Time to talk student loan forgiveness and inflation

Make Me Smart August 31, 2022 transcript

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Kai Ryssdal: Let’s just go.

Kimberly Adams: Let’s just do it.

Kai Ryssdal: Let’s just go. Oh my gosh.

Kimberly Adams: What a day, what a day.

Kai Ryssdal: Welcome back to Make Me Smart everybody, where we make the day make sense. I am Kai Ryssdal.

Kimberly Adams: And I’m Kimberly Adams, thank you for joining us for “Whaddya Wanna Know Wednesday”, the day in the week where we answer listener questions.

Kai Ryssdal: And if you have a question about the economy or business or technology or culture or any of those things that you hear us talk about on this podcast, email us, would you, at makemesmart@marketplace.org. Or leave us a voicemail. Our number is 508-U-B, the letter U, the letter B, SMART.

Kimberly Adams: Our first question today is actually a follow up from last week’s news about the student loan forgiveness program.

Chris: Hi, this is Chris in Baltimore. I have a question about the new student loan forgiveness program. But let’s just start off by saying that last year I paid off my student loans, which I was very excited about and very proud of being able to do. But I’m really excited that other people can get the help that they need. But my question is, everyone keeps talking about this program will increase inflation, which I don’t really get. Did they think that we’re going to take that extra money and just go wild on Amazon? That wasn’t the case for me. The money then went to other bills. Thanks for making me smart. Bye.

Kai Ryssdal: Yeah. So like, that’s a really good question. It’s very much in the zeitgeist on this thing. And there are some economists, Larry Summers most prominently among them, as former Secretary Summers tends to be as prominent when he’s got a dissenting view, who says, listen, this will definitely hit well. I mean, come on, right. This will definitely increase inflation. And it’s a terrible idea. Here’s the reality of the student loan thing. So it’s $300 billion, I believe over 10 years, is the cost of this program. That is to say, the amount of relief that is coming, the amount of spare money people will have in their pockets. That’s $30 billion a year, which is in an economy worth $20 trillion, not a whole boatload of money. Also, it’s really important to understand that this money is not people getting a check for the equivalent of their slice of $30 billion and go and spending it right. It’s money that they are not going to pay on a monthly basis. And it’s spread out over time. So let’s be really clear that this is not just a huge injection of cash, as it was, say, when Congress passed any one of the COVID relief bills. So that’s item number one. Item number two is that the loan payment pause goes away at the end of this year. So there’s going to be a whole tranche of people still paying on student loans who couldn’t get relief or weren’t eligible or what have you. That will take money out of the economy. Is it going to counterbalance? I don’t know, I don’t think so. I haven’t done that math. But the much larger point is, this is a relatively small amount of money in a ginormous economy. So the effect on inflation will – I believe, and many others as well believe – will not be all that pronounced.

Kimberly Adams: Well, and also that pause that you were talking about on student loan repayments? People have been not paying on their student loans for so long, that them continuing to not pay, it means that the impact on inflation would be negligible anyway. And so, we’re not actually going to have a change where suddenly people stop paying, it’s going to be that suddenly people are paying again, just not as much as they would have had to.

Kai Ryssdal: Excellent point. Great point. Great point. Okay. Larry, electric vehicles. Begin.

Larry: Hi, this is Larry from Staten Island. I love my EV. I love the rebates and the tax credits I got. My question is, where is the tax money going to come from to maintain our roads that is now collected when we buy gasoline, when we all convert to EV? And my second question is, we know that Kai was raised in Briarcliff Manor, New York. So where does “all y’all” come from? Please make me smart about both of these pressing issues. Bye.

Kai Ryssdal: You take cars. I’ll take the second one.

Kimberly Adams: Yeah. All right. So this is actually something that comes up pretty commonly when people are talking about the switch to EV, so it’s a good thing to talk about. As Larry was saying, just about all states and the federal government rely on gas taxes to maintain the roads that we rely on, that businesses rely on, that are the arteries of commerce in our country. And so fuel taxes account for about 84% of the federal highway funds and about 29% of state highway funds. So yes, if electric vehicle drivers are not paying for gas, that means less funds to pay for the roads. But there are some states like California and lots of others that have already started thinking about this and they’re charging an additional electric car registration fees, fees so that EV owners can help pay for roads and repairs and maintenance costs. But depending on where you live, that fee could be much higher than the gas tax. Or lower. But if it’s higher, then you’re effectively punishing EV drivers rather than incentivizing them. So that’s that part, but I’m gonna leave the “all y’all” for you, Kai. Where does that come from? Yeah, I mean, and in this more recent effort of lots more people getting on board with gender neutral terminology and more inclusive terminology, y’all is right there.

Kai Ryssdal: I did in fact spend a good part of my formative years in Briarcliff Manor, New York, which is in Westchester County, just north of Manhattan. But I went to school down in Atlanta. Atlanta, Georgia. And while I did not pick up a taste for grits, I did develop an affinity for y’all and all y’all. I try not to use it too much. But it can be good, and a nice collective noun, I believe. That’s totally true. That is actually a good question. Yeah.

Kimberly Adams: All right. Well, then. Yeah. Next up is a question from Leola on Twitter. She says, my brain stops every time I hear “at scale”. I guess I must be used to hearing “at large/small scale”, etc. I see it has a business meaning, but I hear it in the nonprofit world too. Please explain.

Kai Ryssdal: Yeah, that’s such a good question. Because look, it’s really become kind of lingo-y, kind of jargon-y, right. Kind of like in the know, like, hey, that’s a great plan, Bob, can you execute at scale? And what it fundamentally means, if you look in the dictionary, it says to grow or expand in a proportional and usually profitable way from Merriam Webster, right? Nonprofits use it, for profit businesses use it. Just think grow, right. Grow in a steady, even maintainable way. When people talk about scale, then what they mean – can you execute at scale means can you do this in a way that will sustain? Not sustainability, but sustained, that will feed on itself. That’s the easiest way to think about that one, I believe.

Kimberly Adams: Yeah, and also, like, bigger. So I remember having a conversation years ago with my friend about organic foods and how they were so expensive. And they made it so that only rich people could buy organic food. And I said, yeah, rich people have to buy the organic food now so that those farms can start to operate at scale, because once enough people buy it, and they’ve got enough business, then they can scale up and make the product more affordable for everyone else, which is why now you can find organic foods a lot more affordably than you used to, because rich people bought them a while ago and created the business foundation for those operations to scale up.

Kai Ryssdal: Right. Exactly. Good one. Colin in Singapore, originally from California, we’re told in our notes. Here’s what he says. Can you make me smart on why a credit score goes down though I followed the credit rating’s advice to the T. That is a great question, and credit scores matter, and good thing that there’s somebody in this conversation who’s not me is all serious about credit scores.

Kimberly Adams: Oh my gosh, we dug so deep into credit scores over on the tech show, and we did have a conversation, a deep dive on Make Me Smart about them, which I’m sure will be in the show notes. But over on Marketplace Tech, we actually looked at the algorithms that generate credit scores, which are actually a bit of a black box. So yes, we know broadly what factors into a credit score, but how those different factors are weighted, and when the credit scoring – sorry, when the credit bureaus are checking for that information, a lot of that is proprietary or just unknown. So, for starters, credit scores are supposed to indicate how likely it is that someone is going to pay back the money that they borrowed, or how likely they are to default on a given loan. And so, yes, we know some of the things that you’re supposed to do, you need to make your payments on time, use less than your allowable credit maximums on cards, pay your bills in full when you can, having the right mix of loans and credit cards and installment accounts. However, how much each of those things matters can differ, because we all have different credit scores, some of them you know about, some of them you don’t. You can know about your FICO score, and maybe you know about your vantage score. But what you might not also know is that your individual bank or credit card company might have their own score on you that’s generated differently. And so these nuances are proprietary. That’s their, you know, business proposition, and they keep it all secret. And that’s why you end up with so many ideas and concepts and here’s how to raise your credit score ideas. We ran into one person during the credit score series, who found out that if she paid on her bills every single week, her credit score skyrocketed. Even though she was paying the same amount overall every month, just that weekly payment somehow tricked the algorithm into thinking she was doing better than she was. And so, you know, it kind of depends. Generally, if you need to have a higher credit score, do the basic things that the companies tell you to do, but also recognize some of it is just unknowable.

Kai Ryssdal: Yeah, yeah, it is. It is a black box. Right. That’s the deal. All right. Super quick. On this last one, it’s for you. Here you go. Final question of the day. It comes from Jason R on Twitter. And here’s what he says. Kimberly, did you get any Star Wars questions in with LeVar Burton, whom you had on Tech the other day?

Kimberly Adams: I’m going to guess that Jason meant Star Trek.

Kai Ryssdal: You know what’s great, is I didn’t even pick up on that. I’m just like, I’m gonna read this. I’m like freaking Ron Burgundy, man. I’m gonna read it.

Kimberly Adams: I’m gonna get like, I can’t look at my Slack right now because I’m recording this inside of a car. But I’m hoping that you’re getting an urgent Slack right now if that was a typo. But anyway, no, I did not ask LeVar Burton any Star Trek questions. I was very nervous. It’s LeVar Burton, I mean, come on. So I was very much…

Kai Ryssdal: So cool. I bet you you could have. You could ask him.

Kimberly Adams: I’m sure that I could have, but we had –

Kai Ryssdal: Was that his character? Geordi?

Kimberly Adams: What? Geordi La Forge.

Kai Ryssdal: What was his character’s name? Geordi? There we go. Geordi.

Kimberly Adams: Geordi La Forge. Yeah. But no, I had so many other things I wanted to ask him about. Children and literacy and all those other things. I did not get to my Star Trek questions. But I did ask him a bit about his podcast that he does, which I’m a huge fan of, which is called LeVar Burton Reads. And I was telling him how I was listening to his podcast throughout the pandemic while I was swimming, and he thought that was nice. So. That was my little moment, which made me feel good. What would you have asked LeVar Burton?

Kai Ryssdal: I would have said, so, which do you like better, Star Trek or Star Wars? Oh god.

Kimberly Adams: Oh god, come on!

Kai Ryssdal: Actually, I would ask, I would ask him about Patrick. I would ask him about Patrick Stewart. Something about Patrick. I’m a big Patrick Stewart fan.

Kimberly Adams: He’s a pretty cool actor for sure. For sure. For sure.

Kai Ryssdal: He’s pretty cool. All right. We’re gonna get out of here. Kimberly’s in a car. I’m in a sweat box. But that’s a whole different kind of podcast. We’re done. Thanks for listening. Back tomorrow with news on a Thursday and some smiles as well.

Kimberly Adams: Yes. And in the meantime, do keep sending us your questions. You can email us at makemesmart@marketplace.org or leave us a voicemail at 508-U-B-SMART.

Kai Ryssdal: Make me smart is produced by Marissa Cabrera. Olivia Zhao is our intern. Ellen Rolfes writes our newsletters.

Kimberly Adams: Today’s show was engineered with great patience by Juan Carlos Torrado. Ben Tolliday and Daniel Ramirez composed our theme music and our Senior Producer is Bridget Bodnar. For Juan Carlos. He’s been like testing out so many things with me this week, just tried to make me sound good on the radio slash podcast.

Kai Ryssdal: Stepping up to help us out, stepping up to help us out. There we go.

Bridget Bodnar: Okay, thank you host. It was a typo!