Credit Sesame’s personal finance weekly news roundup October 22, 2022. Stories, news, politics and events impacting the personal finance sector during the last week.
- Colleges profit by recommending banks to students
- Application for student loan forgiveness now available
- Analysts warn of corporate debt defaults
- Retail sales struggle to keep pace with inflation
- Wage growth not keeping up with inflation
- Mortgage applications down to a 25-year low
- Mortgage rates edge upward towards 7%
1. Colleges profit by recommending banks to students
The Consumer Financial Protection Bureau (CFPB) issued a report to Congress about financial arrangements between banks and institutions of higher education. Schools often steer students to bank accounts they can use to direct payments to the school. They don’t always disclose that they have financial incentives to refer business to those banks. The CFPB found that 17% of students in a sample they studied had opened accounts with a bank that had a financial relationship with their college. In many cases, colleges appeared to be directing students to more expensive bank accounts than other available options. See full report at ConsumerFinance.gov.
2. Application for student loan forgiveness now available
The U.S. Department of Education has launched the initial application for student loan forgiveness. The application can be found on the Federal Student Aid website. Borrowers are advised that this version of the application is the only legitimate way to apply for student loan forgiveness. Applications will be accepted until the end of next year, but borrowers are encouraged to apply as soon as possible. With student loan payments slated to resume in January of 2023, applying sooner can result in borrowers having their monthly payments recalculated based on their reduced balances. See article at Yahoo.com.
3. Analysts warn of corporate debt defaults
Wall Street analysts are warning that higher interest rates may make it impossible for some companies to pay their corporate debt. Companies that grew accustomed to borrowing at low interest rates may now find that making loan payments at higher rates could overwhelm their cash flow. This not only can affect investors in corporate bonds, but also may have a ripple effect throughout the economy. Defaulting corporations are likely to lay off employees and those defaults will also damage the finances of their creditors. See article at Yahoo.com.
4. Retail sales struggle to keep pace with inflation
A Census Bureau survey found that U.S. retail and food service sales were unchanged in September, and up by 8.2% for the prior year. This is an important indicator of whether consumer activity is still growing despite inflation and recession concerns. The 8.2% growth in spending over the past year matches the change in the Consumer Price Index (CPI) for the past year. This suggests that the extra spending was simply to keep pace with higher prices. Worse, with no change in September spending failed to keep pace with the 0.4% rise in the CPI. So, for the most recent month consumers spent the same amount as in the prior month but got less for their money due to inflation. See full release at Census.gov.
5. FBI: older Americans most susceptible to tech support scams
While younger Americans may be more frequent technology users, older people are more likely to fall victim to the new wave of tech support scams. The FBI has issued a warning about criminals posing as representatives of computer security firms contacting people to gain control of their computers and financial information. The FBI warned that losses from these scams more than doubled last year. More than half the victims were over 60 years old. The FBI advised that genuine tech support representatives don’t just call people out of the blue. See detailed advisory at FBI.gov.
6. Wage growth not keeping up with inflation
The Bureau of Labor Statistics announced that the average weekly pay of American full-time and salaried workers was $1,070 in the third quarter of 2022. That’s 6.9% higher than it was a year earlier. However, that increase did not represent a true increase in wealth because it failed to keep up with inflation. Over the same period, consumer prices were up by 8.3%. See full release at BLS.gov.
7. Mortgage applications down to a 25-year low
The impact of fast-rising interest rates on the housing market can be seen in the drop-off of mortgage application activity. According to the Mortgage Bankers Association, mortgage applications have been declining for four months now. Purchase applications are 38% lower than they were a year ago. Refinancing activity has been hit even harder. Applications for refinance mortgages are 86% lower than they were a year ago. Overall, mortgage application volume is at its lowest level since 1997. See full release at MBA.org.
8. Mortgage rates edge upward towards 7%
Mortgage rates rose slightly over the past week. Their rise of 0.2% put 30-year fixed mortgage rates at 6.94%. Mortgage finance company Freddie Mac reported that rising rates have cut homebuilder confidence in half over the past six months. This has the effect of slowing new home construction. See full release at FreddieMac.com.