Biden Takes Action on Student Loans
Extending the CARES Act Moratorium on Student Loan Payments
After his inauguration on Wednesday, President Joe Biden issued an executive order directing the Education Department to extend the CARES Act suspension of federal student loan payments and setting of 0% interest.
The moratorium, which was passed in March 2020 as the COVID-19 pandemic started to affect the US economy, paused the collection of payments and suspended interest accrual for borrowers who had government-held federal student loans.
The freeze on loan payments was first set to expire on September 30, 2020. But as the economic slow-down continued, the Trump administration extended the freeze twice. With the moratorium scheduled to expire again in less than two weeks on January 31, Biden has now extended it until September 30, 2021. The pause will impact roughly 41 million Americans.
This extension could impact you differently depending on if you have privately or federally held student loans. Not sure which kind of student loans you have? Find out the difference between private and federal student loans.
The Possibility of Student Loan Forgiveness
On Tuesday, the day before the Inauguration, incoming Director of the National Economic Council Brian Deese told reporters that the administration “want[s] to reduce the burden of these financial trade-offs.” Deese was referring to the choices some borrowers face between paying basic expenses like rent, groceries, and utility bills, or paying off student loan debt.
Deese has said the Biden administration is in favor of up to $10,000 of student loan forgiveness per borrower. This would need to be passed by the House and the Senate, where Democrats have a slim majority. Those who support this type of legislation say it will be challenging to achieve, but not impossible.
Coronavirus Looms Large on Day One
On his first day in office, Biden considered the significant financial impact the coronavirus pandemic has had on Americans. Along with the extension on the student loan payment moratorium, Biden extended a moratorium on evictions through the end of March.
Biden also instructed the Departments of Veterans Affairs, Agriculture, Housing, and Urban Development, and the Federal Housing Finance Agency (FHFA) to ban evictions on properties backed by their agencies. These departments will also continue accepting forbearance applications from mortgage-holders.
The Biden administration sees these coronavirus-related relief actions as first steps to be followed by further action. The president has also put forward a $1.9 trillion COVID-19 relief package proposal for Congress and the Senate to consider.
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Netflix Hits Subscription Records
Netflix Shores Up its Balance Sheets
Netflix (NFLX) announced that it ended 2020 with over 200 million subscribers, a first for the streaming platform, which has seen viewership and subscriptions number surge during the coronavirus pandemic in the United States and around the world. This growth occurred even as new streaming services—including Disney+ from Walt Disney (DIS), Apple TV+ from Apple (AAPL), and HBO Max from AT&T (T)—put pressure on Netflix over the past year.
As subscribers flocked to Netflix in 2020, the company’s revenue climbed. Netflix said the subscriber boom means that it currently has more cash than it needs so it will not have to rely on borrowing to fund its growth plans in the near future. After the announcement, Netflix shares rose 12%.
Content Backlog Helps Netflix Through Pandemic
Television networks and movie production houses have faced significant challenges during the coronavirus pandemic, as filming has been shut down and restricted. Shutdowns have led to a lack of original content on most networks just as consumers stuck at home are hungry for new shows and movies to watch. Netflix, however, has benefitted from its backlog of content.
Netflix’s wealth of ready-made content sets it apart from newer platforms, as it had a head start on content when the coronavirus pandemic hit The company said it has over 500 titles in post-production or awaiting launch on the streaming service, and last week Netflix announced it would release a new movie on the platform every week this year.
Other Platforms Expect Growth
Netflix has revised its 2021 cash flow prediction, raising the forecast to break-even. It will consider returning some money to shareholders with stock buybacks. Other streaming platforms are hoping to see similar gains in 2021. Following Netflix’s $1 subscription price-hike to $13.99 per month, Disney+ also bumped up the cost of its monthly subscription by $1 to $7.99.
Other services are also looking to increase the amount of new content on their platforms to compete with Netflix. HBO Max recently announced plans to release a large library of Warner Bros. movies on the platform.
In the current quarter Netflix said it expects to add around six million new users. That is less than half of what the company added during the same period in 2020 when the first coronavirus lockdowns sparked a surge of new subscribers. However, if the platform is able to retain the subscribers it added in 2020, it is still set up for a profitable year.
Small Cap Stocks Steadily Keep Climbing
Small Caps Have Climbed Since Late October
Since March 23, when the stock market bottomed out on fears about the emerging coronavirus pandemic, the small cap Russell 2000 has more than doubled, outpacing the Nasdaq and the S&P 500. The Russell 2000, home of the 1,000th to 3,000th largest stocks on the market, has grown by around 114%. The Nasdaq and S&P 500 have risen around 90% and 65% during the same period, respectively.
The remarkable small cap growth suggests that as Wall Street anticipates more economic stimulus from the government, an accelerated vaccine rollout, and faster growth, small caps are the most recent “pandemic winners” on the market. That small cap growth has only gotten stronger in recent months as the Russell 2000 has outpaced the Nasdaq and S&P 500 by more than 20 percentage points since last November.
Why Small Caps Benefit from Domestic Growth
Many expect that the US economy is on its way to a period of growth as a result of infrastructure bills and fiscal stimulus. If the pandemic becomes more controlled, this should also lead to economic growth. If these predictions come true, small caps, like those in the Russell 2000, are likely to benefit.
Compared to the S&P 500 and other indexes composed of larger companies, the success of the Russell 2000 is much more closely tied to the health of the US economy. More than three-quarters of Russell 2000 members’ revenue comes from the United States. By contrast, members of the S&P 500 get less than two-thirds of their total revenue from the United States.
Analysts Forecast Strong Small Cap Performance
Many analysts are hopeful that the Biden administration’s policies will help small cap stocks continue their rally. “The market is going to believe that [Biden] is going to try to do everything in his power, both from a financial point of view and also from a regulatory point of view, too, to make things much easier for small caps as we go forward,” Boris Schlossberg, Managing Director of FX strategy at BK Asset Management, said earlier this week.