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Wall Street Journal
3 days ago
- Business
- Wall Street Journal
Millions of People Aren't Paying Their Student Loans. That's Everyone's Problem - Your Money Briefing
Full Transcript This transcript was prepared by a transcription service. This version may not be in its final form and may be updated. Callum Borchers: Here's Your Money Briefing for Friday, May 30th. I'm Callum Borchers for the Wall Street Journal. The student loan bill is due or past due, like way past due for millions of Americans who are now officially delinquent. Bummer for them, but does it matter for everyone else? Justin Lahart: Every penny that you have to pay to pay down your debt is a penny that you're not spending on something else. So that will weigh on the economy. Callum Borchers: We'll look at the ripple effect if a whole lot of people don't pay back their college debts. Wall Street Journal economics reporter, Justin Lahart, joins us after the break. Millions of Americans who borrowed money from the federal government to go to college are facing a harsh reality. Uncle Sam wants his money back and he's willing to use tough tactics to get it. Wall Street Journal economics reporter, Justin Lahart, has been digging into what this means for debtors and the rest of us. Justin's student loan payments restarted in late 2023 after a break during the pandemic. How many people aren't paying up and what kind of financial trouble are they in? Justin Lahart: There was an on ramp after 2023, took about a year where you didn't have to pay. But then starting in the fall of 2024, people were required to pay up. And what we saw is that in the first quarter there was a big jump in the number of people who were delinquent, who were behind 90 days or more on their loan. It hopped up from 1% to 8% according to the Federal Reserve Bank of New York. So there really are a lot of people who simply aren't paying. Callum Borchers: And what does that mean for their finances? I mean, is it digging their credit scores? Is it going to make it harder for them to borrow money? How might this make them feel some pain in the personal budget? Justin Lahart: It is digging their credit score. The New York Fed found that there was a big drop in credit scores. A lot of these people are already subprime credit, so they already have a hard time getting your credit card, mortgage, a car loan. But a lot of folks had good credit quality and getting dinged on this makes it so they're not going to be able to get those things like they might've just three or four months ago. Callum Borchers: You mentioned the on ramp earlier. The federal government didn't report these people to credit bureaus right away, now they are. How well is the federal government escalating its debt collection effort? Justin Lahart: The education department has said that for people who aren't paying that eventually they're going to garnish their wages, garnish taxes. The effects of that on the economy might take a while to show up, but the way this typically happens is that people have their tax returns garnished. Everyone's already filed their taxes, gotten their tax returns so that might be more of a 2026 event for the economy. There's also a separate issue that two really big servicers, Navient and the Pennsylvania Higher Education Assistance Authority, better known as Fed alone, they ended their contracts with the federal government to service loans. So you could imagine if you were someone who had been paying through Navient in 2019, right now you're getting a letter saying, "You owe money," but it's from some company that you've never heard of. You might think, "Man, that's a scam." The sad thing about that is someone, they may have been well-intentioned, they may have wanted to pay their debt or would've paid their debt. They're confused and they may have gotten their credit score dinged. Maybe now they're paying, but still that is a headwind for their finances and ultimately headwind for the economy. Callum Borchers: So clearly a lot of people are feeling squeezed. They're getting these scary looking letters in the mail. Their credit scores may be going down. You said they may think they're getting a tax return, but oops, Uncle Sam is actually keeping it as it turns out. But how does that translate to the broader economy? How might this show up for those of us who are not among the people falling behind on student loans? Justin Lahart: Every penny that you have to pay to pay down your debt is a penny that you're not spending on something else. So that will weigh on the economy. Morgan Stanley economists estimate that it will knock about one-tenth of a percentage point out of GDP. It could be more than that. The bigger concern right there is that it's not a huge drag on the economy, but it is a drag on the economy and this is an economy that is facing other issues, primarily tariffs, but also reductions in government spending, immigration restrictions and so on and so forth. So it just adds to the things that are pushing against the economy and could make for slower growth this year and next. Callum Borchers: Oh, interesting. So tell us a little bit more then about the profile of somebody who's falling behind on college debt payments. Who are these folks? Justin Lahart: Two things that are very predictive of whether someone fell behind. The first thing is if they did not finish their degree. So if you finished your degree, then you're able to get that job that pays better. It makes it easier to pay off your loan. Another thing is if people went to a for-profit college, so a lot of people got stung by these for-profit colleges, there's a lot of overlap between the two. The profile is really of people who are poor. It's not rich coastal elites who went to Brown who are falling behind. A lot of people think, "Oh my God, these folks are eating avocado toast instead of paying off their loans." But that's really not the picture that you see when you look at who these folks are. Callum Borchers: Well, given that description then Justin, and can we expect that most people who were delinquent to start paying up, now they see the is really serious, or are many going to continue to lag behind because they truly can't pay these debts? Justin Lahart: A little bit of both. If you are paying off your debt right, that puts severe constraints on you. There are some income-based loan payment plans, more of those might be helpful. It also might be helpful just for a little bit more guidance for these folks just to know the consequences of falling behind, especially for younger people, people who haven't had any experience paying off their debt. Callum Borchers: When the payments restarted. Justin, I talked to people who had already repaid their college debts, and I got to say many of them were happy to see the collections resume because they thought it was only fair that other people have to pay back their loans too. Is fair best for the economy? Justin Lahart: Yeah, that's a good question. In the long run, will the economy be better off if everyone repays their debt and gets through it? Yeah, maybe. But I've gotten a lot of email from people talking about how it's very important that people pay their debts, and fine. But the issue right now is that this is creating a headwind for the economy. It might be a headwind that you're willing to accept that you think is right, that you think is proper, but to think that it won't be some kind of at least temporary headwind for the economy just seems a little wrong. Callum Borchers: That's WSJ a reporter, Justin Lahart, and that's it for Your Money Briefing. Tomorrow we'll have our weekly markets, What's News in markets, and then we'll be back on Sunday with a bonus episode of YMB. We're calling it Keeping It Money where we'll take a deep dive on ways that you can make some extra cash. This episode was produced by Ariana Aspuru. I'm your host, Callum Borchers. Additional support this week from Zoe Kuhlkin, Jessica Fenton, and Michael LaValle wrote our theme music. Our supervising producer is Melony Roy. Aisha Al-Muslim is our development producer. Scott Saloway and Chris Zinsli are our deputy editors. And Philana Patterson is the Wall Street Journal's head of News Audio. Thanks for listening.
Forbes
4 days ago
- Business
- Forbes
Big, Beautiful Bill Builds Contrarian Case For Bonds
The 'big, beautiful bill' has turned into a bitter pill for bonds. As you've undoubtedly heard, bond buyers aren't exactly thrilled about lending more money to a $36 trillion debtor that's digging itself deeper into a financial ditch. Prior to the proposed 'One Big Beautiful Bill Act' (OBBBA), the Congressional Budget Office (CBO)—famous for crunching numbers through rose-colored glasses—already projected a $1.9 trillion deficit for 2025. Now, the CBO estimates that the current House-passed version of OBBBA will add an extra $3.8 trillion to the national debt over the next decade. This leaves Uncle Sam staring into a $40 trillion hole, deepening by roughly $2 trillion each year. Treasury bond yields spiked recently as buyers vanished. Last Wednesday, a seven-week stock rally reversed midday when the U.S. struggled through a weak $16 billion auction of 20-year bonds. The tepid demand for these long-dated Treasuries confirmed what many already thought—with Uncle Sam spending like a drunken sailor, who'd lend him more? Thus, the popular mainstream conclusion: The U.S. has entered its final 'doom loop' debtor stage. Rates are rising as bond investors demand higher compensation to offset the credit risk posed by Uncle Sam's ugly finances (you know, $40 trillion…). Higher rates increase the country's financing costs, which worsens the debt situation, which leads investors to demand even higher rates, and so forth. This implies we should avoid bonds entirely. To borrow a concept from billionaire investment manager Howard Marks, this is a 'first level' interpretation. It is accurate on paper but misses the nuances. In a truly free market, the 'bond doom loop' narrative would be valid. But in the real world that you and I inhabit, my fellow contrarians, we must elevate our thinking to the second level for more nuanced consideration. Here, we recognize the 'Quiet QE' the U.S. Treasury began under then-Secretary Janet Yellen. She subtly influenced the bond market by issuing short-term debt rather than long-dated Treasuries. This maneuver reduced the supply of long-term bonds, thereby suppressing long-term yields. (The same number of buyers chased fewer long-dated bonds, pushing prices higher and yields lower.) This strategic pivot was significant. At the end of 2019, short-term bills represented just 15% of marketable U.S. debt. By 2024, Yellen funded 75% of the deficit via the short end of the yield curve. Two summers ago at Contrarian Outlook, we identified this Quiet QE interplay between Yellen and Fed Chair Jay Powell. Renowned economist Nouriel Roubini published a paper 12 months later identifying this 'activist Treasury issuance' (ATI) as Uncle Sam's favorite plumbing tweak. Roubini confirmed the U.S. Treasury is, shall we say, finessing debt issuance to nudge longer-term rates lower than they'd naturally be. Without ATI, the 10-year Treasury yield would be 30 to 50 basis points higher—equivalent to up to two rate hikes in the Fed Funds rate. In other words, the 10-year yield would top 5% today if not for Quiet QE. And the cost of borrowing for business (lending rates) and individuals (mortgage rates) would be notably higher. Current Treasury Secretary Scott Bessent publicly criticized this tactic but has quietly continued it. Year-to-date, the Treasury has financed 80% of its funding needs through short-term issuance. If we witness more weak auctions like last week's, Bessent could very well lean even harder into lower cost short-term borrowing. Short-term rates are influenced primarily by the Federal Reserve rather than the broader bond market. And Jay Powell's term ends in less than a year, when President Trump will likely appoint an ally like Kevin Warsh, Kevin Hassett, or Judy Shelton, who will cooperate with the administration to lower the Fed Funds rate. A lower Fed rate will in turn reduce short-term Treasury yields. With 80% of issuance short term, this will significantly lower debt-service costs. In fact, this is already happening. Fellow financial author Mel Mattison notes that total interest on the public debt is declining year-over-year despite a ballooning deficit! Mel reminds us that Powell didn't start cutting the Fed Funds Rate until last September. So, this fall the decline in interest payments will really start showing up in the year-over-year data. More evidence against the case of the 'interest rate doom loopers.' Does this fix the giant US debt problem? Of course not. But Mel's point is that our politicians and central bankers have 'creative options' at their disposal. Vanilla investors tend to glance at the surface and move on. But we careful contrarians appreciate the nuances and gear our income portfolios accordingly. The somewhat-secret swap to short-term debt should bring a ceiling on long-term yields. Bessent, after all, is not going to tolerate a higher 10-year yield that boosts interest on the debt. He wants a cap on long rates, which will provide a floor beneath the bond market. He'll get one by limiting long-dated bond supply. Viewed through this lens, our DoubleLine bond funds look attractive here. If long rates are near a high watermark, then the prices of the paper owned by DoubleLine will enjoy a yield-driven tailwind. DoubleLine Yield Opportunities Fund (DLY) yields 9.1% and trades at a 2% discount to its net asset value (NAV), while DoubleLine Income Solutions Fund (DSL) pays an 11% yield and trades at par. Doubleline CEFs Contrarian Outlook These two bond portfolios are also supported by a strengthening economy. The negative first-quarter GDP print was likely the most bullish development for the real economy. Trump and Bessent will make sure we don't experience negative GDP growth in the second quarter. Consecutive negative quarters would officially signal a recession. They don't want this scarlet letter heading towards the midterms. Trump and Bessent no longer need an economic slowdown to push long-term yields lower—they'll simply work with the short end of the bond market from here. Political pressure on Powell, the 'lame duck' , will ease. As will pressure on the long end of the curve. Let's ignore the mainstream Chicken Littles declaring the end of bonds. These 'first level' thinkers overlook the power of coordinated Treasury and Fed policy. Here at Contrarian Outlook we recognize the monetary 'creativity'—and profit from it. Let's keep enjoying these DoubleLine monthly payers yielding up to 11%. Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever. Disclosure: none
Economic Times
4 days ago
- Business
- Economic Times
US, if it gets rough, export your faculty
When Uncle Sam turns Big Brother, it can be a curious spectacle resembling Great Hall of the People-style policy action - with American characteristics. Screening social media posts for foreign students seeking visas to study in US universities - as reportedly stated in a directive cabled to US diplomats worldwide on Tuesday - isn't only a bureaucrat's nightmare, but it's unlikely to shed enough light on applicants' political affiliations. In most cases, students applying for US visas intend to find jobs and settle in the country. The US offers a degree of freedom of expression that many foreign students are unaccustomed to at home. So, their social media posts are usually more 'conservative' anyway. As far as card-carrying radicals go, they may choose not to advertise the fact on social media at universities, on their part, need foreign students. Overall numbers flatter to deceive, and enrolment in advanced courses of top-drawer universities is truly multinational. It's not just a matter of capacity. Academic outcomes linked to industry funding are critically fulfilled by international students. Industry-funded research provides the US university system its embarrassingly enormous competitive advantage. American companies will seek to guard it against the progressive paranoia of the country's chief executive. If academic research is affected at home, it will be conducted offshore where the talent is. Trump has a fight on his hands to get US companies to invest more at home. But he seems to be opening another front where consumers and producers of innovation may find it easier to conduct their business campuses in India have had limited success principally due to a shortage of available faculty. This scenario could change if US universities find newer, tougher barriers on import of students too restrictive. Pushed into a corner, they could find it easier to export faculty. Globalisation has taken jobs to where the workers are. Attempts to reverse it could send research to where the talent is.
Economic Times
5 days ago
- Business
- Economic Times
Indian 'colonialism', go forth & prosper
Agencies Overseas jobs were always a lucrative option. Now, options are widening even further for Indians, as ageing developed economies increasingly seek skilled professionals amid a workforce shortage. 70k-1 lakh trained nurses have migrated, and demand is expected to rise by 15-30% this year. This is great. A bigger opportunity awaits trained (wo)manpower, that includes industrial and transport workers, hospitality staff, care workers, teachers, and office and administrative personnel. A 2024 BCG-Convergence Foundation report, 'Global Horizons: Securing the 8M+ Global Job Opportunity for India's Talent by 2030', states that if India plays its cards right, the potential stock of India's expat workers could hit 14-15 mn, with inward remittances projected to reach $300 traditional destinations like the Gulf, Canada, the US and Britain (the last two tightening their immigration policies at their own cost), new markets like Germany, Japan and South Korea beckon. But India isn't the only one eyeing this space. The Philippines, Indonesia, Egypt, Vietnam and Brazil are also vying for a piece of the pie. The Philippines has built a robust ecosystem - from a focused nodal agency and strategic diplomacy, to a dynamic private recruitment network and globally aligned skilling programmes. To unlock its full 'Go forth and prosper' potential, India must act decisively: forge G2G partnerships, streamline visa processes, brand and promote 'Talent India', align skilling with global standards - backed by subsidies, grants and scholarships - and offer formal financing to cover pre-migration costs, risks and insurance. India needs to 'colonise' the world with its talent. Such a rising tide can lift all boats, those anchored 'back home' included. Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. ET Prime Unicorn 100: Growth slowed for India's leading startups Uncle Sam vs. Microsoft: Which is a safer bet to park money? ET Prime Unicorn 100: A fifth of Indian unicorns saw revenue decline How this century-old Tata company is getting ready for the next 100 The BrahMos link that fired up this defence stock 45% in one month Stock Radar: SBI Life breaks out from a Pennant formation on daily charts; what should investors do? MNC pharma companies: Time to take a re-look? 8 pharma stocks, 5 with an upside of up to 34% Weekly Top Picks: These stocks scored 10 on 10 on Stock Reports Plus These large-caps have 'strong buy' & 'buy' recos and an upside potential of more than 30%
Epoch Times
5 days ago
- Business
- Epoch Times
Poking the Bear: What to Invest in During a Bear Market
Market swings are part of an investor's life. But what happens when the stock market takes a nosedive? What do you do when we fall into bear market territory? This is when a major stock market index like the S&P 500 suffers a decline of 20 percent or more from a previous high. But don't panic. Bear markets could open the door to some investing opportunities and more ways to diversify your portfolio. So here are some tips on where to stash your money during a bear market. Defensive Stocks Defensive stocks are shares of companies that provide essential goods and services that are in demand regardless of where we are in the market cycle. Many of these companies are known to remain resilient and even thrive under bear markets. Here are some examples of defensive sectors. Consumer Staples These are companies that provide food and common household products. Here are some of the top consumer staple stocks: Procter & Gamble Co. (PG) Coca-Cola Co (KO) PepsiCo Inc (PEP) Walmart Inc. (WMT) Costco Wholesale Corp (COST) Health Care This sector includes companies providing pharmaceuticals and medical supplies and equipment, as well as hospitals and long-term care facilities. It also includes biotechnology. Here are some of the top healthcare stocks: Johnson & Johnson (JNJ) Eli Lilly and Company (LLY) Pfizer Inc. (PFE) UnitedHealth Group (UNH) Abbott Laboratories (ABT) Utilities These companies provide electricity, power, and gas to communities across the country. Here are some of the top utilities stocks: NextEra Energy Inc (NEE) The Southern Company (SO) Dominion Energy Inc. (D) Duke Energy Corp. (DUK) Constellation Energy Corporation (CEG) Dividend-Paying Stocks Some companies pay portions of their earnings to shareholders on a regular basis in the form of dividends. So even in a bear market, these companies could provide a steady stream of income. Related Stories 4/22/2025 4/24/2025 Dividends are typically paid on a quarterly basis. The amount is determined by the firm's board of directors and based on the company's recent profits. You would want to look for companies with a history of strong earnings. Here are some notable dividend-paying stocks: ExxonMobil (XOM) Johnson & Johnson (JNJ) Alphabet (GOOG) NextEra Energy (NEE) PepsiCo PEP ConocoPhillips COP Bonds Bonds are essentially loans that you extend to corporations and governments. Bond prices often move in the opposite direction from stock prices. You may want to seek out investment-grade, short-term bonds to diversify your portfolio. You could also consider Treasury securities. These are debt investments issued by the U.S. government, and they are backed by the full faith of Uncle Sam—making them some of the safest investments around. Here are some examples. Treasury bonds : T-bonds are long-term bonds that pay a fixed interest or coupon payment every six months. They mature in 20 years or 30 years. Treasury notes : T-notes pay interest payments every six months. You can purchase T-notes in two-, three-, five-, seven-, and 10-year terms. Treasury bills : You buy T-bills at a discount to their face value. When the bond matures, you get the note's face value. The difference is essentially your interest payment. You can buy Treasury bills with maturities of four, eight, 13, 17, 26, and 52 weeks. Don't Panic Seeing your portfolio plummet during a bear market could tempt you to sell all your stocks. But that means you'd lock in losses and miss out on gains when the market recovers. And it will. Bear markets don't last forever. The typical bear market lasts an average of 9.6 months, according to an analysis by Rebalance Your Portfolio A bear market may be a good time to revisit and rebalance your portfolio. Your stocks may have taken a nosedive while your bonds could have seen significant gains. This would throw your asset allocation off balance and open you to risk. So you may want to sell some stocks and buy more bonds to shift the portfolio back in balance. The Bottom Line Bear markets are scary things. It can be depressing to see your portfolio take a plunge. But don't panic sell and lock in losses before the next bull market. Remember, bear markets are temporary. And you can also find investment opportunities in bear markets. You can look into defensive sector stocks, dividend-paying stocks, and bonds to get started. But overall, it's important to maintain a well-diversified portfolio aligned with your goals in any part of the market cycle. The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
