closing at 29,950. Meanwhile, the national death rate as a result of COVID-19 is as high as it's been since May. Meanwhile, working Americans continue to struggle and suffer, wasting their gas money waiting in endless lines for limited supplies of free food.
<p>If you, like <a href="https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx" target="_blank">nearly half of U.S. adults, don't own any stock at all</a>, the numbers above are essentially meaningless. Even for most of the people who are invested in the stock market, their investment isn't substantial enough to make up for issues like <a href="https://www.cnbc.com/2020/11/19/millions-of-workers-underemployed-as-virus-surges-prompt-closures.html" target="_blank">widespread underemployment.</a><br></p><p>And yet, <a href="https://www.cnn.com/2019/11/22/investing/stocks-market-fed-overnight-lending-rescue/index.html" target="_blank">the Federal Reserve has poured $4 trillion into maintaining the stability of investment markets</a> and ensuring that the Dow, the S&P 500 and various other numbers on charts that seem increasingly disconnected from reality move in the right direction. Why is that?</p><p><div id="ezoic-pub-ad-placeholder-131"></div>
<!-- End Ezoic - incontent2 - long_content --></p><div id="c786e" class="rm-shortcode" data-rm-shortcode-id="ce78aefbea7293933fb97ac5fa2a12a7"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1329252993733185539" data-partner="rebelmouse"><div style="margin:1em 0">30 million people in this country are at risk of eviction.
Millions of people are unemployed or underemployed from… https://t.co/pWGQY94iJT</div> — Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez)<a href="https://twitter.com/AOC/statuses/1329252993733185539">1605753584.0</a></blockquote></div><p></p><p>The answer to that question is complicated, but it is closely linked to the reason why President-Elect Joe Biden is currently on the receiving end of a lot of scrutiny and pushback on the topic of student loan forgiveness.<br></p><p>Recently the amount of <a href="https://www.marketwatch.com/story/the-17-trillion-question-that-did-not-come-up-during-trump-biden-presidential-debate-2020-09-30" target="_blank">student loan debt in the United States surpassed $1.7 trillion</a>. That amount has more than <a href="https://www.cnbc.com/2020/02/21/bloombergs-plan-to-tackle-the-1point7-trillion-student-loan-crisis.html" target="_blank">tripled in the last 15 years</a>, with around 45 million Americans currently holding some amount of student loan debt, and an average burden in excess of $30,000.</p><p>Most of that debt is <a href="https://www.nytimes.com/2020/11/07/your-money/student-loans-bankruptcy.html" target="_blank">nearly impossible to discharge through the standard bankruptcy process</a>. And the fact that most of that burden falls on young people — whose careers are less established and who face generational declines in wages and wealth — exacerbates the impact of that debt. It's a major factor in <a href="https://www.cnbc.com/2018/08/09/millions-of-millennials-are-locked-out-of-homeownership-heres-why.html" target="_blank">the worrying declines in rates of home ownership, marriage, and birth rate among millennials</a>.</p><p><div id="ezoic-pub-ad-placeholder-133"></div>
<!-- End Ezoic - incontent3 - longer_content --></p><p>It is widely acknowledged that the cost of higher education has ballooned out of control while it has increasingly been pushed as a necessary step on the path to prosperity. Underlying this problem is the fact that — <a href="https://www.bbc.com/news/magazine-32821678" target="_blank">unlike many developed nations</a> — our federal government doesn't offer affordable public universities or fund education in fields like medicine and engineering where we always need more skilled professionals.</p><p class="shortcode-media shortcode-media-youtube">
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</p><p>Instead we offer government-backed loans and guarantees that incentivize institutions to invest in administrative bloat and in expensive development projects to enhance their prestige and entice prospective students with unnecessary luxuries. Teenagers instilled with little sense of the financial commitments — but an unwavering belief in the necessity of college — have become cash cows.</p><p>The system as it stands is clearly broken, and whatever other reforms are called for, the resulting debt crisis is interfering with the spending power and attainment of an entire generation. In the context of a pandemic that has affected the livelihoods of so many, it would seem like an uncontroversial act for the government to alleviate some of that burden of student debt.<br></p><p>And for the most part, it is. Opinion polling shows that the notion of <a href="https://www.forbes.com/sites/adamminsky/2020/09/25/new-poll-shows-substantial-bipartisan-support-for-student-loan-forgiveness-and-other-relief-for-borrowers/?sh=14602aa12b7c" target="_blank">providing some amount of student loan forgiveness is broadly popular</a> across partisan lines.</p><p>The exception is among the pundit class — and the wealthy donors they represent. Because, as various political figures — including <a href="https://www.cnbc.com/2020/11/16/schumer-suggests-student-debt-forgiveness-through-executive-order.html" target="_blank">Democratic Senators Chuck Schumer and Elizabeth Warren</a> — have begun urging Joe Biden to make student loan forgiveness an early focus of his presidency, others in politics and the news media have done their best to push back.</p><div id="d17b3" class="rm-shortcode" data-rm-shortcode-id="2e3f727d707e9312d1023e111a6db655"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1143504500914884608" data-partner="rebelmouse"><div style="margin:1em 0">When you say #cancelstudentdebt, you’re saying a minority of people who had the advantage of obtaining a degree sho… https://t.co/BMbhxUHAbK</div> — Dan Crenshaw (@Dan Crenshaw)<a href="https://twitter.com/DanCrenshawTX/statuses/1143504500914884608">1561467692.0</a></blockquote></div><p>At the moment, a forbearance measure laid out in the CARES act has been extended through the remainder of 2020 — allowing those with federal student loans to defer payments for the time being. But further action being proposed would include forgiveness for debt owed to private companies.<br></p><p>Among the wide range of suggestions are legislation to provide <a href="https://www.cnbc.com/2020/10/23/biden-proposes-forgiving-10000-in-student-debt-for-public-service.html" target="_blank">$10,000 of debt forgiveness for individuals meeting certain restrictive criteria</a> and $50,000 of automatic forgiveness for all student debt holders — delivered through an executive order as soon as Joe Biden assumes the White House.</p><p>In either case, some would still be left with large burdens of debt, and some would likely be hit with unmanageable tax bills — as debt forgiveness is considered a form of income. But the debate has not largely involved addressing those shortcomings. Rather, many have questioned whether we should be considering these proposals at all.</p><p></p><p><strong>The objections tend to fall into three categories: It wouldn't help the right people, it wouldn't stimulate the economy as much as other measures, and "I paid off my student loans, so why shouldn't they?"</strong></p><p>The last is patently asinine, and should be ignored or mocked as it applies equally to any form of progress — "My face healed after smashing against the dashboard, so why should we add airbags now?" If the people espousing this perspective want to be acknowledged for their fiscal responsibility, here's the entirety of the praise they deserve: Good for you.</p><p>The fact remains that many people are not able to pay off their student loan debts, which can have a ruinous effect on their credit rating, affecting everything from interest rates on other loans to — in a cruel twist — <a href="https://www.cnbc.com/select/can-employers-see-your-credit-score/" target="_blank">their employment prospects</a>. There is a disturbing potential for an accelerating debt cycle that becomes impossible to escape.</p><div id="1d226" class="rm-shortcode" data-rm-shortcode-id="f031972cfe91ea552f9cee44e0d553ad"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1328480231993249796" data-partner="rebelmouse"><div style="margin:1em 0">“Things were bad for me, so they should stay bad for everyone else” is not a good argument against debt cancellatio… https://t.co/yyC60K5Uyz</div> — Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez)<a href="https://twitter.com/AOC/statuses/1328480231993249796">1605569343.0</a></blockquote></div><p>Even for those who are able to pay off their debts may feel pressured by the monthly payments to accept employment that they otherwise wouldn't — contributing to an imbalance in the employee-employer relationship that could further suppress wages. In short, it's bad.<br></p><p>So while it's valid to point out that there are others in the economy more in need than college graduates, we can't ignore the reality of the student debt crisis. Along with other important measures — further extension and expansion of unemployment benefits, rent subsidies, and direct payments to make it easier for people to stay home — student loan forgiveness should be considered an essential part of COVID relief.</p><p>Which leaves only one complaint left: It wouldn't do enough to stimulate the economy.</p><p>The basic issue is that the benefit of debt forgiveness is spread out over years or decades of remaining loan payments. And because it would also contribute to recipient's tax burdens, there is a concern that much of the cost of debt relief would not result in short term increases in consumer spending — the kind that spurs quick economic growth.</p><p>While that's worth being aware of, doesn't this objection have its priorities reversed? Isn't the entire purpose of a strong economy to improve people's lives? So why are we unwilling to improve people's lives unless it primarily contributes to short term economic growth?</p><p></p><p>Clearly our entire system has embraced this inverted way of thinking. That's why it can pass almost without notice when the Federal Reserve spends $4 trillion to prop up investment markets.</p><p>We happily spend that amount on measures that only directly benefit the wealthy, and yet — when it's suggested that we should spend a fraction of that on a popular policy that could improve the lives of 45 million Americans — it becomes a point of great contention.</p><h2></h2><p>We all seem to have forgotten the essential truth that the economy is meant to serve us — not the other way around.</p>
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Boeing's 737 MAX is to take to the skies once more after the go-ahead from the FAA, fueling the stock's rise.
Shares of Boeing (BA) have continued to climb this month, rising over 33% from their October 30th closing of $144.39, and have continued to climb this week.
<p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDc5MDcyMi9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY2MzE2MTg4OH0.QM6tsXHRjXKbzrUKNi0OUJN515zqPjRZvkI25XEjljE/img.jpg?width=980" id="6a1e7" class="rm-shortcode" data-rm-shortcode-id="51a89b0b4d9d6a00bd4f0a11e39e6c5b" data-rm-shortcode-name="rebelmouse-image" alt="Boeing stock value">
</p><p><br></p><p>There are a few key events contributing to this rapid rise in the stock:</p><p>1. October's quarterly report unveiled further job cuts, for the airline as well as a smaller-than-expected loss. Losses were $1.39 a share, beating out expected losses of $2.47 a share. Headcount will also shrink by <a href="http://www.fi-aeroweb.com/US-Commercial-Aircraft-Fleet.html" target="_blank">11,000.</a> Even in one of the worst markets for travel stocks in decades, investors appear to be confident in the company's long-term prospects.</p><p><div id="ezoic-pub-ad-placeholder-129"></div>
<!-- End Ezoic - incontent1 - mid_content --></p><p></p><center><script async="" src="//pagead2.googlesyndication.com/pagead/js/adsbygoogle.js"></script><!-- Popdust Mobile Banner 320x100 --><ins class="adsbygoogle" style="display:inline-block;width:320px;height:100px" data-ad-client="ca-pub-4301469008561137" data-ad-slot="6952751205"></ins><script>
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</script></center><p></p><p>2. With multiple COVID-19 vaccine trials reporting positive results, investors are starting to eye a post-coronavirus world where pent-up demand for travel will see millions taking to the skies. With Boeing still the market-leader in US commercial aircraft, expect that demand to trickle down to the airplane manufacturer's bottom line.</p><p>3. With the FAA clearing the 737 MAX to fly after two fatal crashes, the plane is expected to become a hot commodity once more. The planes have been grounded for 20 months while Boeing made changes to software, design, and training to reassure customers, and airlines are eager to get them flying once more. </p><p><div id="ezoic-pub-ad-placeholder-131"></div>
<!-- End Ezoic - incontent2 - long_content --></p><p>The 737 MAX has a longer range and <a href="https://www.nytimes.com/2020/11/18/business/boeing-737-max-faa.html" target="_blank">burns 14% less fuel</a> than Boeing's previous 737 NG, making it a strong choice for airlines' long-distance and trans-continental routes. Alaska Airlines and Ryanair are both expected to take MAX deliveries in a matter of months and US passengers could be prepared to fly in already-delivered planes as early as late December.</p><p><strong>That's not to say Boeing's rapid rise will continue.</strong> These vaccines are still awaiting FDA approval and the 737 Max still needs clearance from air safety regulators internationally including Transport Canada, Civil Aviation Administration of China, and the European Aviation Safety Agency. </p><p><div id="ezoic-pub-ad-placeholder-133"></div>
<!-- End Ezoic - incontent3 - longer_content --></p><p>Meanwhile, it may be an uphill battle for passengers to board a plane again after COVID-19, not the least on an airplane model that dominated the headlines following the <a href="https://www.thestreet.com/investing/boeing-posts-n..." target="_blank">crashes of Lion Air Flight 610</a> and Ethiopian Airlines Flight 302.</p><p>Positive news in the last month has allowed Boeing's stock to soar. The real question is how long will it stay up?</p>
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Tesla's ups and downs have been a roller coaster for investors over the last few years, but Monday's announcement that the company will be added to the S&P 500 should grab everyone's attention.
Tesla met the criteria to join the exclusive club representing some of the most valuable public companies in the US back in September. Despite the delayed addition, the S&P Selection Committee will include the company in the benchmark index starting Monday, December 21st.
<p>There is currently over $11 trillion in assets benchmarked to the S&P 500, including $4.6 trillion in indexed funds. With Tesla's addition, these funds will have to buy Tesla stock and include it in their portfolios. Passive funds are expected to purchase around 95 million shares while active fund managers will need to purchase 30 million on top of that. That's over $50 billion dollars flowing into Tesla stock as portfolios are rebalanced.</p><p>If you've been holding onto Tesla stock, this is great news for you as there is going to be much more demand from institutional investors forced to buy the stock. If you've been looking for the right time to sell, you're going to have a lot of eager buyers this December. The stock's jump in price after the announcement is a testament to how much value the increased demand is expected to create.</p><p><div id="ezoic-pub-ad-placeholder-131"></div>
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<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDc4NTcyMS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYzNDY5NjM3MX0.aVK9XFYGl02uwWQYKKVEUk0OMp2-VGkYQjbTRvCK-bc/img.png?width=980" id="c9843" class="rm-shortcode" data-rm-shortcode-id="7642b6ac3f003daef23cfc514857745c" data-rm-shortcode-name="rebelmouse-image" alt="Tesla S&P 500">
<small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Reuters</small></p><p>Even if you don't hold any Tesla stock, this will affect you too. Tesla is going to be one of the largest companies ever added to the index, and that $50 billion dollars is going to have to come from somewhere. All those investment funds indexed to the S&P 500 need to sell shares of other companies in order to buy Tesla to ensure their portfolios reflect the car company's portion of the index. This trade is expected to be so large that the S&P Dow Jones Indices is soliciting feedback as to whether Tesla should be added all at once or in two tranches to give investors more time to balance portfolios.<br></p><p><div id="ezoic-pub-ad-placeholder-133"></div>
<!-- End Ezoic - incontent3 - longer_content --></p><p>If you are invested in a fund that tracks the S&P, you might be excited that you are finally going to get a piece of some of the action. Come December 21st, many investors who have kept their money index funds will find themselves owning Tesla shares. If the stock continues on its upward trajectory, this is great news. However, some investors have accused Tesla stock of being a bubble and adding it at an inflated price may open investors to losses should the share price drop in the future.<br></p>
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During open enrollment or when you start a new job, you may find that your company offers the chance to enroll in a Flexible Spending Account (FSA - registered trademark). It might seem annoying to have money deducted from your paycheck at first, but it can actually save you money on health care expenses in the long run.
<p>An FSA is an account that takes money from your paycheck and puts it into a special account that you can only spend on certain healthcare items or eligible medical services. </p><p>You can use an FSA for copays for visiting the doctor, prescriptions, and even for services like new retainers or glasses. Some of the FSA-eligible expenses you might not even think about include sunscreen, condoms, and tampons.</p><p>Parents and children of elderly might be familiar with <a href="https://www.fsafeds.com/explore/dcfsa/expenses" rel="noopener noreferrer" target="_blank">Dependent Care FSA</a>, a similar pre-tax benefit used to pay for things like after school programs and even adult daycare. </p><p><div id="ezoic-pub-ad-placeholder-131"></div>
<!-- End Ezoic - incontent2 - long_content --></p><p><strong>The money taken out of your paycheck is pre-tax</strong>, meaning that while you can't spend the money on just anything, if you are able to estimate your medical expenses for the next year, you can avoid paying payroll taxes on up to $2,750. </p><p>If you've had your eye on LASIK surgery (eye – LASIK, get it?) you can include extra money in your FSA contribution for the next year and <strong>pay no taxes on the money from the FSA you use to pay for the surgery.</strong> </p><p>Many plans allow you to access the full year's contribution on January 1st. This means you can use the FSA as an<strong> interest-free loan</strong> for medical expenses. The money is going to be deducted from your paycheck anyway, so why wait?</p><p>The big downside to an FSA is that you usually can't change your contribution mid-year. So, if you run out of money in the FSA funds in July, you'll have to use regular after-tax dollars to pay for qualified goods and services. </p><p><div id="ezoic-pub-ad-placeholder-133"></div>
<!-- End Ezoic - incontent3 - longer_content --></p><p>Conversely, put in too much, and you might be scrambling in December to find eligible expenses to spend the money in your FSA account. <strong>An FSA is use-it-or-lose-it</strong> – you have to spend all the money that year or <em>poof</em>, it's gone. However, if you have funds remaining in your account at the end of the plan year, there is a grace period of two months and 15 day. That means you have until March 15th to spend money from the previous year. </p><p>To decide how much to contribute to an FSA, I recommend a few steps:</p><ol class="ee-ol"><li>Look at your qualified medical expenses that happen on a regular basis. If you know you're going to have a $20 copay every week for therapy or a $35 copay every six months for a checkup, take note of it.</li><li>Think about any big procedures or items you might want in the next year. If you're thinking it's about time for new prescription sunglasses, be sure to set aside some money for that.</li><li>Do some research about what FSA-eligible items you use regularly and get a rough estimate as to how much you might spend on them. I usually check out the <a href="https://fsastore.com/FSA-Eligibility-List.aspx" rel="noopener noreferrer" target="_blank">FSA Store</a> to get an idea of the different categories. If you're addicted to a certain lip balm or have been dying to try light therapy for your acne, try to get a ballpark idea of how much you're going to spend next year. I don't know what guy needs to hear this, but you probably do not need that many condoms even if they are tax-free.</li><li>I like to then add a small gross up for incidentals that may pop up (nobody plans on spraining a wrist) and any random expenses you might have (if you have to pay for parking at the hospital or something, you can use your FSA). The specific amount depends on how comfortable you are of running out of your FSA if something comes up and how much extra you can afford to set aside each week from your paycheck.</li><li>Add that all together and that's how much you should set aside in your health care FSA.</li></ol><p>Once you have your limited purpose FSA, you can use the <a href="https://play.google.com/store/apps/details?id=com.fsafeds.ezreceipts&hl=en_US&gl=US" rel="noopener noreferrer" target="_blank">FSA mobile app</a> for deadline reminders and eligibility checks. </p><p>You can retain hundreds of dollars a year in tax savings by paying your medical expenses with money from your FSA all while keeping you healthy. If your employer offers one with your health insurance benefits, I definitely recommend enrolling. Spend more on your health, and less on the internal revenue service. </p>
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