Investing

President Joe Biden’s second plan to forgive student debt may involve fewer borrowers than his first attempt.
The Supreme Court ruled the president didn’t have the authority to broadly clear people’s balances.

President Joe Biden speaks at the White House on June 30, 2023.
Bloomberg | Bloomberg | Getty Images

First plan excluded a small share of borrowers

At an estimated cost of about $400 billion, Biden’s first student loan forgiveness plan would have been among the most expensive executive actions in history. Around 37 million people were slated to benefit.
Just a small share of borrowers were excluded.
In terms of income, only those who earned more than $125,000 per year, or married couples making over $250,000, were left out. The vast majority of people with student debt fall under those thresholds.

Biden officials were also looking at earning years 2020 and 2021, when many people saw their income take a hit because of the coronavirus pandemic.
In the end, the Supreme Court rejected the Biden administration’s argument that its sweeping aid was a necessary measure amid a national emergency.
″’Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?'” wrote Chief Justice John Roberts in the majority opinion for Biden v. Nebraska, referring to U.S. Secretary of Education Miguel Cardona. “We can’t believe the answer would be yes.”

Only those struggling the most may be eligible

In an effort to avoid another failure at the Supreme Court, Biden may look to cancel debt only for people in distressed financial situations, according to Herrine.
“Not sort of broadly for everyone under a certain income level, but for those who’ve been paying for too long, or with a repeated default,” he said.
A quarter of federal student loan borrowers — or more than 10 million people — were in delinquency or default prior to the pandemic, noted Kantrowitz.
And there is another reason fewer people may qualify this round.

Unlike Biden’s first attempt to forgive student debt quickly through an executive order, this time he’s turning to the rulemaking process. That route can come with more limitations, Kantrowitz said.
“Biden’s plan for student loan forgiveness may need to be scaled back to comply with statutory restrictions,” he said.
For example, it may turn out that only borrowers who can demonstrate they won’t be able to repay their student debt in a reasonable amount of time will be eligible.
“It remains to be seen what approach they take and whether it will survive the court challenges,” Kantrowitz said. More

The Social Security Administration Office of the Inspector General recently sounded a new warning about A.I. and the potential for new benefits fraud.
A.I. may “make fraudulent schemes easier and faster to execute, the deceptions more credible and realistic,” one government official recently wrote.
In light of those risks, experts say there are steps consumers can take to protect their personal financial information.

Courtney Keating | E+ | Getty Images

While scrolling social media, you may find a video of President Joe Biden urging you to sign up for extra Social Security benefits for which you are eligible.
While the hypothetical video may seem real, the promise of extra benefits is not.

It’s one example of the ways in which artificial intelligence may prey upon Social Security beneficiaries, according to Kathy Stokes, director of fraud prevention at AARP’s Fraud Watch Network.
More from Personal Finance:A.I. is on a collision course with white-collar, high-paid jobsBig Four firm is trying to get teens interested in accountingDisclosing a disability in the workplace
An unexpected communication can put anyone in a heightened state of emotion — and make them more susceptible to falling for such a scheme, she said.
If you divulge your personal information, you may be putting it in the hands of criminals who may redirect your monthly Social Security benefits to another account that is not yours.
“We’re in this world where everything looks legitimate, but we can’t trust anything,” Stokes said.

A.I. fraud ‘easier and faster to execute’

Artificial intelligence is generated by machines or software. Examples include ChatGPT, a chatbot enabled to have human-like conversations; deep fakes, phony audio or video made in someone’s likeness; and generative A.I., which can create text or other media responses.
A.I. “will impact society in ways the public and private sectors are just beginning to understand,” Gail Ennis, inspector general at the Social Security Administration Office of the Inspector General, wrote in a July letter to the agency.
Yet it’s “imperative” to recognize the technology’s potential risks, according to Ennis.
“The OIG understands criminals will use A.I. to make fraudulent schemes easier and faster to execute, the deceptions more credible and realistic, and the fraud more profitable,” Ennis wrote.
The OIG has established an internal task force to study A.I. The goal is to determine the resources needed to prevent A.I.-related fraud, as well as to find out how to best use A.I. in the agency’s oversight efforts.

The new initiative is already behind the curve, according to Haywood Talcove, CEO of the government business of LexisNexis Risk Solutions.
“You don’t have years, months or weeks to study this, because it is here right now,” Talcove said. “The criminals post pandemic are focused on government payments.”
There are several reasons for that, Talcove said. For example, it’s easy, there’s “virtually zero” probability of getting caught and the government never runs out of money.
What’s more, criminals are following government agencies as closely as beneficiaries, he said, by checking their web pages, reading blogs and generally trying to find as many vulnerabilities as possible.

You don’t have years, months or weeks to study this, because it is here right now.

Haywood Talcove
CEO of the government business of LexisNexis Risk Solutions

Social Security has long been susceptible to identity fraud and theft of benefits, noted Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare.
A.I. fraud is the modern version of people having their checks stolen from their mailboxes every month, she said.
For the Social Security Administration, working to combat the new threats will pose a unique challenge after the agency has been underfunded for decades, Freese said.
“It’s going to have to be expensive and it’s going to have to be an ongoing effort,” Freese said. “They need money to be able to deal with it.”

3 features may be found in some 85% of scams

Boonchai Wedmakawand | Moment | Getty Images

Consumers should be on high alert for signs of fraud, AARP’s Stokes said.
That includes particularly watching for communication that comes out of the blue, puts you in a heightened emotional state and involves urgency, she said.
“Those three things together are what is the sign of probably 85% of scams,” Stokes said.
It’s also important to recognize that anyone — young or old — may easily fall for these sophisticated schemes, she said.
“When we’re in that heightened emotional space in our brains, it’s really hard to access logical thinking,” Stokes said.
Other steps can also help protect your personal financial information and Social Security beneficiaries’ monthly income, according to Talcove.

First, be sure to trace your credit at all three credit bureaus. Better yet, lock your credit so it is not accessible, Talcove said.
“One of the assumptions you can always make is your information has already been stolen,” Talcove said.
Next, Social Security beneficiaries should notify the agency to contact them if the information tied to the bank account where their benefits are deposited changes, he said.
Additionally, everyone should change their their online Social Security password every month.
“I can’t imagine what it would be like to be elderly and have to try to get through that system if my benefits were stolen,” Talcove said.
“It’s going to be the silent giant unless we address it,” he said of potential criminal activity that can take place. More

Americans are still feeling the pinch from the high cost of single-family rentals, according to a new report based on the second quarter of 2023.
California metro areas dominated the top spots for highest median rent, while areas around the Sun Belt were most affordable.
But if you’re considering a move, financial advisors say to beware of unexpected costs.

Downtown Los Angeles.
TheCrimsonRibbon | Getty Images

5 U.S. metro areas with highest monthly rents

These U.S. metropolitan real estate markets had the highest median single-family monthly rents during the second quarter of 2023:

Los Angeles; Long Beach, California; Anaheim, California: $4,984
San Diego; Carlsbad, California: $4,862
Naples, Florida; Immokalee, Florida; Marco Island, Florida: $4,821
Bridgeport, Connecticut; Stamford, Connecticut; Norwalk, Connecticut: $4,750
San Jose, California; Sunnyvale, California; Santa Clara, California: $4,629

5 U.S. metro areas with lowest monthly rents

These U.S. metropolitan real estate markets had the cheapest median single-family monthly rents during the second quarter of 2023:

Little Rock, Arkansas; North Little Rock, Arkansas; Conway, Arkansas: $1,267
Montgomery, Alabama: $1,394
Birmingham, Alabama; Hoover, Alabama: $1,441
Louisville, Kentucky; Jefferson County, Kentucky and Indiana: $1,492
Cleveland, Ohio; Elyria, Ohio: $1,506

Beware of the ‘hidden’ costs of moving

Some 40% of Americans are eyeing a move at some point in 2023, according to a recent survey from moving website HireAHelper, and financial pressures are among the top reasons for relocating.
However, financial experts warn consumers about some of the unexpected expenses.
“Probably the most overlooked hidden cost is when you are looking for the next job,” said certified financial planner Michael Hansen, co-founder and managing partner of Frontier Wealth Strategies in Walnut Creek, California.

What you might save in dollars, you may lose in connection, collaboration and community.

Eric Roberge
Founder of Beyond Your Hammock

It may be appealing to move to a cheaper state to work remotely, but telecommuting may not be possible for your next role, he said. Before moving, you should consider your new city’s job market and possible in-person job opportunities.
“What you might save in dollars, you may lose in connection, collaboration and community,” said CFP Eric Roberge, who recently decided to move back to Boston after living in a lower-cost area.
“Although you can’t necessarily quantify that and put it in a spreadsheet the same way you can a budget with a rent or mortgage payment, being with your people is absolutely worth something,” said Roberge, founder of financial planning firm Beyond Your Hammock. More

The job market is gradually cooling as metrics like job openings and “quits” fall from record highs.
Workers, who enjoyed unprecedented bargaining power in 2021 and 2022, are seeing that leverage start to wane, economists said.
However, there are pockets of strength. That means it’s now more important for job seekers to understand what’s going on in their industry, one expert said.

Luis Alvarez | Digitalvision | Getty Images

The job market is cooling. Though it remains strong — and workers still have leverage — their power doesn’t seem to be as broad based as it was earlier in the pandemic, say labor experts.
These days, whether employees still enjoy considerable leverage — to find a new job or get a raise, for example — “depends on what industry workers are in,” said Daniel Zhao, lead economist at career site Glassdoor.

“That’s a different response than might have been given in 2021 or 2022, when the market seemed to be hot all over the place,” Zhao said.
More from Personal Finance:A.I. is on a collision course with white-collar, high-paid jobsBig Four firm is trying to get teens interested in accountingDisclosing a disability in the workplace
Job openings surged to historic highs as the U.S. economy started to reopen after a pandemic-era lull. Americans, buoyed by their job prospects, also quit their jobs at a record pace, a trend that came to be known as the “great resignation.” Wage growth surged at the fastest rate in decades amid stiff competition for labor; layoffs dropped to historic lows.
Put simply: Workers across the economy enjoyed unprecedented job security.
Evidence suggests that dynamic is gradually easing.

Job openings fell slightly in June to about 9.6 million — still well above historical norms but down from the peak of more than 12 million in March 2022, according to the monthly Job Openings and Labor Turnover Survey issued Tuesday.

The “quits” rate — the number of people quitting in June as a share of total employment — is hovering near its pre-pandemic level. And the rate of hiring among employers declined in June to 3.8%, roughly in line with pre-pandemic levels, according to the JOLTS report.
“The JOLTS data are consistent with further immaculate cooling of the labor market,” wrote Jason Furman, an economist at Harvard University and former chair of the White House Council of Economic Advisers during the Obama administration.
The Federal Reserve has raised borrowing costs aggressively — with the aim of slowing the economy and inflation — and banks have tightened lending, all of which ultimately affect the job market.

Conditions have ‘normalized substantially’

Though conditions have “normalized substantially” since the great resignation’s peak from mid-2021 to mid-2022, 8% more employees are quitting their jobs each month than before the pandemic, and layoffs remain 22% lower, said Julia Pollak, chief economist at ZipRecruiter.
Now, worker leverage is more industry specific, economists said.
For example, the finance and insurance sector in June saw job openings below their pre-pandemic level in February 2020.
Conversely, “arts, entertainment and recreation” saw record low layoffs and record high quits, Pollak said.

“Workers are in high demand across the sector as Americans flood back to concerts, baseball games and movie theaters,” Pollak wrote. “Quits in the industry hit an all-time high, and workers found it easier to switch into better jobs.”
Job openings across state and local government are also at all-time highs, suggesting municipalities “are now on a hiring spree” now that competition for workers is a bit less intense in the private sector, she said.
“Certain industries are still very hot,” Zhao said. “It’s more important for job seekers to understand what’s going on in their industry than it might have been a year or two ago.” More

Life Changes

The Mega Millions jackpot has soared above $1 billion for the fifth time in history.
However, the winner will pay a significant chunk to Uncle Sam before seeing a penny of the windfall.
The next Mega Millions drawing is at 11 p.m. ET on Tuesday.

The Mega Millions jackpot soared to $1.05 billion on July 31, 2023.
Shannon Stapleton | Reuters

The Mega Millions jackpot has soared to more than $1 billion for the fifth time in the game’s history.
Currently, the 30-year annuitized payout is worth $1.05 billion, Mega Millions’ fourth-largest prize to date. Winners may also choose the popular lump-sum option for a $527.9 million payout.

However, both options are pretax estimates and the winner will pay a sizable chunk to the taxman before seeing a dollar of the proceeds.
Tuesday’s drawing is at 11 p.m. ET.

More from Life Changes:

Here’s a look at other stories offering a financial angle on important lifetime milestones.

Whether you choose the lump sum or annuitized 30-year payout, it’s important to seek expert guidance, said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
“Call your estate planning attorney before you do anything,” he said.
Lucas recommends the winner hire a team of experts, including a financial advisor, tax professional, estate planning attorney, bank specialists and more, to navigate a range of financial decisions.

The chance of hitting the Mega Millions jackpot is roughly 1 in 302 million.

Withholding shrinks the prize by nearly $127 million

Before seeing a penny of the billion-dollar jackpot, the Mega Millions winner will pay a sizable chunk in taxes. There’s a mandatory 24% federal withholding for winnings above $5,000 that goes straight to the IRS.
If you choose the $527.9 million lump sum, the 24% federal withholding shrinks the prize by nearly $127 million.
However, that’s not the total tax bill, because the top tax bracket is currently 37%, according to Lucas, who encourages the winner to set aside 40% “just to be conservative.”

How federal tax brackets work

The Mega Millions jackpot easily pushes the winner into the top federal income tax bracket, which is currently 37%. But they won’t pay 37% on the entire windfall because “it’s going to flow through the brackets,” Lucas said.
For 2023, the 37% rate applies to taxable income of $578,126 or more for single filers and $693,751 or higher for couples filing together. You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Single lottery winners will pay $174,238.25, plus 37% of the amount over $578,125. But for couples filing jointly, the total owed is $186,601.50, plus 37% of the amount above $693,750.

The 24% federal withholding may cover a large amount of taxes, but the final bill will likely represent millions more, depending on several factors.
You may also be on the hook for state taxes, depending on where you live and where you bought the ticket. Some states don’t tax lottery winnings or don’t have income taxes, but others may levy above 10% in the top bracket.
Tuesday’s Mega Millions drawing comes less than two weeks after a single ticket sold in California won Powerball’s $1.08 billion jackpot. That game’s top prize is back down to $74 million, with roughly 1 in 292 million odds of winning the jackpot. More

More than half of all U.S. adults currently live paycheck to paycheck, according to a new report.
The number of Americans who say they are stretched thin has remained stubbornly high despite recent signs that inflationary pressures are cooling.

By many measures, consumers who have been squeezed by higher prices should be experiencing some relief.
Recent releases show that, at least compared with the soaring inflation of a year ago, prices have begun to ease. The consumer price index, which measures inflation, increased 3% from a year ago, which is the lowest level since March 2021, while the personal consumption expenditures price index also notched the lowest annual level in more than two years.

And yet, as of June, 61% of adults still say they are living paycheck to paycheck, according to a new LendingClub report, unchanged from a year ago.
More from Personal Finance:How the Fed’s quarter-point interest rate hike affects youYou may be overlooking important target date fund truthsMiddle-income Americans haven’t switched to high-yield savings
Lower-income workers have been the hardest hit by price spikes, particularly for food and other staples, since those expenses account for a bigger share of the budget, studies show. Roughly three-quarters of consumers earning less than $50,000 annually and 65% of those earning between $50,000 and $100,000 were living paycheck to paycheck in June, based on LendingClub’s numbers.
Fewer top earners have been struggling to make ends meet. Of those earning $100,000 or more, only 45% reported living paycheck to paycheck, the report found. 
A majority, or 52%, of adults, including high earners, said they have felt more financially stressed since before the Covid pandemic began in 2020, according to a separate CNBC Your Money Financial Confidence Survey conducted in March — largely due to inflation, rising interest rates and a lack of savings.

That survey found that 58% of Americans are living paycheck to paycheck.

‘Credit cards are filling the gap’

Still, more than half of all U.S. consumers struggle to afford their day-to-day lifestyle, which is forcing some to rely more on credit cards or dip into savings, making them financially vulnerable.
“Budgets are still very stretched and, for a lot of households, credit cards are filling the gap,” said Greg McBride, Bankrate’s chief financial analyst. 
“People aren’t financing purchases at 20% because they have other options,” he added. “They’re doing that because it’s their only option.”

For its part, the Federal Reserve raised interest rates again last week in its continued effort to tame inflation.
Following the hike, Fed Chairman Jerome Powell said that future decisions on rate moves would be based on incoming data rather than a preset course on policy.
Central bank officials generally believe that inflation is still too high despite the recent positive trends and want to see multiple months of solid data before changing direction.
Subscribe to CNBC on YouTube. More

Life Changes

The Biden administration has launched a beta application for its new repayment plan for student loan borrowers.
The Saving on a Valuable Education, or SAVE, plan is an income-driven repayment plan that may cut many borrowers’ previous monthly payments in half, and will leave some people with no monthly bill.

U.S. President Joe Biden, joined by Education Secretary Miguel Cardona, speaks on student loan debt in the Roosevelt Room of the White House August 24, 2022 in Washington, DC.
Alex Wong | Getty Images News | Getty Images

More from Life Changes:

Here’s a look at other stories offering a financial angle on important lifetime milestones.

How the SAVE student loan plan works

Instead of paying 10% of their discretionary income a month toward their undergraduate student debt under the previous Revised Pay As You Earn Repayment Plan, or REPAYE, plan, borrowers will eventually be required to pay just 5% of their discretionary income under the SAVE plan.
Those who make less than $15 an hour won’t need to make any payments under the new option, the Education Department says.
“The SAVE plan is very generous to borrowers, almost like a grant after the fact,” said higher education expert Mark Kantrowitz.

Some of these benefits of the SAVE plan, including the change from 10% of discretionary income to 5%, won’t fully go into effect until next summer because of the timeline of regulatory changes.

Still, the Education Department says borrowers who sign up for the plan this summer will have their application processed before student loan repayments resume in October.
Borrowers who sign up during the beta application period will not need to enroll again later, Kantrowitz said.

How to apply for SAVE, and what info you need

You can apply for SAVE directly on the Education Department website. Most borrowers finish the application for an income-driven repayment plan within 10 minutes, according to the administration.
You typically need to provide your federal student aid ID, contact and financial information.

More relief in the works as payments resume More

The employee retention credit, worth thousands per employee, was enacted to support small businesses affected by shutdowns during the Covid-19 pandemic.
Scrutiny of the pandemic-era tax credit intensified this week among lawmakers, the IRS and tax professionals.
“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” IRS Commissioner Danny Werfel said this week.

IRS Commissioner Daniel Werfel testifies before a Senate Finance Committee hearing on Feb. 15, 2023.
Kevin Lamarque | Reuters

Scrutiny of a pandemic-era tax credit intensified this week as lawmakers, the IRS and tax professionals sought solutions for the wave of small businesses that wrongly claimed the tax break. 
The employee retention credit, or ERC, was enacted in 2020 to support small businesses affected by shutdowns during the Covid-19 pandemic and is worth thousands of dollars per employee. There’s still time for eligible businesses to amend returns and claim credits, which has sparked a cottage industry of firms, known as “ERC mills,” pushing the credit to businesses that may or may not qualify.

“While it was a great opportunity and much-needed lifeline to small businesses, it is fraught with fraud,” said Roger Harris, president of accounting and tax firm Padgett Advisors, speaking at a House Ways and Means Committee hearing Thursday.
More from Personal Finance:IRS halts most unannounced visits to taxpayersIRS weighs guidance for employee retention tax creditHow to know if your business qualifies for the employee retention tax credit
“Any time this amount of money is being handed out through the tax system, the bad actors show up, and they have shown up in large numbers,” he said.
As of July 26, the IRS said, it had roughly 506,000 unprocessed Form 941-X amended payroll tax returns.
As the IRS works through its backlog of unprocessed amended returns, it’s unclear how many small businesses may have wrongly claimed the credit. But a future audit “could ruin them,” according to Harris.

The IRS has received more than 2.5 million ERC claims since the beginning of the program, but processing has slowed due to the “complexity of the amended returns,” according to the agency.

“The joy of getting the money could very quickly be replaced with the terrifying reality that because you weren’t eligible, you could be put out of business because of the amount of money you now owe back to the federal government,” Harris said.
The true ERC claim backlog may be significantly higher because of professional employer organizations, or PEOs, which provide payroll benefits and other HR services, according to Pat Cleary, president and CEO of the National Association of Professional Employer Organizations, who also testified at the House hearing. That’s because a single PEO claim can represent many small businesses.

IRS says legitimate ERC claims are declining

The IRS has issued several warnings about “ERC schemes” and added the issue to the top of its “Dirty Dozen” list of tax scams for 2023. This week, the agency said it has “increased audit and criminal investigation work” in this area.
“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” IRS Commissioner Danny Werfel said at the IRS Nationwide Tax Forum in Atlanta this week. “Instead, we continue to see more and more questionable claims coming in following the onslaught of misleading marketing from promoters pushing businesses to apply.”  

The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining.

Danny Werfel
IRS Commissioner

Currently, small businesses have until April 15, 2024, to amend returns for 2020 and until April 15, 2025, to amend returns for 2021. “That raises future concerns,” and the agency is weighing an earlier end date, Werfel said.

Tax professionals need a ‘real-world solution’

Meanwhile, questions linger for tax professionals fielding questions from small businesses about ERC claims.
“As practitioners, we need guidance,” Larry Gray, a certified public accountant and partner at AGC CPA, said in written testimony for the House hearing. “We need guidance to be able to show our clients clearly why they do or do not qualify.”

He said ERC specialists help companies amend payroll tax returns, but aren’t amending income tax returns to reflect the change, which sends clients back to him.
What’s more, “claiming the credit and correcting the tax return are likely not done by the same people,” since many tax professionals don’t handle payroll tax returns, Gray said.
Harris stressed the need for a “real-world solution” for small businesses that wrongly claimed the credit because “there’s no way in the world we’re going to audit our way out of this problem.”  More