New federal loan interest rates highest in 18 yrs

https://www.cnn.com/2024/05/14/politics/new-federal-student-loan-interest-rate/index.html

Impact on students, education (who might get it), and the college-educated workforce. Fewer students = fewer grads = fewer people available to employers. Major colledge educated workforce shortage? Could mean big cost increases for all companies needing new college grads–particularly sciences, engineering (all types), and various technologies.

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Sounds like “sticky” inflation.

DB2

What? We have a greedy federal government?

DB2

You will say anything for a quick political plug.

I posted before reading the article. When I read the article, I realized that my comment made no sense so I deleted it. But not fast enough.

It is interesting that the high interest rates are a due to the Fed’s interest rate hikes which have caused the 10 year Treasury note’s interest to increase. The student loan interest rate is determined by that note. So to fight inflation the Fed has contributed to inflation. Here is a paper on the Fed’s use of interest rates may not work as the conventional wisdom holds.

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DB2’s reply made sense with respect to my deleted post. Sorry to you both for the confusion.

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Here we can judge mainstream neoclassical theory by its predictive power. If the prevailing beliefs regarding inflation were true, we’d expect to find inflation decreasing when interest rates are increased . So, if we plot it out what do we see?

The author does not know his history. The S&Ls had fixed rates. The Funds Rate did not matter prior to Volcker because rates were fixed.

Like mutual savings banks, S&Ls were losing money because of upwardly spiraling interest rates and asset/liability mis- match . 2 Net S&L income, which totaled $781 million in 1980, fell to negative $4.6 billion and $4.1 billion in 1981 and 1982 (see table 4.1).

Everything shifted away from the S&Ls in the early 1980s.

Further the bonds bought by corporations for the pension programs shifted. The prior 2% bonds from the 1950s began to mature. Durations in the pension funds fell. New laws let corporations shed the pension funds for 401k plans.

The government had seen the need for 401k plans.

November 6, 1978

Congress did this by enacting Internal Revenue Code Section 401(k) as part of the Revenue Act. This occurred on November 6, 1978. The first implementation of the 401(k) plan was in 1978, about three weeks after Section 401(k) was enacted, before the Revenue Act of 1978 even went into effect.

In effect, the US began in the very early 1980s to have a free market for interest rates. This meant the FOMC open market maneuvers began to have an impact.

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