Investing

A Peloton exercise bike is seen after the ringing of the opening bell for the company’s IPO at the Nasdaq Market site in New York City, New York, U.S., September 26, 2019.
Shannon Stapleton | Reuters

Investors are trying to make sense of big corporate earnings, seeking clues about what lies ahead as macro headwinds persist. It’s prudent for investors to choose stocks with an optimistic longer-term view in these uncertain times.
Here are five stocks picked by Wall Street’s top analysts, according to TipRanks, a service that ranks analysts based on their past performance.

Costco

Wholesaler Costco (COST) is known for its resilient business model that has helped it navigate several economic downturns. Moreover, the membership-only warehouse club has a loyal customer base and generally enjoys renewal rates that are at or above 90%.
Costco recently reported better-than-anticipated net sales growth of 6.9% and comparable sales growth of 5.6% for the four weeks ended Jan. 29. The company delivered upbeat numbers despite continued weakness in its e-commerce sales and the shift in the timing of the Chinese New Year to earlier in the year.
Following the sales report, Baird analyst Peter Benedict reaffirmed a buy rating on Costco and a $575 price target. Benedict stated, “With a defensive/staples-heavy sales mix and loyal member base, we believe shares continue to hold fundamental appeal as a rare megacap “growth staple” – particularly in the face of a difficult consumer spending backdrop.”
Benedict’s convictions can be trusted, given his 55th position out of more than 8,300 analysts in the TipRanks database. Apart from that, he has a solid track of 71% profitable ratings, with each rating delivering 16.3% average return. (See Costco Hedge Fund Trading Activity on TipRanks)​

Amazon

2022 was a challenging year for e-commerce giant Amazon (AMZN) as macro pressures hurt its retail business and the cloud computing Amazon Web Services division.

Amazon’s first-quarter sales growth outlook of 4% to 8% reflects further deceleration compared with the 9% growth in the fourth quarter. Amazon is streamlining costs as it faces slowing top-line growth, higher expenses and continued economic turmoil.
Nonetheless, several Amazon bulls, including Mizuho Securities’ Vijay Rakesh, continue to believe in the company’s long-term prospects. Rakesh sees a “modest downside” to Wall Street’s consensus expectation for the 2023 revenue growth for Amazon’s retail business. (See Amazon Website Traffic on TipRanks)
However, he sees more downside risks to the Street’s consensus estimate of a 20% cloud revenue growth in 2023 compared to his revised estimate of 16%. Rakesh noted that Amazon’s cloud business was hit by lower demand from verticals like mortgage, advertising and crypto in the fourth quarter and that revenue growth has slowed down to the mid-teens so far in the first quarter.
Consequently, Rakesh said that AMZN stock could be “volatile near-term given potential downside revision risks.” Nonetheless, he reiterated a buy rating on AMZN with a price target of $135 due to “positive long-term fundamentals.”
Rakesh stands at #84 among more than 8,300 analysts tracked by TipRanks. Moreover, 61% of his ratings have been profitable, with each generating a 19.3% average return.

Peloton 

Fitness equipment maker Peloton (PTON), once a pandemic darling, fell out of favor following the reopening of the economy as people returned to gyms and competition increased. Peloton shares crashed last year due to its deteriorating sales and mounting losses.
Nevertheless, investor sentiment has improved for PTON stock, thanks to the company’s turnaround efforts under CEO Barry McCarthy. Investors cheered the company’s fiscal second-quarter results due to higher subscription revenue even as the overall sales dropped 30% year-over-year. While its loss per share narrowed from the prior-year quarter, it was worse than what Wall Street projected. 
Like investors, JPMorgan analyst Doug Anmuth was also “incrementally positive” on Peloton following the latest results, citing its cost control measures, improving free cash flow loss and better-than-anticipated connected fitness subscriptions. Anmuth highlighted that the company’s restructuring to a more variable cost structure is essentially complete and it seems focused on achieving its goal of breakeven free cash flow by the end of fiscal 2023.
Anmuth reiterated a buy rating and raised the price target to $19 from $13, given the company’s focus on restoring its revenue growth. (See PTON Stock Chart on TipRanks) 
Anmuth ranks 192 out of more than 8,300 analysts on TipRanks, with a success rate of 58%. Each of his ratings has delivered a 15.1% return on average.

Microsoft

Microsoft’s (MSFT) artificial intelligence-driven growth plans have triggered positive sentiment about the tech behemoth recently. The company plans to power its search engine Bing and internet browser Edge with ChatGPT-like technology.
On the downside, the company’s December quarter revenue growth and subdued guidance reflected near-term headwinds, due to continued weakness in the PC market and a slowdown in its Azure cloud business as enterprises are tightening their spending. That said, Azure’s long-term growth potential seems attractive. 
Tigress Financial analyst Ivan Feinseth, who ranks 137 out of 8,328 analysts tracked by TipRanks, opines that while near-term headwinds could slow cloud growth and the “more personal computing” segment, Microsoft’s investments in AI will drive its future.
Feinseth reiterated a buy rating on Microsoft and maintained a price target of $411, saying, “Strength in its Azure Cloud platform combined with increasing AI integration across its product lines continues to drive the global digital transformation and highlights its long-term investment opportunity.”
Remarkably, 64% of Feinseth’s ratings have generated profits, with each rating bringing in a 13.4% average return. (See MSFT Insider Trading Activity on TipRanks)

Mobileye Global 

Ivan Feinseth is also optimistic about Mobileye (MBLY), a rapidly growing provider of technology that powers advanced driver-assistance systems (ADAS) and self-driving systems. Chip giant Intel still owns a majority of Mobileye shares.
Feinseth noted that Mobileye continues to see solid demand for its industry-leading technology. He expects the company to “increasingly benefit” from the growing adoption of ADAS technology by original equipment manufacturers.  
The company is also at an advantage due to the rising demand in the auto industry for sophisticated camera systems and sensors used in ADAS and safe-driving systems. Furthermore, Feinseth sees opportunities for the company in the autonomous mobility as a service, or AMaaS, space.
Feinseth said there is potential for Mobileye’s revenue to grow to over $17 billion by 2030, backed by the company’s “significant R&D investments, first-mover advantage, and industry-leading product portfolio, combined with significant OEM relationships.” He projects a potential total addressable market of nearly $500 billion by the end of the decade.
Given Mobileye’s numerous strengths, Feinseth raised his price target to $52 from $44 and reiterated a buy rating. (See Mobileye Blogger Opinions & Sentiment on TipRanks)

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Not six months ago, ether led a recovery in cryptocurrency prices ahead of a big tech upgrade that would make something called “staking” available to crypto investors.
Most people have hardly wrapped their heads around the concept, but now, the price of ether is falling amid mounting fears that the Securities and Exchange Commission could crack down on it.

On Thursday, Kraken, one of the largest crypto exchanges in the world, closed its staking program in a $30 million settlement with the SEC, which said the company failed to register the offer and sale of its crypto staking-as-a-service program.
The night before, Coinbase CEO Brian Armstrong warned his Twitter followers that the securities regulator may want more broadly to end staking for U.S. retail customers.
“This should put everyone on notice in this marketplace,” SEC Chair Gary Gensler told CNBC’s “Squawk Box” Friday morning. “Whether you call it lend, earn, yield, whether you offer an annual percentage yield – that doesn’t matter. If someone is taking [customer] tokens and transferring to their platform, the platform controls it.”
Staking has widely been seen as a catalyst for mainstream adoption of crypto and a big revenue opportunity for exchanges like Coinbase. A clampdown on staking, and staking services, could have damaging consequences not just for those exchanges, but also Ethereum and other proof-of-stake blockchain networks. To understand why, it helps to have a basic understanding of the activity in question.
Here’s what you need to know:

What is staking?
Staking is a way for investors to earn passive yield on their cryptocurrency holdings by locking tokens up on the network for a period of time. For example, if you decide you want to stake your ether holdings, you would do so on the Ethereum network. The bottom line is it allows investors to put their crypto to work if they’re not planning to sell it anytime soon.
How does staking work?
Staking is sometimes referred to as the crypto version of a high-interest savings account, but there’s a major flaw in that comparison: crypto networks are decentralized, and banking institutions are not.
Earning interest through staking is not the same thing as earning interest from a high annual percentage yield offered by a centralized platform like those that ran into trouble last year, like BlockFi and Celsius, or Gemini just last month. Those offerings really were more akin to a savings account: people would deposit their crypto with centralized entities that lent those funds out and promised rewards to the depositors in interest (of up to 20% in some cases). Rewards vary by network but generally, the more you stake, the more you earn.
By contrast, when you stake your crypto, you are contributing to the proof-of-stake system that keeps decentralized networks like Ethereum running and secure; you become a “validator” on the blockchain, meaning you verify and process the transactions as they come through, if chosen by the algorithm. The selection is semi-random – the more crypto you stake, the more likely you’ll be chosen as a validator.
The lock-up of your funds serves as a sort of collateral that can be destroyed if you as a validator act dishonestly or insincerely.
This is true only for proof-of-stake networks like Ethereum, Solana, Polkadot and Cardano. A proof-of-work network like Bitcoin uses a different process to confirm transactions.
Staking as a service
In most cases, investors won’t be staking themselves – the process of validating network transactions is just impractical on both the retail and institutional levels.
That’s where crypto service providers like Coinbase, and formerly Kraken, come in. Investors can give their crypto to the staking service and the service does the staking on the investors’ behalf. When using a staking service, the lock-up period is determined by the networks (like Ethereum or Solana), and not the third party (like Coinbase or Kraken).
It’s also where it gets a little murky with the SEC, which said Thursday that Kraken should have registered the offer and sale of the crypto asset staking-as-a-service program with the securities regulator.
While the SEC hasn’t given formal guidance on what crypto assets it deems securities, it generally sees a red flag if someone makes an investment with a reasonable expectation of profits that would be derived from the work or effort of others.
Coinbase has about 15% of the market share of Ethereum assets, according to Oppenheimer. The industry’s current retail staking participation rate is 13.7% and growing.
Proof-of-stake vs. proof-of-work
Staking works only for proof-of-stake networks like Ethereum, Solana, Polkadot and Cardano. A proof-of-work network, like Bitcoin, uses a different process to confirm transactions.
The two are simply the protocols used to secure cryptocurrency networks.
Proof-of-work requires specialized computing equipment, like high-end graphics cards to validate transactions by solving highly complex math problems. Validators gets rewards for each transaction they confirm. This process requires a ton of energy to complete.
Ethereum’s big migration to proof-of-stake from proof-of-work improved its energy efficiency almost 100%.
Risks involved
The source of return in staking is different from traditional markets. There aren’t humans on the other side promising returns, but rather the protocol itself paying investors to run the computational network.
Despite how far crypto has come, it’s still a young industry filled with technological risks, and potential bugs in the code is a big one. If the system doesn’t work as expected, it’s possible investors could lose some of their staked coins.
Volatility is and has always been a somewhat attractive feature in crypto but it comes with risks, too. One of the biggest risks investors face in staking is simply a drop in the price. Sometimes a big decline can lead smaller projects to hike their rates to make a potential opportunity more attractive.

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You may get fewer chocolates than you expect in that heart-shaped box this Valentine’s Day.
“Overpackaging” may be to blame, according to a recent investigation. Consumers should also watch out for shrinkflation, where products are downsized as prices stay the same.

Malaikacasal | Istock | Getty Images

That heart-shaped box of chocolates may be only half full this Valentine’s Day.
It is not the result of a manufacturing glitch. Instead, it is an effort by certain brands to use bigger boxes to prompt consumers to think they are getting more for their money than they really are, according to Edgar Dworsky, founder of Consumer World.

“This is about ‘overpackaging,'” he said.
The issue was brought to Dworsky’s attention this week when a reader who bought a box of chocolates wrote to express his outrage about the contents.
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Upon further investigation, Dworsky found Russell Stover and Whitman’s Sampler chocolates, which sell for around $7.99, only contained between nine and 11 candy pieces, in the 9-inch-by-10-inch-size box.
That leaves about two-thirds of the box seemingly empty, according to Dworsky.

“I just find it troubling that consumers can be misled in this way,” he said.
Whitman’s and Russell Stover brands are sold by the Russell Stover Chocolates company, which did not immediately respond to a request for comment.

How to spot a ‘downsized’ candy gift

The easiest way to spot these issues before you buy is to look at the net weight on the packaging, Dworsky said. The brand’s boxes were 5.1 ounces.
A federal “slack fill” law makes it illegal for companies to use larger packages than necessary, he said. Nevertheless, some companies may experiment with packaging in a bid to cut costs, which in some cases has led to lawsuits.
Companies may also turn to shrinkflation, where a product’s quantity is downsized but the price stays the same.
“Candy is one of the categories that tends to be downsized periodically,” Dworsky said.

The top items that tend to get downsized, according to the U.S. Bureau of Labor Statistics, include household paper products, snacks, and pastries, including sweet rolls, coffee cakes and donuts.
A Morning Consult poll conducted in August found more than half of adults — 54% — have seen, read or heard about shrinkflation, while almost two-thirds — 64% — are worried about it.
“When you notice that the package is smaller or you’re getting less for the same price, it’s especially frustrating,” Emily Moquin, food and beverage analyst at Morning Consult, previously told CNBC.com.
But there is still some good news this Valentine’s Day. In fact, one of the most traditional gifts isn’t subject to shrinkflation.
“A dozen roses, thank God, is still 12,” Dworsky quipped.

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Company: Rogers (ROG)

Business: Rogers designs, develops, manufactures and sells engineered materials and components. It operates through Advanced Electronics Solutions (AES), Elastomeric Material Solutions (EMS) and Other segments. In November 2021, the company entered into a definitive merger agreement to be acquired by DuPont de Nemours for $277.00 per share, which was approved by shareholders on Jan. 25, 2022. Ultimately, the merger was terminated after the parties did not receive regulatory approval before Nov. 1 from the State Administration for Market Regulation of China.
Stock Market Value: $2.8B ($150.99 per share)

Activist: Starboard Value

Percentage Ownership: 6.5%
Average Cost: $127.50
Activist Commentary: Starboard Value is a very successful activist investor and has extensive experience helping companies focus on operational efficiency and margin improvement. Starboard also has a successful track record in the information technology sector. In 50 prior engagements, it has a return of 36.80% versus 14.83% for the S&P 500 over the same period.

What’s Happening?

On Dec. 15, 2022, Starboard delivered a letter to the company nominating four directors for election to the board at the 2023 Annual Meeting. Starboard identified the following six candidates for the four seats but intends to ultimately include only one of the Starboard insiders in the slate and withdraw the other two: (i) Jacques Croisetière, board member at Arconic (ARNC) and former director at Versum Materials (formerly VSM); (ii) Peter A. Feld, managing member and head of research at Starboard Value; (iii) Armand F. Lauzon, Jr., former president, CEO and as a director of C&D Technologies and former CEO and board member for three portfolio companies of the Carlyle Group (CG); (iv) Gavin T. Molinelli, partner and co-portfolio manager of Starboard Value; (v) Jeffrey C. Smith, managing member, CEO and CIO of Starboard Value; and (vii) Susan C. Schnabel, co-founder and co-managing partner of aPriori Capital Partners.

Behind the Scenes

Rogers manufactures a variety of products, many of which are small volume customized products that have a long life cycle. Historically, the company has been known for its innovation and many of its products were invented by the company or have strong brand recognition. This has given Rogers strong pricing power and good gross margins. Because of this, the company has not had to be as diligent operationally and their manufacturing and operational execution has not been optimal.

In November 2021, DuPont agreed to acquire the company for $277 per share (19x earnings before interest, taxes, depreciation and amortization at the time), a healthy premium that was rationalized by the projection that Rogers would generate $270 million of EBITDA in 2022. However, between signing and closing, quarter after quarter Rogers’ operating margins went down, ultimately from 17% pre-deal announcement to 11% by September 2022. By this point, DuPont would have been paying a 30x multiple, and their shareholders were no longer happy with the deal. The deal ended up not closing because it did not get China regulatory approval by the drop-dead date, but it is likely that due to the deteriorating operations of Rogers, DuPont was happier to pay the $162.5 million termination fee than to buy the company for $5.2 billion.
The problem with Rogers is not at the top line: The company has strong organic growth with 30% to 35% exposure to industries with secular tailwinds, such as electric vehicles and assisted driving. The company’s issues are with its operations, and these issues are self-inflicted. Like many companies, it has supply chain issues, but its manufacturing yields have been bad, and missteps have led to delays. This means having to use air freight instead of ocean, which is much more expensive. When a company has operational challenges, this issue gets exacerbated when management loses focus and that is exactly what happened here. After the deal was signed with DuPont, management lost focus and started to coast to their change-of-control payments. Unfortunately, instead it led to DuPont walking from the deal, these payments never happening and a precipitous drop in the stock price. It also may have led to Bruce Hoechner departing as CEO at the end of 2022 and being replaced by Colin Gouveia, who was then senior vice president and general manager of Rogers’ EMS business. 
A new CEO with a renewed focus is just what this company needs. Having a couple of Starboard directors on the board to support management in executing their plan, but holding them accountable if they cannot, would magnify the efficacy of the new CEO. There is no reason why this should not end amicably. Both sides seem to share the same views regarding margin improvement, and there is a new CEO who Starboard likely supports. Moreover, Starboard made its director nominations right before the Dec. 17, 2022 expiration of the nomination window, indicating that the firm did it just to preserve its rights while talking with the company. The fact that both sides have kept the nominations confidential over the past seven weeks is another indication that they are working amicably. However, Starboard did nominate four directors to the ten-person board. They actually nominated six directors for four spots, two of whom would be withdrawn if this goes to a proxy fight, which is something experienced activists do to give them optimal flexibility.
Growth is not an issue here and helping companies focus on operational efficiency and margin improvement is what Starboard does best, ideally from a board level. Having Starboard representation on the board would help management stay focused and get the support it needs. We are not sure four new directors are necessary, but certainly two or three would be reasonable, especially if one of those seats is for a Starboard insider.
Finally, while Starboard’s primary objective here is operational, when an activist engages with a company, it often puts that company in pseudo-play getting the attention of strategic investors and private equity. This phenomenon is magnified in a situation where a company just terminated an acquisition at a price that is over 90% higher than where the stock is trading now. There could definitely be potential acquirers coming out of the woodwork here. While Starboard is not advocating for any strategic transaction, the firm is an economic animal with fiduciary duties. If an offer came in at the right price, Starboard would weigh that against shareholder value as a standalone entity and do what it believes to be best for shareholders. However, a strategic transaction would make the most sense after the company fixes margins.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Rogers is owned in the fund.

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Retail egg prices are at record highs. That’s largely due to a deadly and historic outbreak of bird flu in the U.S. in 2022.
High egg prices are likely feeding into the costs of some other foods that use eggs as a key ingredient, economists said.
That might include mayonnaise, baked goods and a host of other items.
Quantifying eggs’ impact is difficult. But ingredients generally represent a small share of the prices consumers pay at the store.

Sutthichai Supapornpasupad | Moment | Getty Images

Consumers are paying record prices for eggs. But beyond the inflated sticker price for a dozen eggs, there’s also a hidden expense to the soaring costs.
Elevated egg prices are trickling into food items across the grocery store — namely those in which eggs are a main ingredient, which might be anything from mayonnaise to baked goods like cookies and cake, according to food economists.

But eggs are an additive in a long list of other foods: Egg noodles, certain kinds of bread, custards, puddings, breaded or battered meat and vegetables, salad dressings, tartar sauce, marshmallows and some soup broths, for example.
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The impact of egg prices on other groceries is tough to quantify — but they’ve at least contributed to overall food inflation in recent months, economists said.
“It’s part of why prices are higher across all kinds of foods,” said David Anderson, a professor and food economist in the Department of Agricultural Economics at Texas A&M University.
Eggs are likely also propping up the costs of dining out, to the extent restaurants use eggs as an ingredient in their dishes, Anderson said.

Why egg prices are so high

A dozen large Grade A eggs cost consumers $4.25 in December, on average — a record high and more than double the $1.79 from a year earlier, according to monthly U.S. Bureau of Labor Statistics data.
The average price for all types of eggs ballooned 60% in 2022, according to the consumer price index. Their prices rose faster than almost any other good or service, in a year characterized by historically high inflation.
For context, grocery prices as a whole rose 12% in 2022 — about five times slower than those of eggs. Restaurant meals jumped about 8%. Food inflation peaked in August at a rate unseen since the late 1970s.
Higher egg prices are largely the result of a deadly outbreak of bird flu in the U.S., economists said.
The disease — known as highly pathogenic avian influenza — killed a record number of birds. Outbreaks, which usually dissipate by summer, continued into the second half of the year and coincided with peak seasonal consumer demand for eggs around the winter holidays.

Since February 2022, bird flu killed more than 44 million hens in commercial table-egg-laying flocks, according to the U.S. Department of Agriculture.
The impact of bird flu on a farm can persist for months. Farms generally must cull their flocks to prevent disease spread, then sanitize and restock their facilities. Additionally, it takes four to five months for a young hen to reach peak egg productivity, the USDA said.
This process played out nationwide, significantly disrupting egg production and leading to higher prices.
“It’s an acute supply shock,” David Ortega, associate professor in the Department of Agricultural, Food and Resource Economics at Michigan State University, said of bird flu.
Wholesale prices have fallen by over 50% from their December peak, but it takes a while for those price dynamics to reach consumers.

No 1:1 relationship between eggs, other food prices

There are many different types of egg products beyond a whole table egg. Food processors may use other forms in their end product: liquid whole eggs, liquid yolks, liquid whites and dried varieties of each, for example.
“Egg ingredients supply more than 20 functional benefits to food formulators and can play a critical role to achieve proper form, function, appearance, taste, texture and shelf life,” the American Egg Board said.
Food labels don’t necessarily label “eggs” as an ingredient. Sometimes, “albumen” may be used to refer to an egg white, or “livetin” to refer to part of an egg yolk, said Amy Smith, a food economist at Advanced Economic Solutions.

It’s part of why prices are higher across all kinds of foods.

David Anderson
professor and food economist at Texas A&M University

Prices have risen beyond table eggs, too. The wholesale price for dried whole eggs is up nearly threefold in the past year, to $10.25 per pound from around $3.90, according to Urner Barry, a market research firm.
But there isn’t a one-to-one relationship between higher egg prices — whether shelled or in another form — and the cost of other foods.  
On average, about $0.15 of every dollar a consumer spends on food can be tied back to the farm (i.e., the actual cost of the ingredients), Ortega said. The share may be higher or lower depending on the food.
The majority of consumer cost is attributable to things that occur outside the farm, including processing, transportation, packaging and price markups at the wholesale and retail levels, Ortega said.
In short: Eggs are one of many factors in inflated consumer food prices.

“I definitely think tight egg supplies are leading to general food inflation,” said Walter Kunisch, senior commodities strategist at Hilltop Securities. “But how much and what percentage … is difficult to ascertain.”
Take mayonnaise, for example. The consumer price index category that contains mayonnaise — “other fats and oils including peanut butter” — was up 18% in 2022.
But vegetable oils — such as sunflower, canola and soybean oils — are also a main ingredient in mayonnaise. Prices for those oil commodities soared in 2022, partly due to Russia’s invasion of Ukraine and other supply shocks among major global producers. It’s difficult to untangle how much of the annual increase was due to eggs versus oils or other factors, Kunisch said.
Similarly, flour prices jumped more than 23% last year — again due largely to the war in Ukraine, which is a major wheat exporter, as is Russia. Flour prices — along with those for eggs — helped raise cake, cookie and cupcake prices, which jumped by 17% in 2022, according to economists and CPI data.

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The Supreme Court is set to hear arguments later this month on two cases against President Joe Biden’s student loan forgiveness plan.
Black Americans have been hit especially hard by the student loan crisis, meaning they have a lot to lose if the Biden administration’s forgiveness plan fails.
Here are three reasons why student debt problems are worse for Black Americans.

Hobo_018 | E+ | Getty Images

In August, when President Joe Biden rolled out his historic plan to cancel up to $20,000 in student loan debt for tens of millions of Americans, one of the policy’s stated goals was “to help narrow the racial wealth gap.”
Shortly after the president’s announcement, critics of student loan forgiveness brought a series of legal challenges against the plan, saying it was an abuse of executive authority, and soon the Biden administration had to pause its program.

The Supreme Court has agreed to hear two of those cases at the end of February. Legal experts say the policy faces a narrow path to survival with the court, given its conservative majority.
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If the relief plan falls through, the consequences for Black Americans will be severe, advocates say.
“Not only would this be a disastrous blow to Black Americans, but to our economy as a whole — the racial wealth gap will widen, and the vicious cycle of economic inequality will continue,” said Wisdom Cole, the national director of the youth and college division at the NAACP.
Here are three reasons why the student loan crisis is worse for Black Americans, and why they’d especially feel the loss of loan forgiveness, experts say.

1. Student debt ‘exacerbates racial inequality’

The explosion in outstanding student debt over the past few decades has been blamed for making the racial wealth gap wider. Last year, Black families had 25 cents for every dollar of white family wealth, the Federal Reserve Bank of St. Louis found.
Because Black families have less wealth, their children typically need to borrow more for their education.
About 85% of Black students graduate with their bachelor’s degree holding student debt, compared with 69% of white bachelor degree recipients, according to data from higher education expert Mark Kantrowitz.

And since student debt is often taken on relatively early in a person’s life, it can then make it harder to hit other milestones down the line that help build wealth, such as buying a house and investing, experts say.
“Student loan debt is both a product of the racial wealth gap and a tool that exacerbates racial inequality,” said Jaylon Herbin, director of federal campaigns at the Center for Responsible Lending.
In 2018, about 40% of Black college graduates said their student debt delayed their ability to buy a home, compared with 34% of their white peers, Kantrowitz found.

2. For-profit colleges target Black students

For-profit schools have come under fire for misleading students about their programs and career outcomes — and for preying on people of color.
“For-profit schools disproportionately target Black and low-income students across the country,” Herbin said.
Nearly 18% of Black undergraduate students enroll in for-profit colleges, compared with closer to 11% of white undergraduate students, according to Kantrowitz.

“Black students are more likely to enroll in for-profit academic institutions with lower degree completion rates,” Herbin said. “Therefore, they often are forced to repay debt for higher education that did not increase their job prospects.”
In the 12 years after entering college, nearly half of for-profit students defaulted on their student loans, according to the Brookings Institution.

3. Black borrowers struggle more with repayment

Because of historic racial and economic inequities, Black student loan borrowers struggle to repay their debt more than their white peers.
Prior to the pandemic, the default rate for Black student loan borrowers was more than 30%, compared with 13% for white borrowers, according to the the Center for American Progress. Meanwhile, white borrowers pay down their education debt at a rate of 10% a year, compared with 4% for Black borrowers.
Without student loan forgiveness, these repayment challenges are likely to only worsen, Cole said.
“The burden of student debt may very well follow Black borrowers for the rest of their lives, crippling their ability to achieve the upward mobility that higher education supposedly guarantees,” he said.

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Both Republicans and Democrats physically stood to show their support for Social Security and Medicare during President Joe Biden’s State of the Union speech on Tuesday.
But getting a consensus from both parties to shore up those programs for the future will be a tougher challenge.

President Joe Biden delivers the State of the Union address to a joint session of Congress on Feb. 7, 2023
Pool | Getty Images

President Joe Biden used his State of the Union speech on Tuesday to get rare unanimity among Democrats and Republicans on one key issue: protecting Social Security and Medicare.
For now, it seems as though both parties have agreed to leave the programs untouched amid debt ceiling negotiations.

During the State of the Union speech, Biden called out “some Republicans” who want “Medicare and Social Security to sunset,” a comment that was met with boos from members of the GOP.
“So folks, as we all apparently agree, Social Security and Medicare is off the books now, right?” Biden said, in reference to the debt ceiling negotiations, which was met with cheers. “We’ve got unanimity.”
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Biden then took that further to get both parties to swear off any cuts to the programs.
“So tonight, let’s all agree — and we apparently are — let’s stand up for seniors,” Biden said. “Stand up and show them we will not cut Social Security. We will not cut Medicare.”

It was a “brilliant” moment, according to Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.
“He had everybody in the Congress, both sides of the aisle on their feet agreeing to protect Social Security and Medicare,” Richtman said.
But it will take more to reassure advocates for expanding the program who are staunchly opposed to any cuts.

“Does that mean we don’t have anything to worry about?” Richtman said. “Not by a long shot.”
Shai Akabas, director of economic policy at the Bipartisan Policy Center, said it was disappointing to see a consensus around not changing the programs when they are facing significant financial challenges that urgently need to be addressed.
“We really need our leaders to put everything on the table and not put red lines about what they’re refusing to do,” Akabas said.
“Ultimately, any solution is going to take compromise and bipartisanship,” he added.

Republicans float ways to rein in spending

Biden’s suggestion that Republicans want to sunset Social Security may have drawn jeers from one side of the aisle during Tuesday’s speech but it was based on GOP plans the president has previously mentioned.
Sen. Rick Scott, R-Fla., has proposed a “Rescue America” plan that called for sunsetting federal programs every five years to allow for Congress to revisit them. That would include Social Security and Medicare.
Sen. Ron Johnson, R-Wisc., had called for renewing the programs every year.

Ultimately, any solution is going to take compromise and bipartisanship.

Shai Akabas
director of economic policy at the Bipartisan Policy Center

Both lawmakers have denied they are trying to weaken the programs.
The Republican Study Budget Committee, which included a host of House GOP leaders, has also suggested other changes — raising the retirement ages for both Social Security and Medicare, as well as changing the measurement for annual Social Security cost-of-living adjustments.
None of those plans have been formally introduced as legislation.
More recently, former Vice President Mike Pence called for reforming Social Security with the creation of private savings accounts.

Democrats want high earners to pay more payroll taxes

Democrats have pushed for reform that would make Social Security benefits more generous while shoring up the program with additional payroll taxes on the wealthy.
Currently, payroll taxes are capped at $160,200 in wages.
Democratic proposals have called for reapplying those levies for higher wage earners.

Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., have led a proposal to reapply those taxes for all income over $250,000, while also taxing investment and business income. In exchange, the plan would increase benefits by $2,400 per year and extend the program’s solvency for 75 years.
Rep. John Larson, D-Conn., has led a House bill that would apply reapply payroll taxes on $400,000 in earnings while also making benefits more generous. However, that plan would extend the program’s solvency for a shorter time, with estimates having indicated about five years.
Biden similarly proposed expanding benefits and increasing payroll taxes on high earners during his presidential campaign.

‘Substantive policy reforms’ unlikely – for now

It is now up to Congress to agree to raise or eliminate the debt ceiling to prevent an unprecedented default on the country’s debt.
“It’s unlikely that we’re going to get substantive policy reforms to either Social Security or Medicare as part of the debt limit debate based on where the two parties are positioned right now,” Akabas said.
But a bipartisan proposal called the TRUST Act could be included in a deal, Akabas said.
The bill calls for the formation of small bipartisan commissions to come up with solutions to address the country’s ailing trust funds — funding for Social Security, Medicare Part A and the nation’s highways — that may be fast-tracked.

Sen. Mitt Romney, R-Utah, walks through the Senate Subway on Capitol Hill.
Elizabeth Frantz | Reuters

The idea of forming commissions has proven divisive. A White House spokesman recently labeled the idea as a “death panel” while others insist it is a path to creating a bipartisan plan.
Commissions may end up reducing benefits, Richtman said, while circumventing regular order, including the committee hearings that allow advocacy groups like his to be heard.
Sen. Mitt Romney, R-Utah, who proposed the TRUST Act, recently tweeted that without action, Social Security and Medicare beneficiaries may see cuts.
“If you’re against a *process* to even talk about possible solutions, you’re not serious about saving these programs,” Romney tweeted.

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In his State of the Union address, Biden called on Congress to pass the Junk Fee Prevention Act, which will reduce hidden or unexpected charges from banks, hotels, airlines and other service providers.
“We’re tired of being played for suckers,” the president said.

In his State of the Union address, President Joe Biden said his administration is cracking down on “junk fees” — including those from banks as well as hotels, airlines and other service providers.
The president said these unnecessary or hidden fees are weighing down families’ budgets and causing financial harm.

“Junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in, like many of you did. They add up to hundreds of dollars a month,” Biden said in the annual speech before Congress.

What are junk fees?

Junk fees are additional, often hidden charges that can come from a range of lenders. They are not typically included in the initial price of a transaction but are tacked on at the time of payment.
To stop this practice, Biden called on Congress to pass the Junk Fee Prevention Act, which will reduce unexpected charges, such as airline booking fees; service fees for concert tickets; early termination fees for TV, phone and internet services; “resort fees” at hotels; and “excessive” credit card late fees.
“Americans are tired of being — we’re tired of being played for suckers,” Biden said Tuesday.
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The initiative has been months in the making.
Last fall, the Consumer Financial Protection Bureau said it was scrutinizing certain fees that catch customers by surprise — and are “likely unfair and unlawful,” according to the agency.
The consumer watchdog proposed a new rule earlier this month prohibiting banks from charging surprise overdraft fees on debit transactions and reducing typical late fees from roughly $30 to $8, saving consumers as much as $9 billion a year, according to the White House.
“Despite recent progress in addressing overdraft fees, the job is far from complete,” Nadine Chabrier, the Center for Responsible Lending’s senior policy counsel, said in a statement.

“The Consumer Financial Protection Bureau took a big step by banning surprise overdraft fees,” she said. “We are encouraged that the consumer bureau announced it will take additional steps, and we urge the bureau to place strong limits on the size and frequency of these fees.”
More than a quarter of checking account holders, or 27%, are regularly hit with fees, which can add up to an average of $24 per month, or $288 per year, according to a recent survey from Bankrate.com. 
The average overdraft fee costs $29.80, Bankrate’s research found, while the average nonsufficient funds fee is $26.58.
Some banking interest groups countered that offerings such as overdraft protection provide a much-needed safety net.

“The president’s use of the term ‘junk fee’ is overly broad and ignores the needs of low-income and middle-income consumers who depend on these services to resolve short-term financial difficulties,” Jim Nussle, president and CEO of the Credit Union National Association, said in a statement.
“It does not consider the costs involved in providing needed financial services that consumers depend on.”
Without the option of overdraft protection, “people are more likely to turn to predatory lenders, hurting the same people the administration seeks to help,” Nussle said.
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