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Student Loan Interest Rates Double While Congress Takes a Vacation

Today (Monday) federally subsidized Stafford student loan interest rates doubled from 3.4% to 6.8% after Congress failed to reach that would've maintained lower rates by the July 1st deadline.

Monday also marks the beginning of the Independence Day congressional recess, sparking outrage among student advocates as Congress goes on recess without resolving this important issue.

Congress could retroactively "fix" the damage done by the soaring rate increase, but so far no deal is in sight.

The House has already passed a student loan proposal, but the Senate remains divided.

Particularly, Senate Democrats are divided amongst themselves over two different plans, and cannot yet present a strong front on the issue.

Sens. Kay Hagan (D-NC) and Jack Reed (D-RI) have a plan that would extend the 3.4% rate for another year, while also retroactively reducing the rate.

But a bipartisan group of Senators has a different, more long-term solution. They want to permanently tie student loan interest rates to the 10-year Treasury note borrowing rate.

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Trend Watch

Student Loan Debtors Bamboozled Again

I know a lot of you out there don't have sympathy for student loan debtors who complain about their debt.

You see it as a matter of personal responsibility – they chose to sign a contract and so should suck it up and uphold their end of the deal.

Money Morning's Capital Wave Strategist Shah Gilani says it best, though:

"You're not wrong. But there are other forces exerting outside influence on the inner intentions of a lot of 'students' susceptible to being sold a bill of goods. Sometimes we're stupid for being conned, and sometimes the con is just so cleverly concealed."

Think of all the branding, marketing, and pressure swirling around the heads of these young folks.

And many don't have parents or educators taking the time to sit down and weigh the options with them.

If I haven't conjured any sympathy out of you yet, a report recently issued by the National Consumer Law Center identifies a new abuse of student loan debtors:

They are being deceived into paying up to $1,600 in initial fees, and monthly fees as high as $50, to private "debt relief firms" for help that they could otherwise get for free.

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Trend Watch

The Scary Reality of the Student Loan Bubble in 5 Charts

The explosion of the student loan bubble could lead to the next financial crisis in the United States, says a new federal report -which highlights the growing problem in these alarming new charts.

As of 2012, about $1 trillion was tied up in student loans – more than the total amount of credit card debt in the nation, the report by the Federal Reserve Bank of New York said.

The majority of the student loans are backed by the federal government, which means the public bears most of the risk associated with student loans.

And those loans are looking riskier by the day.

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U.S. Debt Ceiling

The Debt Ceiling 2013: How We Got Here, What Could Happen

A new twist to investing and financial planning is averting travesties that the government itself created; first it was the fiscal cliff, now it's the debt ceiling 2013.

The debt ceiling is a part of the way government has to go about doing its business.

However, both sides of Washington have come to use the full faith and credit of the United States of America as a bargaining chip – and the consequences are huge.

But it wasn't always like this.

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Debt Ceiling

Debt Ceiling Bill Intensifies Budget Pressure on Congress

The debt-ceiling showdown took center stage on Capitol Hill today (Wednesday) as a crucial vote on a Republican bill gave the Treasury the green light to borrow a fresh stash of cash until May 19.

The Republican-controlled House passed the bill by a 284-144 margin.

It now moves on to the Senate, where it is expected to pass quickly without any changes.

Senate Democrats are expected to back the plan even though they have been hesitant to support any short-term debt ceiling fix, maintaining it creates additional uncertainty for businesses and families.

"I'm very glad that (House Republicans) are going to send us a clean debt-ceiling bill," said Senate Majority Leader Harry Reid, D-NV.

The measure would go from the Senate to U.S. President Barack Obama, who has repeatedly said he will not wrangle over the debt ceiling and will sign the bill when it reaches his desk.

Pleased with the results, the White House added a "but," saying it would have liked a longer- term solution.

While the legislation looked extremely likely to make it to the Oval Office, there is still a chance it could get tangled up in Congress, given a controversial provision in the bill.

The legislation includes a divisive rider aimed at coercing Senate Democrats to ink a long-term budget deal. The "no budget- no pay" provision would withhold pay for members of Congress until a sustainable deal is agreed upon.

"It's not a slam dunk. But the main thing is that the Republicans will cave on the debt ceiling. So we're now just arguing over the details," Greg Valliere, chief political strategist for Potomac Research Group, told CNN Money ahead of the voting.

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U.S. Economy

The Debt Ceiling Isn't What Worries Warren Buffett

Investment guru Warren Buffett isn't sweating the debt ceiling as much as he is some of the country's other issues.

Buffett this weekend said the $16.4 trillion in debt the country has collected is not the number on which everyone should be focused.

"It is not a good thing to have it going up in relation to GDP, that should be stabilized, but the debt itself is not a problem," the CEO of Berkshire Hathaway (NYSE: BRK.A) told CBS' "Sunday Morning" this weekend.

Buffett said the country's debt is a "lower percentage of GDP than it was when we came out of World War II. You've got to think about in relation to GDP."

Here's why debt-to-GDP is what Buffett watches.

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U.S. Debt Ceiling

U.S. Debt Ceiling: Government "Borrows" Pension Funds to Avoid Default

The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling.

The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.

Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit.

Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.

But an IOU from the federal government isn't very settling for those relying on the fund for retirement.

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Soaring Spanish Bond Yields Another Hit to Growing Eurozone Debt Crisis

Investors today (Monday) have been selling on news that Spain might need more bailouts as its 10-year yield reached a record high.

Spanish bond yields reached a record high of 7.56% and the latest unemployment rate sits at a miserable 24.6%.

Global stock markets plummeted Monday after Spain's borrowing costs soared on a third consecutive day amid concerns that an intensifying recession in the region would require Spain's government to request a full-fledged bailout.

The fresh worries come on the heels of a report Friday from the Valencia region, revealing that its economy would contract by 0.5% in 2013 instead of 0.2%, as had been forecast.

Spanish bond yields broke the critical 7%-mark last Thursday, a level many analysts worry could eventually alienate Spain from public markets and force it to seek a bailout similar to its ailing neighbor Greece.

"Those levels indicate that Spain may soon struggle to fund itself in the market and therefore unless some positive action is taken, the country will need a full bailout," Gary Jenkins, managing director of Swordfish Research told the Associated Press.

The deeper worry rattling markets worldwide is that with so many of its 17-member nations needing bailouts, European finance ministers will have a tough time finding funds to rescue an economy as large as Spain. Spain is the region's fourth-largest economy after Germany, France and Italy.

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Why an Italy Bailout Package is on the Way

With news of the Spain bailout package still fresh, and Greece's crucial elections on Sunday, the next event in the Eurozone debt crisis is already brewing.

An Italy bailout package is likely to be the next costly move in the spiraling contagion.

Italy on Thursday held its first bond auction since European finance ministers came to Spain's rescue, willing to give the ailing country up to 100 billion euro ($126 billion) to shore up its beleaguered banks.

The auction raised a heap of concerns.

Italy's borrowing costs soared following a Treasury sale of 4.5 billion euros of debt, including 3 billion euros of its 3-year benchmark bond that yields a lofty 5.3%. That was the highest yield since December and an increase of nearly 1.4 percentage points from the last sale just a month ago.

In addition, Fitch Ratings reported May 23 that foreign ownership of Italian debt slipped from 50% in 2008 to a current 32%.

"I think Italy could well be a problem, because its current government isn't very good and has no legitimacy, having been imposed by the EU – and it hasn't cut spending as it needs to," said Money Morning Global Investing Strategist Martin Hutchinson. "I'd put it a few weeks away though – market's focused on Greece and Spain at present."

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Why the Eurozone Debt Crisis Never Really Went Away

How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?

Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.

But while the crisis faded into the background, it never really went way.

Remedies that were sold as solutions haven't solved a thing.

The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.

"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.

In fact, the Eurozone debt crisis is getting worse.

Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.

Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.

And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.

"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."

The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.

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