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Building on President Joe Biden’s student debt cancellation plan, House Democrats on Thursday proposed new legislation that would increase federal student aid, lower interest rates on loans and take other steps to make college more affordable, the Associated Press reported. The bill is being pushed as a complement to Biden’s plan, which promises to wipe away student debt for millions of Americans but does little to help future students avoid heavy levels of debt. Democrats say their plan would tackle the root causes behind America’s $1.6 trillion in federal student debt. “Simply put, by making loans cheaper to take out and easier to pay off, the LOAN Act will help improve the lives of student loan borrowers — both now and in the future,” said Rep. Bobby Scott (D-Va.) chair of the House Education and Labor Committee. But similar to Biden’s loan cancellation plan, the proposed legislation does not address the rising cost of college itself, which has continued to increase for decades. Much of the proposal focuses on expanding federal Pell Grants, which are given to low-income students but have failed to keep pace with inflation and tuition rates. When the Pell program was started in the 1970s, the grants covered nearly 80% of tuition, fees and housing at a typical public university, according to federal data. Today, they cover about a quarter of those costs. The legislation would double the maximum Pell Grant, to $13,000, over a five-year span, and then make sure it stays even with inflation. Families that receive food stamps or Medicaid would automatically get an additional $1,500 per year. And students would be able to use Pell Grants for up to 18 semesters, up from 12 now. Interest rates on new federal student loans would be lowered starting in July 2023 to match the yield on the 10-year Treasury note, and all federal student loans would be capped at a 5% interest rate. Current caps vary depending on the type of loan but can reach as high as 10.5%. Older loans would be eligible for refinancing at the lower interest rates.

Americans have grown fond of “buy now, pay later” services, but the “pay later” part is becoming increasingly difficult for some borrowers, the Associated Press reported. Buy now, pay later loans allow users to pay for items such new sneakers, electronics, or luxury goods in installments. Companies such as Affirm, Afterpay, Klarna and PayPal have built popular financial products around these short-term loans, particularly for younger borrowers, who are fearful of never-ending credit card debt. Now, as the industry racks up customers, delinquencies are climbing. Inflation is squeezing consumers, making it tougher to pay off debts. Some borrowers don’t budget properly, particularly if they are persuaded to take out multiple loans, while others may have been credit risks to begin with. “You have an industry with a higher concentration of subprime borrowers in a market that hasn’t been effectively tested through (this type of economy), and you have a kind of a toxic brew of concerns,” said Michael Taiano, an analyst with Fitch Ratings, who co-wrote a report in July highlighting some of the concerns with the industry. The most popular type of buy now, pay later loans allow for four payments over six weeks — one payment at the time of purchase and three others that borrowers often try to sync up with pay periods. Longer-term loans for bigger purchases are also available. Most of the short-term loans have no interest attached to them. Given those features, consumer advocates and financial advisors initially had seen buy now, pay later plans as a potentially healthier form of consumer debt if used correctly. The biggest concern had been late fees, which could act as a hefty finance charge on a small purchase if a borrower is late on a payment. The fees can run as high as $34, plus interest.

Sen. Elizabeth Warren (D-Mass.) on Tuesday accused student loan servicing giant Navient of pushing its borrowers to refinance their federal loans into private ones, which would make them ineligible for a loan forgiveness program announced by President Biden, The Hill reported. Under a plan unveiled by the White House last month, individuals making less than $125,000 would qualify for up to $20,000 in forgiveness of federal student loans serviced by the U.S. Department of Education. Private student loans are not eligible for forgiveness by the federal government. Warren, during a Senate Banking, Housing and Urban Affairs Committee hearing, said Navient began persuading borrowers to refinance their loans around the time of the White House’s announcement, in what she characterized as an effort to keep the company’s profits up. Warren, along with Rep. Ayanna Pressley (D-Mass.), sent a letter to Navient President and CEO John Remondi asking for clarification of its business practices. The lawmakers asked Remondi how many borrowers received such solicitations, what information they were provided, and how Navient was ensuring its borrowers “receive the accurate and timely information to secure relief.” Navient said in a statement to The Hill that it made clear to borrowers the potential repercussions of refinancing.

A second year of emergency pandemic aid from the federal government drove poverty to the lowest level on record in 2021 and cut the number of poor children by nearly half, the Census Bureau reported yesterday, the New York Times reported. The poverty rate fell to 7.8 percent, down from 9.2 percent the previous year, according to the Supplemental Poverty Measure, a yardstick that includes wages, taxes and the fullest account of government aid. In addition, the share of children living in poverty sank to another record low of 5.2 percent, down 4.5 percentage points from 2020, an acceleration of a long-term trend. The share of people with health insurance at any point during the year rose slightly, to 91.7 percent. In large part, those changes reflect the trillions of stimulus dollars approved by Congress, culminating in the American Rescue Plan of March 2021. Real median household income reached $70,800, not significantly different from 2020, as increases in full-time employment were offset by rising inflation and decreases in unemployment insurance, which had been supplemented above normal levels through the summer of 2021. The “official” poverty rate, generally considered outdated because it omits hundreds of billions spent on programs like tax credits and housing assistance, also did not change significantly from the previous year. The official poverty rate was 11.6 percent last year, but the supplemental rate — which accounts for the impact of government programs — fell to 7.8 percent.

U.S. consumer prices overall rose more slowly in August from a year earlier, but increased sharply from the prior month after excluding volatile food and energy prices, showing that inflation pressures remained strong and stubborn, the Wall Street Journal reported. The Labor Department yesterday reported its consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and from 9.1% in June, which was the highest inflation rate in four decades. The CPI measures what consumers pay for goods and services. So-called core CPI, which excludes often volatile energy and food prices, increased 6.3% in August from a year earlier, up markedly from the 5.9% rate in both June and July — a signal that broad price pressures strengthened. On a monthly basis, the core CPI rose 0.6% in August — double July’s pace. Investors and policy makers follow core inflation closely as a reflection of broad, underlying inflation and as a predictor of future inflation.

Nearly half of the country's governors have signed off on a letter to President Joe Biden asking him to withdraw his student loan forgiveness plan that would cancel up to $20,000 for federal aid borrowers, NPR.org reported. "As governors, we support making higher education more affordable and accessible for students in our states, but we fundamentally oppose your plan to force American taxpayers to pay off the student loan debt of an elite few..." the governors said in a letter dated yesterday. The governors, all Republicans, argue that the lowest income Americans will be paying the debts of doctors, lawyers and professors "with the most debt, such as $50,000 or more..." Though, Biden's plan caps relief at $20,000 for those who received Pell grants — awarded to low-income students — and $10,000 for students who did not get Pell grants in college. Additionally, individuals who make more than $125,000 are not eligible for the one-time relief. "College may not be the right decision for every American, but for the students who took out loans, it was their decision: able adults and willing borrowers who knowingly agreed to the terms of the loan and consented to taking on debt in exchange for taking classes," the letter states. "A high-cost degree is not the key to unlocking the American Dream — hard work and personal responsibility is." It further argues that it is unfair to those who previously already paid off their student loans.

U.S. consumers' inflation expectations slid further in August as gasoline prices extended their steep decline from June's record high, a development likely to be welcomed by Federal Reserve policymakers weighing how big an interest rate hike to deliver next week, Reuters reported. Consumers in August saw inflation at 5.75% over the next 12 months, down from 6.2% in July and the lowest rate since October 2021, the New York Fed's monthly consumer expectations survey showed on Monday. They also foresaw price increases averaging 2.8% over the next three years — the lowest pace since late 2020 — after pegging inflation over that horizon at 3.2% in July. Moreover, consumers last month saw price increases running at 2% over the next five years, matching the Fed's own targeted inflation level. That was down from 2.35% in July and 3% at the start of the year when the New York Fed first started asking about inflation expectations over that time frame.