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When pay-later services like Klarna, which was founded in Sweden, arrived in the U.S. about a decade ago, they were largely used for one-time, discretionary purchases like concert tickets and high-end clothing. But as inflation mounts, Americans are increasingly turning to them to finance something much more mundane and essential: what they eat, the New York Times reported. And there are signs that the use of these services for repeated, everyday expenses like groceries and restaurant meals is pushing some users, particularly younger people who are already overextended, deeper into debt. Pay-later companies say their products are a convenient tool — like layaway plans or credit cards — to help consumers manage their finances in tough times. The services, with breezy names like Zip, Zilch and Affirm, are easy to use, with well-designed apps, websites, virtual credit cards and widgets. Shoppers can apply for them in a checkout line and be approved in minutes. Unlike credit cards, most of the services don’t charge interest or require applicants to undergo extensive credit checks. There is usually a processing fee for each purchase, typically paid by the merchant. Pay-later companies are already commonplace in countries like South Korea and Australia. Buoyed by inflation and the rise in e-commerce, they have quickly gained a foothold in the United States, where $45.9 billion in pay-later transactions were made online in 2021, up from $15.3 billion the year before, according to GlobalData, a data analytics company. Food, which accounted for about 6 percent of those purchases, appears to be an important part of the growth. In the last year, Zip, a company based in Sydney, Australia, says it has seen 95 percent growth in U.S. grocery purchases, and 64 percent in restaurant transactions. Klarna reports that more than half of the top 100 items its app users are currently buying from national retailers are grocery or household items. Zilch, says groceries and dining out account for 38 percent of its transactions.

U.S. President Joe Biden's decision to forgive a portion of student loan debt for many Americans is on a strong legal and fiscal footing, Bharat Ramamurti, director of the White House National Economic Council, said on Friday, Reuters reported. Biden said on Wednesday he would forgive $20,000 in student loan debt for borrowers who went to college on Pell Grants, and would forgive $10,000 for those who did not receive Pell Grants. The plan applies to those who earn less than $125,000 a year. Ramamurti emphasized on Friday that this was a one-time measure. The plan faced criticism from both Republicans and some Democrats over its potential price tag. And some questioned whether Biden had the legal authority to wipe away the debt unilaterally. Ramamurti said Biden's move is based on laws passed by Congress and that the White House is on "very strong legal ground." Ramamurti said the White House's initial estimates assume 75% of those eligible for the relief apply for it and cautioned that a more thorough financial review will be undertaken by the Education Department.

The few Americans who continued to make student loan payments during a federal pause enacted at the beginning of the pandemic will now be eligible for a refund, the Wall Street Journal reported. On Wednesday, President Biden announced a sweeping student loan forgiveness plan that will provide up to $10,000 in loan forgiveness for people with annual incomes below $125,000 or couples with incomes under $250,000. Those who received Pell Grants, a federal financial-aid award for students from low-income households, can be eligible for forgiveness of up to $20,000. The Education Department yesterday clarified that those who paid off all or part of their federal student loans since March 13, 2020, will still qualify for forgiveness. Borrowers can request a refund by calling their loan servicer directly. The student loan pause halted mandatory payments, interest accrual and collections on federal student loan debt from March 13, 2020, onward. The pause was a pandemic-relief measure that has since been extended multiple times. As part of Wednesday’s announcement, the pause has been extended until the end of the year, with payments set to resume in January 2023.

U.S. consumers are responding to surging prices for new cars and trucks by going deeper into debt, pushing the average new vehicle loan to a record-high $40,290 during the second quarter, credit monitoring company Experian said yesterday. The average monthly payment for a new vehicle loan rose to $667 in the second quarter, up nearly 15% from a year earlier, Experian said in its latest report on the automotive finance market. The average amount borrowed rose 13.2%, Experian said. The length of the average new vehicle loan stayed flat in the second quarter compared to a year ago at just over 69 months. Used car buyers also are borrowing more. The average used vehicle loan jumped 18.7% to $28,534, with an average monthly payment of $515, up 17%. Despite the Federal Reserve's efforts to cool the economy by raising interest rates, prices of new vehicles in the United States have been rising faster than overall inflation rate for much of the year. Automakers say they still cannot keep pace with demand because of shortages of semiconductors and other supply chain snarls. The price of the average new car or truck hit a record $46,259 in August, market research firm J.D. Power said this week. Experian said that loan data show that more consumers are opting for a used car or truck as new vehicle prices rise. Used vehicles accounted for 61.8% of all vehicle loans during the second quarter, up from 58.5% a year earlier.

President Biden said Wednesday he will cancel up to $10,000 in federal student loan debt for many borrowers — and double that amount for Pell Grant recipients — a move that could offer some level of forgiveness for up to 43 million people, the Washington Post reported. The forgiveness is expected to apply to Americans earning under $125,000 per year, or $250,000 per year for married couples who file taxes jointly. The White House estimates that nearly 90 percent of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could have their debt completely canceled. The president is also is extending a pandemic-era pause on federal student loan payments, first implemented under the Trump administration, through Dec. 31, and proposed creating a new income-based repayment plan to lower monthly bills for undergraduate borrowers. Current students with loans are eligible for relief, if their household income was under $250,000 during the last federal student aid award year. Loans must have been originated before July 1 to qualify. The Biden administration also proposed creating a new repayment plan tied to borrowers’ earnings, capping monthly payments for undergraduate loans to 5 percent of a person’s discretionary income instead of 10 percent. It also would raise the amount of income that is considered non-discretionary, and forgive balances after 10 years of payments, instead of 20 years. The White House’s decision rejects the warnings of centrist Democratic economists — such as Larry Summers, the former Democratic treasury secretary — who have said it will increase inflation and add to the federal deficit. Republican lawmakers are also expected to blast the White House over the move, arguing it offers unnecessary subsidies to Americans who made bad decisions while doing nothing for those who did not go to college. Additionally, the executive order will likely face legal opposition, said Lanae Erickson, who heads social policy at Third Way, a centrist Democratic think tank. She suspects the policy could be challenged on the same grounds as the West Virginia v. Environmental Protection Agency case, in which the Supreme Court ruled the federal government can’t act on policy with broad economic significance without clear congressional authorization. Read more.

For more information from the White House on the announcement, please click here.

Supply chain bottlenecks and labor shortages have been a major factor driving inflation in the U.S., though surging consumer demand ultimately did more to drive up prices in the last two years, according to researchers at the Federal Reserve Bank of New York, the University of Maryland and Harvard University, the New York Times reported. In a blog post on Wednesday, Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized findings from a paper presented in June that found higher consumer demand for all types of products during the pandemic was responsible for roughly 60 percent of the inflation in the United States between 2019 and 2021. Supply shocks — which include shortages of workers, raw materials and shipping containers needed to produce and move goods globally — accounted for the remaining 40 percent of inflation in the model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints. The researchers concluded that, without supply bottlenecks, inflation in the United States would have been 6 percent at the end of 2021, instead of 9 percent. The research finds that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe. “The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” Mr. di Giovanni wrote. The findings provide one answer to a debate that policymakers and politicians have been wrestling with about the nature of inflation, which slowed slightly to 8.5 percent in July. While many economists point to the government’s generous spending to support Americans during the pandemic as a key factor fueling inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine. The debate has important implications for the actions policymakers can take to fight price increases. The Federal Reserve has aggressively raised interest rates to try to cool consumer demand and the economy, but it has no tools to alleviate supply constraints.

President Biden will announce a decision today about his plans for student loan debt relief, a highly anticipated moment that could affect about 45 million borrowers nationwide, the New York Times reported. Although details of the plan were still being finalized, White House aides have said Mr. Biden was weighing a targeted plan that would provide $10,000 of debt relief for borrowers who make below a certain level of income. Mr. Biden also is expected to extend a pause on loan payments for all borrowers, a Trump-era program that has been in effect since the start of the pandemic. The federal government, the main lender for Americans who borrow to fund their higher education, holds $1.6 trillion in student debt. Mr. Biden has faced calls throughout his presidency to cancel a chunk of it, driven by borrowers and the progressive wing of the Democratic Party. He backed the idea of some relief on the campaign trail in 2020, saying: “I’m going to make sure that everybody in this generation gets $10,000 knocked off of their student debt as we try to get out of this godawful pandemic.” But White House aides say that the president has agonized over the decision, questioning whether cancellation should apply to students of both public and private universities and saying he does not want the relief to apply to those earning high incomes.

White House officials have been weighing -- and leaning toward -- the cancellation of up to $10,000 in student loan debt per borrower tied to an income threshold, CNN reported. According to multiple sources familiar with the discussions, the plan is designed to offer the forgiveness to individuals who earn less than $125,000 per year. In addition to that baseline of student loan debt forgiveness for individuals who fall under a certain income level, administration officials have also recently discussed the possibility of additional forgiveness for specific subsets of the population, according to sources familiar with internal discussions in the administration. The announcement could come as early as Wednesday, but it is not clear that a final decision on the details of the announcement -- as well as the timing -- has been made, and there could always be eleventh hour changes. The White House is also expected to address in the coming days whether to extend again the current pause on federal student loan payments, which is set to expire on August 31. Read more.

In related news, former Treasury Secretary Larry Summers yesterday cautioned the Biden administration against extending the moratorium on federal student loan repayments and knocked “unreasonably generous student loan relief” he said could worsen inflation, The Hill reported. “I hope the administration does not contribute to inflation macro-economically by offering unreasonably generous student loan relief or micro-economically by encouraging college tuition increases,” Summers, who served during the Clinton administration, said in a series of tweets on Monday morning. The Biden administration is expected to make a decision soon on whether to expend the freeze on repayment and interest accrual for student borrowers set to lapse at the end of the month. The pause was implemented under the Trump administration at the onset of the coronavirus pandemic and has since been extended six times. Advocates and Democrats have pressed for continued relief for borrowers, citing ongoing financial hardship due to the coronavirus pandemic and rising inflation that has forced many Americans to spend more on basic necessities. However, the continued moratorium has been met with considerable pushback from Republicans who say the relief is too costly and is unfair to Americans who didn’t attend college. Read more.