News

College Still Pays Off, but Not for Everyone - ABI

Investing in a college degree still pays off for most students with higher salaries and greater wealth, but in recent years it has become riskier, splitting graduates more widely into haves and have-nots, the Wall Street Journal reported. “It just has not been the blanket guarantee of following the same path to prosperity that the earlier generations followed,” says economist William Emmons of the St. Louis Federal Reserve. There are three related shifts causing economists to re-examine the returns of college. First, the wages of college graduates have remained mostly flat this century, after inflation. Second, the cost of attending college has soared. Third, even with higher salaries, significant numbers of college graduates in recent years are failing to build the kind of wealth that previous generations did. The question of higher education’s value has gained urgency because so many more Americans are going to college than before, and because they are paying far more to do so. The share of Americans between ages 25 and 29 with a bachelor’s degree rose to 37 percent last year from 29 percent in 2000, Education Department data show. College and graduate-school tuition has risen at triple the rate of inflation this century, according to Labor Department data. Students who borrowed now leave college with more than $30,000 in debt, on average, and a small but growing number is carrying $50,000 and beyond, according to a report last year by the Brookings Institution. College graduates still earn far more than those who never got an education beyond high school. Americans with a bachelor’s degree — but not a graduate degree — earned an average $77,239, nearly $32,000 more than the average earnings of workers with only a high-school diploma, according to the New York Federal Reserve.


U.S. Consumer Credit Increased Slightly in June - ABI

Consumer borrowing slowed in June to the smallest increase in three months as a jump in auto loans and student loans was offset by a big drop in borrowing on credit cards, the Associated Press reported. Overall consumer borrowing increased by $14.6 billion in June after a $17.8 billion advance in May, the Federal Reserve reported yesterday. It was the smallest increase since a $9.9 billion gain in March. Auto and student loans rose by $14.7 billion, the biggest gain since December. Borrowing in the category that covers credit cards fell by $80.5 million following a gain of $7.5 billion in May. It was the third monthly decline in the credit card category in the past seven months. The overall June increase pushed consumer credit to a new record of $4.1 trillion. The Fed's monthly credit report does not cover mortgages or any other debt secured by real estate such as home equity loans.


Bankruptcy-Related Job Losses Increasing at Rates Not Seen Since 2009 - ABI

In the first seven months of the year, U.S.-based companies announced 42,937 job cuts due to bankruptcy, up 40 percent on the same period last year and nearly 20 percent higher than all bankruptcy-related job losses last year, a report released Tuesday concluded, MarketWatch.com reported. Despite record-low unemployment, bankruptcy filings have not claimed this many jobs since the Great Recession. “It is the highest seven-month total since 2009 when 50,258 cuts due to bankruptcy were announced,” according to the report by outplacement and business coaching firm Challenger, Gray & Christmas. “In fact, it is higher than the annual totals for bankruptcy cuts every year since 2009, when 50,911 were announced for the entire year.” Companies cited bankruptcy as the reason for 11.6 percent of all job cuts announced from January to July. That’s compared to 11.3 percent of all cuts for the same period in 2018. Since 2007, bankruptcy has accounted for approximately 6 percent of all job cuts every year. The Challenger report tracks planned job cuts publicly announced by U.S.-based employers


Interruption in Health Insurance Can Double Risk of Bankruptcy Filing, According to Study - ABI

People are twice as likely to file for bankruptcy if their health insurance has been interrupted, according to a new study published this week, MarketWatch.com reported. In fact, all it takes is a coverage gap within two years for the chance of bankruptcy to jump twofold, according to the study published by the American Bankruptcy Institute. “Continuing health insurance matters,” said Prof. Michael Sousa, one of the authors and an associate professor at the University of Denver Sturm College of Law. Prof. Brooke Gotberg, the other author on the latest study, and an associate professor at the University of Missouri Law School, said that the study underscored the importance of health insurance. “There’s general consensus if somebody has a horrible, unforeseen unmitigated medical emergency, that’s shouldn’t destroy their lives.” The researchers analyzed Bureau of Labor Statistics data of more than 12,500 people. They found a “strong association” between coverage interruptions and consumer bankruptcies. That link held true even when controlling for variables like earnings and debt-to-income ratio. From 2008 to 2014, 454 people in that sample declared bankruptcy. Divorce, health problems and lower incomes were usually factors at play when someone experienced interrupted health coverage, the study said. Many insurance plans are connected to an individual’s employment or that of his/her spouse. Plus, a health limitation can create employment instability, it added.


Housing sentiment hits record high, as bidding wars vanish - CNBC

Falling mortgage rates and strong employment drove consumer confidence in housing to a record high in July, according to a monthly index from Fannie Mae. At the same time, bidding wars eased thanks to lower demand in some of the hottest markets. Of the index’s five components, “confidence about not losing job” and “mortgage rates will go down” rose the most. The gains come despite a very low supply of homes for sale and affordability challenges. Mortgage rates dropped dramatically this spring, down from a high of around 4.5% at the start of this year to 3.85% at the end of July, according to Mortgage News Daily.


Why tech-savvy young adults can’t quit bank branches - Bankrate

In the age of the app, it would be easy to assume that adults in their 20s and 30s would never go to a bank branch. Millions of young adults have all kinds of options to visit and do business with their financial institution from a much closer distance at all hours: on their smartphones, via Venmo and Instagram app.


Fed to offer faster payments system, setting up clash with big banks - Politico

The Federal Reserve on Monday announced it will build its own infrastructure for near-instant payments, a move that will have sweeping implications for banks and consumers nationwide. Such a system would allow people to receive money in their bank accounts within seconds after it’s sent to them, lightning speed by today’s standards. Under the traditional system that handles card payments and direct deposits, transactions are settled en masse three times a day and only during business hours, a costly reality for the millions of Americans living paycheck to paycheck.


Amendments to ‘Volcker Rule’ to Exclude Certain ‘Small’ Banks From Key Prohibitions

The National Law Review:

In connection with the U.S. financial crisis 10 years ago, legislation was adopted to enhance the safety and soundness of the commercial banking system in the United States. Amendments to the Bank Holding Company Act of 1956 required five federal financial agencies1 to adopt joint regulations to (i) limit the authority of commercial banking institutions to place capital at risk in certain areas involving investment banking, and (ii) forbid banks to permit the name of the bank or certain affiliates of the bank to be used in connection with the operations of private funds. That provision, placed in Section 13 of the 1956 Act, is generally referred to as the “Volcker Rule.”


U.S. Appeals Court Won’t Make Student Loans Easier to Discharge - ABI

A Texas woman can’t unload thousands of dollars in unpaid student loans through bankruptcy, a federal appeals court said, a setback for consumer lawyers hoping her case could weaken the high bar for student borrowers to discharge educational debt, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Fifth Circuit on Tuesday ruled against Vera Frances Thomas, who has struggled to maintain employment because of a degenerative nerve disease and sought relief from more than $7,800 in student debt. The ruling comes as some judges, experts and politicians re-evaluate the legal hurdles preventing individuals in difficult financial straits from using bankruptcy to leave behind student loans. The appellate court defended a legal test dating back to the late 1980s that requires borrowers seeking education-related bankruptcy relief to show they are totally incapable of repaying their student debt. Consumer advocates who filed papers supporting Thomas said that the test is outdated and came about before significant changes to modern student loan programs. “The consequence of the…test is that sympathetic debtors like Ms. Thomas are held to the same standard as debtors who are less sympathetic. But that is an outcome for Congress to address, should it desire,” wrote Circuit Judge Edith H. Jones.


Fed Cuts Interest Rates for First Time Since 2008 Crisis - NYTimes

The Federal Reserve cut interest rates yesterday for the first time in more than a decade, as it tried to keep America’s record-long economic expansion going by insulating the economy from mounting global risks, the New York Times reported. The widely expected quarter-point decrease was the Fed’s first since it slashed rates to near zero in 2008. But unlike those cuts, which were intended to rescue a failing economy, Wednesday’s move was seen as a precautionary effort to protect the United States from slowing growth in China and Europe and uncertainty over President Trump’s trade war. “The outlook for the U.S. economy remains favorable, and this action is designed to support that outlook,” the Fed chair, Jerome H. Powell, said at a news conference after the decision. The cut, Powell said, was “intended to ensure against downside risks from weak global growth and trade tensions.”