You can't apply yet, but 'get ready' for student loan wipeout plan

 In a matter of weeks, the Biden administration is set to unveil applications for student borrowers to register for up to $20,000 in loan forgiveness. 

Under the effort announced last week, some borrowers will be able to apply for up to $10,000 in forgiveness, and double that sum for Pell Grant recipients.  

The administration says up to 43 million borrowers could see relief as part of the broad program, and the vast majority of these borrowers make under $75,000 per year.  

Applications are expected to drop by early October, and borrowers will have a short window to apply if they want to see relief take effect before the end of the year. 

Here are a few key steps student borrowers can take now to prepare for the application process.  

Log into your student aid account 

It’s been a long time since many student borrowers have had to make payments on their debt, and some new borrowers have yet to do so thanks to a years-long pandemic freeze on repayments set to lapse in the next few months.  

One of the first things experts have urged borrowers to do in the coming weeks is log into their account at StudentAid.gov. There, borrowers will be able to view a breakdown of their federal loan and grant information as well as track and manage their federal loans. 

“Some borrowers, depending on when they were enrolled, may have to first create an FSA [Federal Student Aid] ID to log into that student aid account,” said Rachel Gentry, director of government relations at the National Association of Student Financial Aid Administrators. “Some borrowers already have that ID from when they were students.” 

Gentry stressed that borrowers should ensure now “that their contact information is all up to date” with both their loan servicers and the Education Department in their StudentAid.gov account. 

The agency has said about 8 million borrowers could be eligible for automatic relief if their “relevant income data is already available” to the office. But borrowers will also be able to apply for forgiveness by early October if the agency doesn’t have that income data. 

Borrowers who continued to make payments during the pandemic could also be eligible for a partial refund. 

More details are expected to come out about the plan in the weeks ahead, but borrowers can also sign up for updates on the department’s main website. 

Find out which loans you have

President Biden’s forgiveness plan likely won’t relieve private loan debt, experts say, though there are questions about whether borrowers with certain loans issued by private lenders will be able to see relief. 

In particular, experts are awaiting more information on how the department will handle Federal Family Education Loan Program (FFELP) loans.

FFELP loans “were issued by private and state lenders, but they were guaranteed by the federal government,” Gentry explained. “So what that means is that if one of those borrowers were to default on their loan, the government would pay those private and nonfederal entities who are the lenders a substitute to kind of make up for their losses.”  

“When we transitioned to 100 percent direct lending a little over a decade ago, some of those [FFELP] lenders’ portfolios were purchased by the federal government … so those loans that were purchased at that time basically became like federal loans,” she continued.  

However, Gentry said some of the commercially held FFELP loans are still owned by private and state lenders.  

“We’re still waiting for more information on what folks with commercially held [FFELP] loans are going to need to do to access the forgiveness, whether they there will be a way for them to not have to take action to receive forgiveness or whether they’ll have to consolidate,” she said. 

Check your income eligibility  

Eligibility for the relief extends to borrowers with incomes of less than $125,000 for individuals and $250,000 for married couples and heads of households. 

Experts say the amount will be based on income earned in 2020 and 2021, so borrowers may need to have that information available. 

“Borrowers should make sure that they have access to those tax returns so that they have a sense of what their reported income is in those years,” Katharine Meyer, a fellow for the Brown Center on Education Policy at the Brookings Institution, said. 

“My read of the policy is going to be based on the lower of those two, so they should be familiar with which of their household incomes was lower in those two years,” she said. 

Meyer also said borrowers shouldn’t be too concerned about a tax implication of this forgiveness program, noting “an exemption on taxing forgiven debts right now that runs through the end of 2025.” 

However, there have been questions raised about borrowers who could have to pay some state taxes on the relief depending on where they reside. 

Get acquainted with other programs 

Many borrowers can participate in a federal income-driven repayment plan and could be eligible for Public Service Loan Forgiveness (PSLF).

The Education Department currently lists four income-driven repayment plans online that have varying durations and pay thresholds depending on factors such as level of higher education attained and income. 

Under the current PSLF program, borrowers with government jobs or who work at nonprofit organizations could be eligible for forgiveness after 120 qualifying monthly payments, or a decade of consistent repayment.  

Experts have urged borrowers to move quickly on applying for that program ahead of an October deadline. 

“One potential area for confusion that borrowers are going to face in the coming months is the dual deadlines of submitting for potential forgiveness, and the process to apply for the temporary public service loan forgiveness program waiver,” Meyer said. “That program has a deadline at the end of Oct. 31.” 

That deadline matters, Meyers said, because of the Education Department’s temporary loosening of eligibility requirements for the PSLF program that is set to lapse. 

“These are things like counting prior payments that were not made under an income-driven repayment plan toward forgiveness,” she said. 

“Many individuals may need to consolidate their loans in order to be eligible for that program,” she added. “That consolidation shouldn’t affect the eligibility of those loans to then get forgiven whenever that process gets rolled out. But I could see how a lot of borrowers will be confused about that.” 

Prep that budget 

Borrowers will have until the end of next year to apply for the broader forgiveness program announced last week. But they are advised to apply by Nov. 15 if they want to see the relief take effect before the end of the year — which is when the current pandemic freeze on repayment will expire. 

The moratorium, which also applies to interest accrual, was extended last week through Dec. 31, marking the seventh such time the pause has been renewed since it was first enacted in March 2020. 

However, the Biden administration has made clear it won’t be shooting for an eighth extension, which means many borrowers will likely have to prepare to make regular payments for the first time in years.  

A report released by the Education Data Initiative earlier this year placed the average monthly student loan payment at around $460. But borrowers can pay more or less depending on their payment plan. 

For example, the Education Department notes on its website that some borrowers could qualify for zero-dollar payments if they make under a certain amount. 

”If you are experiencing financial difficulty and you expect to be experiencing financial difficulty, you can explore your options with a loan servicer,” student loan expert Mark Kantrowitz said. “Don’t wait until Dec. 31 to call the loan servicer.” 

https://thehill.com/policy/finance/3623198-five-ways-student-loan-borrowers-can-prepare-to-apply-for-forgiveness/

Fauci warns of ‘pretty bad flu season’

 Outgoing chief White House medical adviser Anthony Fauci said the U.S. should prepare for a “pretty bad flu season” later this year.

Speaking with Bloomberg Law, Fauci noted that a more severe flu season has already been observed in the Southern Hemisphere, which encounters new annual flu strains sooner than the Northern Hemisphere.

“We should be prepared for that superimposed upon what I hope is the residual and not another spike of Covid,” Fauci told Bloomberg.

Despite reports of a more severe flu season from the Southern Hemisphere, the Centers for Disease Control and Prevention (CDC) has stated in its guidance that the recommendations for flu vaccinations this year are similar to last year’s.

The majority of people who only need one flu shot should plan to get immunized in September or October, according to the CDC.

On Wednesday, the Food and Drug Administration (FDA) authorized bivalent COVID-19 boosters, which were updated to target a subvariant of omicron.

Fauci said he hoped the updated shot could help impede the concurrent viral spread of both the coronavirus and influenza.

In the event that the pandemic takes a turn for the worse, Fauci said he would still stick to his plans of leaving government work behind.

Fauci became the face of the U.S. COVID-19 response throughout the pandemic, but announced in August he will step down from his positions in December after more than 50 years of government service.

The longtime director of the National Institute of Allergy and Infectious Diseases said he was “comfortable” with the FDA’s decision to authorize the omicron booster based on animal studies. Flu shots are approved through a similar process.

Fauci added that he hoped the U.S. will continue to improve on the existing vaccines and treatments for COVID-19.

“One of the mistakes we’ve made is that we concentrate on the problem that’s right in front of you, and put off focusing on what might be a problem in the future,” said Fauci.

https://thehill.com/policy/healthcare/3623955-fauci-warns-of-pretty-bad-flu-season/

Agios up on Forma deal

 

Agios Pharmaceuticals (NASDAQ:AGIO), a biotech targeting the blood disorder sickle cell disease (SCD), climbed after news of Novo deal for Forma.

https://seekingalpha.com/news/3879437-agio-stock-jumps-after-novo-deal-to-acquire-rival-forma

Axsome starts late stage migraine study

 Axsome Therapeutics 

AXSM-3.33%+ Free Alerts

 has enrolled the first patient in the EMERGE trial of its lead candidate AXS-07 for the acute treatment of migraine.

EMERGE study is a Phase 3 trial to assess the efficacy and safety of AXS-07 in the acute treatment of migraine in patients with a prior inadequate response to an oral Calcitonin Gene-Related Peptide (CGRP) inhibitor.

The trial will enrol upto 100 patients experiencing migraine attacks and will be treated with AXS-07 for up to eight weeks.

The two co-primary endpoints will be pain relief and absence of the most bothersome symptom two hours after dosing.

The study is being conducted to further demonstrate the clinical profile of AXS-07 and is not a regulatory requirement.

Migraine is distinguished by recurrent attacks of pulsating, often severe and disabling head pain associated with nausea, and sensitivity to light and or sound.

Axsome Therapeutics is a biopharmaceutical company developing and delivering novel therapies for central nervous system (CNS) conditions that have limited treatment options.

https://www.benzinga.com/general/biotech/22/09/28716969/axsome-therapeutics-commences-late-stage-migraine-study

'Straw That Breaks Market's Back': Fed Must Do $3.9 T In QT To Control Inflation... Which It Can't Possibly Do

 Starting with first principles, there is one thing that almost all traders can agree on and it is that, sooner or later, the Fed tightening cycle will spark another financial crisis and market crash, something which we reminded readers in early 2022:

But while there is little disagreement on what the Fed's endgame is, the big question is how we get there and what exactly will lead to the overtightening that crashes the economy, sparks a policy panic and starts another Fed overreaction in the opposite direction.

For much of the past 6 months, Wall Street was confident that it would be the Fed's rate hikes which started in March from 0.0%, and have since crept up to 2.25-2.50%, and are expected to rise another 1.00%-1.25% before the Fed eases back.

Incidentally, one of the reasons so many Wall Street professionals expected the Fed to pivot dovishly sooner rather than later, is that few expected the Fed would so aggressively seek to trigger then next recession, and to keep hiking until something did break. In fact, back in April SocGen quant Solomon Tadesse - who made waves on Wall Street trading desks four years ago, when he went against the consensus view, and in 2018 pinpointed the peak in Fed Funds at a lowly 2½% which turned out to be spot on - calculated that the Fed Funds rate won't be able to climb above 1.0% before the Fed overtightens into restrictive territory, i.e., will have to ease (the explanation for his thinking is here).

Of course, 4 months later and 1.5% above the proposed 1.0% "redline", Solomon's math was clearly wrong. But was he wrong or did the SocGen quant merely underestimate the far greater weight that the Fed's balance sheet, or QE (and thus QT) has on overall easing (and tightening) of financial conditions?

That is the topic Tadesse and his SocGen quant peers discuss in their latest Practical Quant Investor note, titled "Might QT be the straw that breaks the market's back", in which they note that in recent weeks, financial markets and monetary policy  pronouncements seem too focused on the policy rate to deal with inflation containment. However, extending on what we said above, the SocGen quants note that "what has been unique in post-GFC monetary policy was the reliance on QE to induce the needed easing." As they also note, in recent years it was not policy rate hikes – which were on an orderly course – that laid low financial conditions, leading to a surprise pivot in monetary policy in December of 2018, but rather the quietly accelerating QT. By the same token, Tadesse warns "it could be a ramp-up in QT, this time on a larger scale to erode a much larger balance sheet, that could surprise markets." This is a prudent warning because three months after QT started at a pace of $47.5BN per month from June through August, starting Sept, the Fed will double the pace of Quantitative Tightening to $95Billion, draining twice as much liquidity from the market.

Before we delve deeper into the SocGen quant's analysis, let's first back up, and briefly discuss what happened in the post-June market meltup which as Tadasse puts it, until last week's hiccup, "was a byproduct global markets had recently been on a bullish ascent, buoyed by hopes of an easing in inflation and thus a Fed pivot. Yet, central bank policy pronouncements and policymakers have been quick to warn that this expectation is premature." Therefore, investors - SocGen summarizes - "face a historic dilemma: a choice between the two age-old investing creeds of ‘Don’t Fight the Fed’ versus ‘Don’t fight the Tape’."

Global markets appear to be getting ahead of themselves. The rationale for market expectations of a quick reversal in monetary policy to easing relies on two premises: one, data interpretation, and the other historical trend projection. On data, the lower inflation print for the month of July can be interpreted as an indication of receding peak inflation. Aside from the paucity of a single data point, a close examination reveals that the weakening in the inflation print might be a symptom of some loosening of supply chain bottlenecks. While this would make the Fed’s job easier, it wouldn’t justify a near-term reversal of policy in the face of accelerated demand-driven inflation, part of it a catch-up in wages and service-related price adjustments. It can also be argued that the current stubbornly low unemployment rate could be viewed as fuel for inflation pressure, and thus calling for tightening, rather than providing respite from it. Even if inflation is assumed to have peaked, it would still take more tightening to break its hold. A long-accepted principle for containing inflation to raise rates by a larger margin than the prevailing inflation rate, and historically, it took a 20+ percent rate hike to break a peak of 15 percent inflation during the Volcker’s Fed of the early 80s.

Tadesse next hypothesizes that one of the reasons why markets have been so eager to assume a dovish pivot by the Fed is due to the central bank's "Fed Put" Pavlovian instinct. However, due to the ongoing unexpected surge in inflation, he notes that
"policymaking has gone through a dramatic regime shift recently  from one of ‘promoting growth’ on concerns of deflationary pressures to one of ‘containment of inflation’ at any cost, reminiscent of the ‘inflation-containment’ policies of the Volcker era."

Helping to visualize this argument, the SocGen chart below shows the evolution of monetary policy over the last 60 years. As Tadesse notes, policy was driven by a need for ‘price stability’ during the inflationary periods of the 70s and early 80s when policy had a propensity to tighten rather than to ease. After the successful stamping out of inflation in the early 80s, monetary policy succumbed to fears of deflationary forces engendering chronic stagnation, which led to a propensity to ease monetary conditions rather than to tighten. But that regime seems to have changed for good now, with "unexpected" inflation raging and the Fed clearly pronouncing its monetary policy priority as containing inflation at any cost.

Thus, as we discussed extensively in recent weeks and culminating in "Even Goldman Can't Believe It: "Did Powell Mean To Be So Dovish?" if the markets' stubborn assumption to the contrary were to prove correct it could only result in an unsustainable easing of financial conditions, creating a risk of even more Fed overtightening that could rattle markets sooner or later. In fact, instead of expecting a Fed Put, the SocGen analyst writes that "one could argue that a market correction that could clear the policy channel from speculative-driven easing in financial conditions to a desirable tightening, might serve the long-term public interest." Indeed, Minneapolis Fed president Neel Kashkari made it quite clear he was personally delighted with the market dump last Friday following Powell's terse remarks. If only it wasn't Kashkari (and his Fed pals) that made the bubble that is now deflating slowly but surely possible.

Moving on: after taking a brief tangent to look at the current drivers of inflation (supply-driven is slowing, while demand-driven inflation is accelerating, and cautioning that the stubbornly low unemployment rate could be viewed as fuelling inflationary pressure  than providing a respite from it), Tadesse echoes something we have said all along, namely that "monetary policy provides little help for supply-driven inflationary pressures of the type arising from supply-chain disruptions."

Indeed, it was these "disruptions" that explain Policymakers’ early dismissal of the rising inflation as transitory and something that would resolve itself in time. It is only recently that official acknowledgement has been given to persistent demand-driven price pressures. Policymakers have been clear since then that the policy stand is one of inflation-containment and has expressed this stance in deeds by allowing a meltdown of several weeks in global markets that would ordinarily have triggered a Fed Put in the past. In short, the SocGen strategist writes, "policymakers are outwardly resolved to curb inflation, even if it comes with a risk of recession" and a market crash... however, once we do get a recession and a few hundred thousand lost jobs crushing the approval rating of democrats, watch how quickly Powell will change his tune after being bombarded with daily phone calls from the Liz Karens Warrens of Congress.

So what's the Fed to do?

Well, in an earlier research note (which we addressed here), Tadesse argued that if monetary policy had followed a pro-growth impulse, as has been the case over the last four decades, the current tightening phase could have peaked with only 0.75-1pp of rate hikes, combined with a QT program to the tune of about $1.8tn. However, after the monetary policy regime shift to ‘inflation containment’, SocGen's analysis points to a much larger amount of rate tightening, accompanied by a meaningful slash in the Fed balance sheet. The tightening phase would take an aggressive stance, with overall monetary policy tightening going beyond 900bp and the policy rate peaking at 450bp. More importantly, Tadesse's analysis also shows that it would take implicit rate tightening of about 450bp from a QT that would slash $3.9 trillion from Fed balance sheet! The consequences for risk assets would be calamitous.

Here's how the SocGen quant gets to these numbers: as a result of the unexpected surge in inflation, Tadesse writes that monetary policy making has gone through a regime shift, with Fed’s policy single-mindedly focused on inflation containment at any cost, resembling the monetary policy framework of the Volcker era in the 1970s and early 1980s, when the average MTE ratio was about 1.5x (left-hand chart below).

The problem - as Tadesse calculates - is that such aggressive monetary tightening with a focus solely on inflation containment, even at the cost of inducing recession, would require overall monetary tightening of about 11.6%. And since rates have already been tightened by 2.5% (with only a de minimis tightening via QT for now), another 9.25% of monetary tightening might be expected via policy rate hikes and an aggressive QT program. The policy rate could go up by as much as 4.5%, with the remainder coming from QT (right-hand chart above).

In practical terms, at a rate of 12bp per $100bn of QT (SocGen had previously calculated the price impact of QT), this amounts to a QT programme of about $3.9tn, roughly equivalent to the net growth in the Fed’s balance sheet during the pandemic (which would be logically symmetric).

An important caveat in the analysis is the presumption that current inflation levels resemble those of the late 1970s through the 1980s. As recent inflation prints are the highest in 40 years, this might be a reasonable assumption, particularly in reference to the rates seen in the early 1980s. In addition, in interpreting the results, there is an implicit assumption that the current inflation prints are persistent and all demand driven. However, earlier analysis has shown that the current inflation dynamics are driven both by some transitory supply-related disruptions and demand-driven price pressures. Should the supply bottlenecks ease over time, the degree of monetary tightening needed to contain inflation through demand destruction could turn out to be lower.

To visualize the tightening "blend" achievable through both rate hikes and QT, in the above-left chart Tadesse shows monetary policy frontiers (MPF) which are all the policy rate hike and QT combinations that could generate the ‘inflation-containing overall tightening’ of upwards of 9% and the ‘growth-conscious overall tightening’ discussed earlier, with the most likely outcomes of policy combinations identified with stars. Thus, an aggressive inflation-containing policy could mean additional policy rate hikes of up to 4.5% at peak and a further implicit rate tightening of 4.5% from QT (hence $3.9 trillion in total balance sheet reduction).

In conclusion, in a time when both markets and policymakers appear too focused on the policy rate to really deal with inflation containment, and given the substantial role of Quantitative Easing policies in inducing the needed post-Covid monetary easing, the reversal policies of QT would have an equally important, albeit non-symmetric impact on tightening.

SocGen's analysis suggests that almost half of the required tightening could come from QT (about 450bp, accounting for $3.9 trillion in balance sheet shrinkage). Of course, from policy perspective, a lack of acknowledgement and clear communication of QT’s potential impacts may post the risk of overtightening. Furthermore, with markets expecting far less on the QT side, Tadesse now believes that "it could be the ramp-up in QT that could trigger the next fall in markets." Appropriately enough, it comes just as the Fed's rate of QT doubles from $47.5BN to $95BN per month.

To summarize, "it was arguably not policy rate hikes back in 2018 that laid low financial conditions, leading to a surprise pivot in monetary policy in December. It was rather gently accelerating QT in the background. In the same token, it could be a ramp-up in QT, this time on a larger scale to erode a much larger balance sheet, that may surprise markets."

One final point: is there a snowball's chance in hell that the Fed will do almost $4 trillion in QT? Of course not: as we explained on July 14, when we quoted from former NY Fed and current BofA iconic Fed analyst, Marc Cabana, the Fed will be forced to end QT prematurely (in no small part because BofA's base case forecast is now for a US recession in 2023), and as such, "Fed QT that is stopped in Sept ’23 will result in $1tn less balance sheet reduction vs our prior estimates through end ’24. Over a similar period, early QT end would result in $780b less UST financing need + $350b of additional Fed UST demand."

Cabana, is of course, correct: there is no way that the Fed will be able to do years of QT at a pace of ~$100BN per month to hit SocGen's bogey without pushing the US into a full-blown depression (especially since the recession has already officially started). But it will take a few months of -300,000 payroll prints for markets to pivot again, and realize that when Powell vowed the Fed would not even think about think about pivoting in 2023, he was wrong... again... as usual.

The implication, however, is even more profound: if Tadesse is correct, and if indeed the Fed is unable to contain inflation unless it tightens by 9% in some combination of rates and QT, that means that the Fed will begin its next easing cycle with inflation well above the Fed's target. Which incidentally, is how this game ends: with the Fed hiking its inflation target from 2% to 3% (or more).

Impossible, you say? Not at all: Europe is already setting the stage for what is not only not impossibly but inevitable.

And yes, once the "inflation target" trial balloons start floating, readers better have all their net worth in the form of risky assets, gold, crypto and so on, because in the span of nano seconds, the entire asset market will reprice exponentially higher as the Fed finally admits it has to throw in the towel.

https://www.zerohedge.com/markets/straw-breaks-markets-back-fed-must-do-39-trillion-qt-control-inflation-which-it-cant

U.S. study shows alarming dip in 9-year-olds' reading and math skills during pandemic

 

Test scores released on Thursday showed that American 9-year-olds' reading and mathematics achievement levels had dropped to levels last seen two decades ago, revealing the damage the COVID-19 pandemic has wrought on education in the United States.

The National Center for Education Assistance (NCEA) compared assessments conducted in 2020, shortly before COVID-19 was declared a worldwide pandemic, to others administered in early 2022 to measure how pandemic-related learning disruptions had affected the children's achievement.

The plummeting scores represent "some of the largest declines" since the NCEA began regularly monitoring student reading and math performance in the 1970s, according to the center's acting associate commissioner, Daniel McGrath.

In mathematics, Black students' scores declined by 13 points, compared with 8 points for Hispanic students and 5 for white students, part of a wider trend of minorities suffering disproportionately from pandemic fallout. Reading scores declined evenly by six points across racial groups from 2020 to 2022.

Lower-performing students across all races also experienced much greater declines than students in the top percentiles of both test categories.

For the NCEA's reading assessment, students read short texts and answer multiple-choice questions or write longer answers. For mathematics, students answered mostly multiple-choice questions about basic math facts, computations, formulas and real-life applications.

The study also surveyed students on how the pandemic had affected their learning environment, with 70% of students saying they recalled learning remotely at some point during the 2020-2021 school year.

Of the remote learners, 83% of students performing at or above the 75th percentile in reading and math had constant access to a computer or tablet, compared with 61% of students performing at or below the 25th percentile.

The NCEA said it plans to release a more comprehensive report later this year, including mathematics and reading results for students in 4th and 8th grades around the country, in each state and in 26 urban school districts.

https://www.marketscreener.com/news/latest/U-S-study-shows-alarming-dip-in-9-year-olds-reading-and-math-skills-during-pandemic--41673244/