When Student Debt Relief Backfires

Here are three of the week’s top financial news stories, gathered from around the web:

Low yield of bank accounts

“Higher interest rates may mean good news for savers, but probably not right away,” Ann Carrns said in The New York Times. Starting in March, the Federal Reserve is expected to start raising rates to head off rising inflation, and subsequent rate hikes may continue from there. “But deposit rates paid to savers will likely rise at a much slower pace, analysts say.” Why? Because banks are so “full of cash”, they won’t feel the pressure to attract more deposits. This is unfortunate for many savers who hoped to close the “gap between depositor rates and inflation”. Currently, the average rate paid on a basic savings account insured by the Federal Deposit Insurance Corporation is just 0.06%.

When Student Debt Relief Backfires

“A program to reduce the student debt of health care workers sticks them even more,” said Rebecca Smith and Rebecca Ballhaus in The Wall Street Journal. The National Health Service Corps has encouraged health care workers to serve in medically understaffed areas for decades by offering “tens of thousands of dollars in student loan relief.” But “to deter attendees from skipping once their tuition is paid,” Congress imposed a penalty for breaching contracts, up to $7,500 per month, plus interest. This meant that “someone who got the maximum loan relief, $50,000, was at risk of owing over $200,000.” This sanction is valid even if workers have been laid off, even if many “stressed hospitals and clinics have had to lay off workers and close facilities” during the pandemic.

Auto dealers take advantage of shortages

“Ford and General Motors are warning dealers against using automotive supply chain disruptions to drive up prices and boost profits,” Courtney Vinopal said in Quartz. Global chip shortages and other factors have sent car prices skyrocketing over the past year, and much of the gains have gone to dealers. It was “once rare for dealerships to sell cars above their list price”, but last month more than 80% of car sales in the United States included a markup. According to JD Power, Ford’s average transaction price has “increased faster than the revenue the company derives from car sales, which means dealerships are pocketing a good chunk of the company’s profits.” Ford specifically warned dealers against raising the price of its new F-150 electric truck.

This article first appeared in the latest issue of The week magazine. If you want to know more, you can try six risk-free issues of the magazine here.

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John A. Bogar