How Will Biden’s Student Loan Forgiveness Affect Inflation?
August 29th, 2022
Last week’s market summary (August 22nd-August 26th, 2022):
- S&P 500: –3.27%%
- Dow: -3.88%
- Nasdaq: -3.05%
- Bitcoin: -4.02%
Here's what we're covering today:
- Will Biden's student loan forgiveness plan exacerbate inflation?
- Moderna sued Pfizer and BioNTech for mRNA patent infringement.
- Housing market alarms are sounding all over the place.
- T-Mobile customers will be able to use Starlink internet….eventually.
- California is banning gas-powered cars.
Finally, I'll share two upcoming earnings calls that I think might be worth marking on your calendar.
What Everyone’s Been Buzzing About
1. Biden Announces Up to $20k of Student Loan Forgiveness.
After months of speculation, and just a week before federal student loan payments were set to restart, President Biden announced $10k of student loan forgiveness for non-Pell Grant recipients who earn less than $125,000 per year ($250,000 for couples). Eligible Pell Grant recipients can receive up to $20,000 of student loan cancellation under this new plan.
Will this lead to more inflation? While it might seem a given that these cancellations would lead to more cash flow and spending, the reality isn't quite so cut and dry. Unlike COVID-19 stimulus payments, forgiven borrowers won't be receiving a check for these forgiven balances. Instead, the forgiveness will go towards reducing or eliminating their payments.
But, remember, federal borrowers haven't been making payments on their student loans since March 2020 anyway. And in addition to the forgiveness announcement, Biden set a new repayment start date of January 1, 2023. Regardless of how the upcoming election turns out, I tend to think that this date will stick. So even if the forgiveness policy goes through without a legal fight (which isn't a given), millions of borrowers will still soon be staring at a bill that they haven't had to factor into their budgets for nearly three years.
To sum things up: In 2020, all federal student loan borrowers suddenly saw their discretionary income increase. This year, at most, some borrowers who qualify for forgiveness will see their discretionary income stay the same as it's been since the beginning of the pandemic. And next year, all other borrowers will see their discretionary income decrease once payments resume, which could actually work to reduce inflation.
Check out the full White House fact sheet:
FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most
2. Moderna Is Suing Pfizer and BioNTech.
Moderna filed a patent infringement lawsuit against Pfizer and BioNTech, accusing both competitors of copying the mRNA technology that's behind its COVID-19 vaccine. While it's not trying to remove any vaccines from the market, it's seeking financial damages starting from March 8th of this year.
For its part, Pfizer looks prepared to enter a legal fight. Here's what the company said via its spokeperson: “We remain confident in our intellectual property supporting the Pfizer/BioNTech vaccine and will vigorously defend against the allegations of the lawsuit.”
3. Signs of a Housing Recession Are Growing.
It seems like every day now we're seeing new real estate market data points that are plainly negative. Here are just a few that made headlines last week:
- New home sales skid 12.6% in July
- Home prices fell 0.77% last month – the biggest July drop since 2011
- Homebuilders say we're in a recession
- Fitch Ratings says that home prices could fall up to 15%
- Blackstone is halting homebuying in 38 markets
Phew, that's a lot of bad news. So is this a terrible time to invest in real estate? As with most investing questions, it depends. Here's what one of our writers who's a real estate agent thinks:
Is Real Estate a Good Investment Right Now?
4. Starlink Teams Up With T-Mobile.
Elon Musk and T-Mobile CEO Mike Sievert announced a partnership that they're calling “Coverage Above and Beyond.” Once it goes live, T-Mobile customers will be able to use Starlink satellites to gain an internet connection in dead cell service areas.
There's a caveat though. The speed of the Starlink connectivity will be just 2 to 4 Mbits per second. That's fine for text messaging and phone calls, but it's no good for video or other data-heavy activities. Also, the new service isn't even expected to beta launch until the end of next year.
5. California Plans to Completely Ban Gas Car Sales By 2035.
The new rules, which were approved by vote on Thursday, require California to phase out gas-powered car sales according to the following schedule:
- 2026: 35% of new cars sold must be zero-emission
- 2028: 51% of new cars sold must be zero-emission
- 2030: 68% of new cars sold must be zero-emission
- 2035: 100% of new cars sold must be zero-emission
California is the first state to implement such a ban. But multiple states are expected to follow soon with their own EV mandates including New York, Oregon, Washington state, and Rhode Island.
Looking to invest in electric vehicles? Here's how:
How to Invest in the EV Industry
What To Keep Your Eye on This Week
1. Earnings for ChargePoint Holdings (Tuesday, August 30th)
ChargePoint's stock has been on a tear this month (up over 20%) as two analysts recently raised their price targets. We'll see if the company can keep up the momentum after it reports Q2 earnings. ChargePoint currently ranks #2 on our list of the the best EV charging stocks. Find out why:
The 5 Best Charging Station Stocks to Watch in 2022
2. Earnings for Campbell Soup Company (Thursday, September 1st)
Nearly the entire stock market has declined in 2022. But not Campbell's Soup Company. Its stock has actually been “Mmm mmm good” this year — currently up over 17%.
The results actually aren't too surprising. Companies that provide consumer staples like Campbell's tend to outperform other sectors during recessions or inflationary periods. Looking for other sectors that can insulate your portfolio during an economic downturn? Check out these guides:
8 Best Recession-Resistant Industries to Invest In Right Now
8 Best Inflation-Proof Investments for 2022
Here are three stories from around the web that I found interesting this week:
Inside Satoshi Island's Bid to Become a Cryptopia (Investor Junkie). Ok, so yeah this is actually an Investor Junkie article. But it's the inaugural edition of our monthly ATM newsletter and we're quite proud of it. Our team put months of work into this piece and we hope that you find the topic as fascinating as we did!
To Make Money in the Stock Market, Do Nothing (New York Times). I love articles that give old-fashioned investing advice and remind me that it's ok to be a “boring” investor. This article definitely fits that description.
If Ethereum Starts Slashing, It Burns (CoinDesk). This one's a bit heady, but it breaks down the thorny decision that's facing Ethereum's leadership team post-Merge in regards to how it will treat “slash validators.” If you're a crypto nerd, you'll love this one. But if you're not, you can skip it 🙂
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