Judge Weighs Biden Administration’s Student Loan Forgiveness Plan​​​

Attorneys for the Biden administration and states challenging the president’s student-debt cancellation plan squared off at a federal court hearing Wednesday that left the fate of the loan forgiveness in limbo, the Wall Street Journal reported. The roughly two-hour hearing in a Missouri federal court came in a case brought by Republican-elected leaders in six states — Missouri, Nebraska, Arkansas, South Carolina, Kansas and Iowa — who are seeking to stop the administration’s effort to write off hundreds of billions of dollars in student debt. Those states are seeking a preliminary injunction that would block the administration from moving forward. Nebraska Solicitor General James Campbell, representing the state plaintiffs, argued that Congress never gave the U.S. Education Department far-reaching power to wipe out so much debt. He also said the Biden administration was indiscriminately forgiving loans without regard to financial need. “This is a massive use of federal agency power,” Mr. Campbell said. “What they’re trying to do is go around Congress, and this they can’t do.” Brian Netter, a lawyer for the Biden administration, defended the debt-relief and income-eligibility thresholds as a reasonable attempt to aid borrowers emerging from the pandemic weeks before the current student loan payment pause, which began in March 2020, is set to expire. Netter said a more targeted and less expensive forgiveness program wasn’t practical or necessary. “There doesn’t need to be a case-by-case evaluation,” he said. The case is among several pending suits contesting the legality of Biden’s cancellation program. (Subscription required.) Read more.

U.S. Applications for Jobless Aid Increased Last Week​​​

The number of Americans applying for unemployment benefits rose slightly last week but remains historically low, even as the U.S. economy slows in the midst of decades-high inflation, the Associated Press reported. Jobless claims for the week ending Oct. 8 rose by 9,000 to 228,000, the Labor Department reported today. The four-week moving average ticked up by 5,000 to 211,500. Considered a proxy for layoffs, applications for jobless aid have remained historically low since the initial purge of more than 20 million jobs at the start of the coronavirus pandemic in the spring of 2020. Read more.

Core U.S. Inflation Rises to 40-Year High​​​

A closely watched measure of U.S. consumer prices rose by more than forecast to a 40-year high in September, pressuring the Federal Reserve to raise interest rates even more aggressively to stamp out persistent inflation, Bloomberg News reported. The core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed today. From a month earlier, the core CPI climbed 0.6% for a second month. The overall CPI increased 0.4% last month and was up 8.2% from a year earlier. Shelter, food and medical care indexes were the largest of “many contributors,” the report said. Prices for gasoline and used cars declined. Read more.

‘Buy Now, Pay Later’ Is Still a Credit-Score Blind Spot​​​

U.S. consumers signed up for billions of dollars of “buy now, pay later” plans last year. Almost none are reflected in their credit scores, the Wall Street Journal reported. Equifax Inc., Experian PLC and TransUnion began allowing “buy now, pay later” companies to report their short-term payment plans earlier this year. But some of the biggest players in the business, including Affirm Holdings Inc., Klarna Bank AB and Afterpay, aren’t yet doing so. “Buy now, pay later” companies and credit-reporting firms are worried that the accounts could unintentionally lower consumers’ credit scores, even if they pay on time and in full. One credit-reporting firm ran a test of more than 130 million “buy now, pay later” loans and short-term payment plans that found that some 57% of consumers who have these accounts on their credit reports would experience a “material” credit-score decrease that could persist for over a year, despite paying the accounts on time. (Subscription required.) Read more.

CFPB Report Finds High Fees Charged on Student Banking Products Endorsed by Colleges​​​

The Consumer Financial Protection Bureau (CFPB) published a report today on terms and fees associated with banking products marketed in partnership with colleges to students, according to a press release. The report raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules. The report also highlights a lack of transparency in the arrangements schools have made with financial institutions. In conjunction with the release of this report, the Department of Education issued guidance to schools on requirements for college-sponsored banking arrangements and committed to additional oversight on this issue. Read more.

Mortgage Rates Hit 6.92%, a 20-Year High​​​

U.S. mortgage rates jumped to their highest level in more than two decades, the Wall Street Journal reported. The average 30-year fixed mortgage rate hit 6.92% this week, according to a survey of lenders released Thursday by mortgage giant Freddie Mac. Many lenders are offering rates well over 7%. A year ago, the average rate was 3.05%. The most recent jump, from 6.66% a week ago, took the rate above the peak of the last financial crisis. The benchmark has climbed nearly 2 percentage points since August, adding to an already brisk rise since the Federal Reserve began lifting rates earlier this year. The latest climb has been particularly painful for the housing market, putting homeownership out of reach for many would-be buyers because of the added monthly cost of paying a mortgage at a higher rate. (Subscription required.) Read more.

Report: Were Small Businesses More Likely to Permanently Close During the Pandemic?​​​

Previous estimates indicate that COVID-19 led to a large drop in the number of businesses operating early in the pandemic, but surprisingly little is known on whether these shutdowns turned into permanent closures and whether small businesses were disproportionately hit. A recent study by the National Bureau of Economic Research (NBER) provides an analysis of permanent business closures using confidential administrative firm-level panel data covering the universe of businesses filing sales taxes from the California Department of Tax and Fee Administration. NBER's study found large increases in closure rates in the first two quarters of 2020, but a strong reversal of this trend in the third quarter of 2020. The increase in closure rates in the first two quarters of the pandemic was substantially larger for small businesses than large businesses, but the rebound in the third quarter was also larger. The disproportionate closing of small businesses led to a sharp concentration of market share among larger businesses as indicated by the Herfindahl-Hirschman Index, with only a partial reversal after the initial increase. The findings highlight the fragility of small businesses during a large adverse shock, and the consequences for the competitiveness of markets. Read more.

U.S. Retirees to See Biggest Social Security Hike in More than 40 Years​​​

U.S. Social Security recipients will soon be getting the biggest boost to their monthly benefits in more than four decades, officials said today following the release of key inflation data that showed U.S. prices rising more than expected, Reuters reported. Retirees and other beneficiaries will get an 8.7% cost-of-living adjustment starting in January, the U.S. Social Security Administration, which administers the benefit program, said in a statement. That is the biggest hike since 1981, when benefits rose 11.2%, according to the agency's website. The average recipient will see $140 more per month in their 2023 benefit checks, it added, benefiting about 70 million people receiving Social Security or Supplemental Security Income (SSI) aid. Social Security officials also noted that premiums for Medicare are going down, giving older Americans "more peace of mind and breathing room" when coupled with the higher monthly checks. "This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned,” Kilolo Kijakazi, the agency's acting commissioner, said in a statement. Cost-of-living increases were lifted 5.9% last year but previously rose less than 3% a year for about a decade. Read more.

Information on How to Help with Hurricane Ian Relief Efforts​​​

ABI's thoughts are with the residents of Florida and other regions who have been affected by the flooding and destruction caused by Hurricane Ian. Read a note by ABI Executive Director Amy Quackenboss about ways to support the victims of Hurricane Ian in whatever way you can.

Wednesday’s abiLIVE Webinar Will Help You Better Prepare for Today’s Distressed Market Conditions​​​

Rising U.S. interest rates, a tightening money supply, continued inflation and geopolitical uncertainty are all contributing to uncertain market conditions. How can lenders help protect borrowers and safeguard their portfolios? Join SRS Acquiom and ABI as experts on this abiLIVE webinar next Wednesday share their views on these events, as well as strategies for meeting the risk of loan defaults head-on. Hear more about market-drivers, strategies for debt-restructuring, and the long-term outlook for financing. This webinar will draw from a recently released SRS Acquiom study, Smarter Navigation: Loan Restructuring 2022, co-produced with Debtwire. Register for free!

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