SECURE 2.0 Helps Small Employers Help Their Employees
Approximately 78% of people who work for companies with fewer than 10 employees and about 65% of those who work for companies with 10 to 24 employees do not have access to a retirement plan at work.1 That’s unfortunate, because workers with a retirement plan are far more likely to save for retirement than those without a plan. In 2022, 62% of those without a retirement plan had accumulated less than $1,000 for retirement, compared with 71% of those with a plan who had saved at least $50,000. More than four in 10 workers with access to a work-based plan had amassed a quarter million dollars or more.2
In December 2022, Congress aimed to address this issue (among others) by passing legislation that will help small employers more efficiently and cost-effectively offer retirement plans to their workforces, while providing incentives to help improve participation rates among lower-income workers. The SECURE 2.0 Act of 2022 — so named because it builds upon the original Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019 — is a sweeping set of provisions designed to improve the nation’s retirement-planning health. Here is a brief look at some of the tax perks, rule changes, and incentives included in the legislation.
Tax Perks for Employers in 2023
Perhaps most appealing to small business owners, the Act enhances the tax credits associated with adopting new retirement plans, beginning in 2023.
For employers with 50 employees or less, the pension plan start-up tax credit increases from 50% of qualified start-up costs to 100%. Employers with 51 to 100 employees will still be eligible for the 50% credit. In either case, the credit maximum is $5,000 per year (based on the number of employees) for the first three years the plan is in effect.
In addition, the Act offers a tax credit for employer contributions to employee accounts for the first five tax years of the plan’s existence. The amount of the credit is a maximum of $1,000 for each participant earning not more than $100,000 (adjusted for inflation) in income. Each year, a specific percentage applies. In years one and two, employers receive 100% of the credit; in year three, 75%; in year four, 50%; and in year five, 25%. The amount of credit is reduced for employers with 51 to 100 employees. No credit is allowed for employers with more than 100 workers.
Rule Changes and Relevant Years
In 2024, employers will be able to adopt a deferral-only starter 401(k) or safe-harbor 403(b) plan, which are designed to be lower cost and easier to administer than traditional plans. Both plan types have auto-enrollment features and accept employee contributions only. Employees are enrolled at minimum contribution rates of 3%, not to exceed 15%, and may opt out. The plans may accept up to $6,000 per participant annually ($7,000 for those 50 and older), indexed for inflation.
SIMPLE plans may benefit from two new contribution rules. First, employers may make nonelective contributions to employee accounts up to 10% of compensation or $5,000. Second, the annual contribution limits (standard and catch-up) for employers with no more than 25 employees will increase by 10%, rather than the limit that would otherwise apply. An employer with 26 to 100 employees would be permitted to allow higher contributions if the employer makes either a matching contribution on the first 4% of compensation or a 3% nonelective contribution to all participants, whether they contribute. These changes also take effect in 2024.
Beginning in 2025, 401(k) and 403(b) plans will generally be required to automatically enroll eligible employees and automatically increase their contribution rates every year, unless they opt out. Employees will be enrolled at a minimum contribution rate of 3% of income, and rates will increase each year by 1% until they reach at least 10% (but not more than 15%). Not all plans will be subject to this new provision. Exceptions include those in existence prior to December 29, 2022; those sponsored by organizations less than three years old or employing 10 or fewer workers; governmental and church plans; and SIMPLE 401(k) plans.
Incentives for Participation
SECURE 2.0 drafters were creative in finding ways to encourage workers, particularly those with lower incomes, to take advantage of their plans. For example, effective immediately, employers may choose to offer small-value financial incentives, such as gift cards, for joining a plan. Beginning in 2024, employers may provide a matching contribution on employee student loan payments, which should help encourage younger workers to plan for their future. Also in 2024, workers will be able to withdraw up to $1,000 a year to cover unforeseeable or immediate emergencies without having to pay a 10% early distribution penalty, which should help address the fear of locking up retirement-plan contributions for many years. Employees will have up to three years to repay the emergency distributions and will not be able to take a second emergency distribution during this three-year period unless the first has been reimbursed.
1) AARP, July 2022
2) Employee Benefit Research Institute, 2022
Jason Zweig view of Benjamin Graham’s approach to investing
Jason Zweig is a journalist at the Wall Street Journal. I have consistently found his column, “The Intelligent Investor” to be clear and insightful. His March 21 column, “The Risk That Come With Rescuing Banks” is followed by “Money Mailbag”. He was asked for a comparison of “The Intelligent Investor” and “Security Analysis” both written by Benjamin Graham.
Following are excerpts from his answer.
“ Benjamin Graham (1894-1976) was one of the greatest investors of the 20th century, as well as Warren Buffett’s boss and mentor.”
“He understood that markets are dynamic and that investors should be flexible.”
“The guidelines Graham laid down in the final edition …(1973) differ significantly from those he set in the previous, 1965 edition.”
“What Graham never changed is the emotional framework he built. Whether you are a professional or an individual investor…”
“If he were around today, he would have yet another set of rules.”
- “cultivate the seven investing virtues of curiosity, skepticism, discipline, independence, humility, patience and courage;
- regard a stock as a stake in an underlying business, not as a ticker symbol or a lottery ticket;
- recognize that the stock market is often insane;
- think not only about how much you will make if you are right, but how much you will lose if you are wrong;
- trade as seldom as possible.”
He provides much to think about, even if you do not agree with him.
IRS Guidance on State Tax Payments
The IRS has identified 21 states that made special payments to taxpayers in 2022. After a review of those special payments, the IRS has determined that taxpayers in many states will not need to report those payments on their 2022 federal income tax returns. Special payments in four of those states should be treated as refunds of state taxes paid, and taxation is determined under the general federal income tax rules for state tax refunds. Special payments in 17 states are treated as made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes. Illinois and New York are listed in this category but seem to have provided a mixture of payments that fell into multiple categories (see below).
If you already filed your 2022 federal income tax return and omitted one of these special payments when it was required to be included in income, you may need to file an amended tax return and pay any additional tax due. If you included one of these special payments in income when it did not need to be included, you may need to file an amended tax return to get a federal income tax refund with respect to the special state tax payment.
Refund of state taxes paid
The IRS has concluded that the special payments from the following states in 2022 are treated as a refund of state taxes paid, and the appropriate analysis under the general state tax refund rules should be made.
Georgia
Massachusetts
South Carolina
Virginia
Under general rules, if the payment is a refund of state taxes paid, the payment is excluded from federal income tax unless the recipient received a tax benefit in the year the taxes were deducted on the federal income tax return. Thus, the recipient does not need to include the payment in income if the recipient claimed the standard deduction or the taxpayer itemized deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) in the year the state taxes were deducted.
General welfare and disaster relief payments
The IRS has determined that the special payments from the following states in 2022 were made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes.
State State Payment Program
Alaska* Energy Relief Payment (supplementing the Permanent Fund Dividend)
California Middle Class Tax Refund
Colorado Colorado Cash Back
Connecticut Child Tax Rebate
Delaware Relief Rebate Program
Florida Pandemic Temporary Assistance to Needy Families
Hawaii Act 115 Refund
Idaho 2022 Tax Rebate
Illinois** Individual Income Tax Rebate/Property Tax Rebate
Indiana Automatic Taxpayer Refund #1/Automatic Taxpayer Refund #2
Maine Pandemic Relief Payments
New Jersey ITIN Holders Director Assistance Program
New Mexico Multiple rebate and relief programs
New York** Supplemental Child Credit and Supplemental Earned Income Tax Credit
Oregon One-Time Assistance Payments
Pennsylvania One-Time Bonus Rebates
Rhode Island 2022 Child Tax Rebates
*Exclusion is only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
**The IRS stated that “Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.” It seems that additional guidance from the IRS is needed here to identify the tax treatment of specific payments.
Other payments
The IRS adds that other payments that may have been made by states (e.g., payments from states provided as compensation to workers) are generally includable in income for federal income tax purposes.
Ceiling and Deficit Spending
The U.S. government reached its statutory limit, commonly called the debt ceiling, January 19,2023. The current limit was set by Congress at about $31.4 trillion in December 2021.1
Janet Yellen, Treasury Secretary, started well-established “extraordinary measures” to allow necessary borrowing for a limited period the same day. While Yellen projects the extension will last until early June, the Congressional Budget Office (CBO) estimates it may last until sometime between July and September. However, the CBO cautions that if April tax revenues fall short of its projections, the Treasury could run out of funds earlier.2–3
Flexibility vs. Fiscal Fights
A debt ceiling was first established in 1917 to give the federal government more flexibility to borrow during World War I. Previously, all borrowing had to be authorized by Congress in very specific terms, which made it difficult for the government to respond to changing needs.4
The modern debt ceiling, which aggregates almost all government debt under one limit, was established in 1939. Since 1960, it has been raised, modified, or suspended 78 times, mostly with little fanfare. That changed in 2011, when a political battle over the ceiling pushed the Treasury so close to the edge that Standard & Poor’s downgraded the credit rating of the U.S. government.5–6
The debt ceiling limits the amount that the U.S. Treasury can borrow to meet financial obligations already authorized by Congress. It does not authorize future spending. However, beginning with the bitter battle of 2011, it has been used as leverage for partisan negotiations over government spending. With the White House and the House of Representatives — which must authorize spending — held by different parties, this year’s negotiations could be particularly difficult.
Potential Consequences
If the debt ceiling is not raised in a timely manner, the U.S. government could default on its financial obligations, resulting in unpaid bills, higher interest rates, and a loss of faith in U.S. government securities that would reverberate throughout the global economy. While it’s unlikely that the current situation will lead to a default, pushing negotiations close to the edge can be damaging in itself. It was estimated that the 2011 impasse cost U.S. taxpayers $1.3 billion in increased borrowing costs in FY 2011 with additional costs in the following years.7
The Deficit and the Debt
The federal government runs at a deficit when tax revenues are not sufficient to meet spending obligations. Federal spending has outpaced revenue for the last 50 years, except from 1998 to 2001.8 Annual budget deficits add to the national debt.
The current debt of $31.4 trillion is the highest in U.S. history.9 Measuring the debt as a percentage of gross domestic product (GDP) is a better comparison over time. Economists look at debt held by the public — funds the government has borrowed to meet operational expenses and liabilities, primarily through issuing Treasury securities. Interagency debt — funds borrowed from government accounts such as the Social Security trust funds — is also subject to the limit but does not directly affect the economy or federal budget.
At the end of fiscal year 2022 (September 30, 2022), debt held by the public was equivalent to 97% of GDP. In 2019, before the pandemic, it was 79% of GDP, and in 2007, before the Great Recession, it was 35%. Both crises caused a significant increase of the deficit and debt due to lower tax revenues and high spending on government stimulus programs. The last time the debt exceeded current levels was at the end of World War II.10-11
A February 2023 analysis, the CBO projected that the debt will rise steadily over the next decade to 118% of GDP in 2033, which would be the highest percentage in U.S. history. The driving forces behind this increase would be higher spending on Social Security and Medicare, and rising interest costs (due to increasing debt and higher rates). If current laws remain unchanged, the debt is projected to rise even more quickly in the next two decades, reaching 195% of GDP in 2053.12
No Easy Answer
The only way to change this trajectory is to increase revenue, reduce spending, or both. The best scenario would be decades of high GDP growth that increases revenue at current tax rates, but this seems unlikely. The CBO projects real (inflation-adjusted) GDP growth to average a tepid 1.7% annually over the next decade.13 Raising tax rates may be necessary, but that is always a difficult political option.
There is little room to maneuver on the spending side. Only 28% of federal spending is “discretionary,” meaning Congress can set amounts through annual appropriations bills, and almost half of that spending goes to national defense, which few leaders would want to cut in the current global climate. The rest is mandatory spending, including Social Security and Medicare (which will account for nearly 36% of federal spending in 2023) and interest on the national debt.14 While both parties have indicated that Social Security and Medicare are off the table, other mandatory spending could be reduced through Congressional action.
The White House is expected to release its budget proposal for FY 2024 this month, followed by a counterproposal from House Republicans in April, setting up what is sure to be an intense period of budget negotiations. President Biden and House Speaker Kevin McCarthy have already begun to discuss the debt ceiling issue, and it remains to be seen whether the ceiling can be addressed outside of the budget process or whether it will be caught in the crosshairs. In either case, the ceiling will have to be raised or suspended in order to maintain U.S. government operations.
U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid. Forecasts are based on current conditions, are subject to change, and may not come to pass.
1, 3, 10, 12–14) Congressional Budget Office, 2023
2, 6, 9) U.S. Treasury, 2023
4–5) Bipartisan Policy Center, 2023
7) U.S. Government Accountability Office, July 23, 2012
8, 11) U.S. Office of Management and Budget, 2023
REAL ID Deadline Extended Again
After years of numerous delays, the U.S. Department of Homeland Security has once again extended the REAL ID enforcement deadline from May 3, 2023, until May 7, 2025. 1
What is a REAL ID?
A REAL ID is a type of enhanced identification card. The REAL ID Act, passed by Congress in 2005, set minimum security standards for state-issued driver’s licenses and identification cards. Under the Act, residents of every state and territory are required to have a REAL ID-compliant license/identification card, or another acceptable form of identification (such as a passport), in order to:
- Access federal facilities
- Board federally regulated commercial aircraft
- Enter nuclear power plants
When traveling internationally, you will still need your passport for identification purposes, including travel to Canada or Mexico. If you are traveling domestically, you will only need to show your REAL ID or another acceptable alternative.
In order for a REAL ID license or identification card to be compliant, it must have a star marking on the upper portion of the card. Enhanced Driver’s Licenses that are issued in Michigan, Minnesota, New York, Vermont and Washington do not have a star marking but are still acceptable alternatives to REAL ID-compliant cards and will be accepted for official REAL ID purposes.
How Do You Get a REAL ID?
The U.S. Department of Homeland Security (DHS) oversees the enforcement and implementation of the REAL ID Act, but each state’s driver’s licensing agency has its own process for issuing REAL ID-compliant license/identification cards.
In order to obtain a REAL ID, you will need to provide documentation that shows your:
- Full legal name, date of birth, proof of lawful presence (e.g., U.S. passport, birth certificate)
- Social Security Number (Some states may not require physical documentation of your Social Security Number.)
- Two proofs of address of principal residence (e.g., driver’s license, utility bill)
If you have a name change (e.g., marriage, divorce or court order), you will also need to bring in documentation that demonstrates proof of your name change. States may impose additional requirements, so be sure to contact your state’s driver’s licensing agency for more information.
1) U.S. Department of Homeland Security, 2023
IRS Standard Mileage Rates for 2023
IRS has increased the optional standard mileage rates for computing the deductible costs of operating an automobile for business purposes for 2023. The rates for business use are revised to reflect recent increases in the price of fuel. Standard mileage rates for medical and moving expense purposes remain the same for 2023. The standard mileage rate for computing the deductible costs of operating an automobile for charitable purposes is set by statute and remains unchanged.
For 2023, the standard mileage rates are as follows:
Business use of auto: 65.5 cents per mile (up from 62.5 cents for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used for business purposes. If you are an employee, your employer can reimburse you for your business travel expenses using the standard mileage rate. However, if you are an employee and your employer does not reimburse you for your business travel expenses, you cannot currently deduct your unreimbursed travel expenses as miscellaneous itemized deductions.
Charitable use of auto: 14 cents per mile (the same as for 2022) may be deducted if an auto is used to provide services to a charitable organization if you itemize deductions on your income tax return. Your charitable deduction may be limited to certain percentages of your adjusted gross income, depending on the type of charity.
Medical use of auto: 22 cents per mile (the same as for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used to obtain medical care (or for other deductible medical reasons) if you itemize deductions on your income tax return. You can deduct only the part of your medical and dental expenses that exceeds 7.5% of the amount of your adjusted gross income.
Moving expense use of auto: 22 cents per mile (the same as for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used by a member of the Armed Forces on active duty to move, pursuant to a military order, to a permanent change of station (unless such expenses are reimbursed). The deduction for moving expenses is not currently available for other taxpayers.
*Last year, in a rare mid-year adjustment to the standard mileage rates, the IRS increased the rates for the second half of 2022.
Is the Yield Curve Signaling a Recession?
Long-term bonds generally provide higher yields than short-term bonds because investors demand higher returns to compensate for the risk of lending money over a longer period. Occasionally, however, this relationship flips, and investors are willing to accept lower yields in return for the relative safety of longer-term bonds. This is called a yield curve inversion because a graph showing bond yields in relation to maturity is essentially turned upside down (see chart).
A yield curve could apply to any bonds that carry similar risk, but the most studied curve is for U.S. Treasury securities, and the most common focal point is the relationship between the two-year and 10-year Treasury notes. The two-year yield has been higher than the 10-year yield since July 2022, and beginning in late November, the difference has been at levels not seen since 1981. The biggest separation in 2022 came on December 7, when the two-year was 4.26% and the 10-year was 3.42%, a difference of 0.84%. Other short-term Treasuries have also offered higher yields; the highest yields in early 2023 were for the six-month and one-year Treasury bills.1 (Although Treasuries are often referred to as bonds, maturities up to one year are bills, while maturities of two to 10 years are notes. Only 20- and 30-year Treasuries are officially called bonds.)
Predicting Recessions
An inversion of the two-year and 10-year Treasury notes has preceded each recession over the past 50 years, reliably predicting a recession within the next one to two years.2 A 2018 Federal Reserve study suggested that an inversion of the three-month and 10-year Treasuries may be an even more reliable indicator, predicting a recession within about 12 months.3 The three-month and 10-year Treasuries have been inverted since late October, and in December and early January the difference was often greater than the inversion of the two- and 10-year notes.4
Weakness or Inflation Control?
Yield curve inversions do not cause a recession; rather they indicate a shift in investor sentiment that may reflect underlying economic weakness. A normal yield curve suggests that investors believe the economy will continue to grow, and that interest rates are likely to rise with the growth. In this scenario, an investor typically would want a premium to tie up capital in long-term bonds and potentially miss out on other opportunities in the future.
Conversely, an inversion suggests that investors see economic challenges that are likely to push interest rates down and typically would rather invest in longer-term bonds at today’s yields. This increases demand for long-term bonds, driving prices up and yields down. (Bond prices and yields move in opposite directions; the more you pay for a bond that pays a given coupon interest rate, the lower the yield will be.)
The current situation is not so simple. The Federal Reserve has rapidly raised the benchmark federal funds rate to combat inflation, increasing it from near 0% in March 2022 to 4.25%–4.50% in December. As the rate for overnight loans within the Federal Reserve System, the funds rate directly affects other short-term rates, which is why yields on short-term Treasuries have increased so rapidly. The fact that 10-year Treasuries have lagged the increase in the funds rate may indeed mean that investors believe a recession is coming. But it could also reflect confidence that the Fed is winning the battle against inflation and will lower rates over the next few years. This is in line with the Fed’s projections, which see the funds rate peaking at 5.0%–5.25% by the end of 2023, and then dropping to 4.0%–4.25% in 2024 and 3.0%–3.25% in 2025.5
Inflation slowed somewhat in October and November, but there is a long way to go to reach the Fed’s target of 2% inflation for a healthy economy.6 The fundamental question remains the same as it has been since the Fed launched its aggressive rate increases: Will it require a recession to control inflation, or can it be controlled without shifting the economy into reverse?
Other Indicators and Forecasts
The yield curve is one of many indicators that economists consider when making economic projections. Among the most closely watched are the 10 leading economic indicators published by the Conference Board, with data on employment, interest rates, manufacturing, stock prices, housing, and consumer sentiment. The Leading Economic Index, which includes all 10 indicators, fell for nine consecutive months through November 2022, and Conference Board economists predict a recession beginning around the end of 2022 and lasting until mid-2023.7 Recessions are not officially declared by the National Bureau of Economic Research until they are underway, and the Conference Board view would suggest the United States may already be in a recession.
In The Wall Street Journal’s October 2022 Economic Forecasting Survey, most economists believed the United States would enter a recession within the next 12 months, with an average expectation of a relatively mild 8-month downturn.8 More recent surveys of economists for the Securities Industry and Financial Markets Association and Wolters Kluwer Blue Chip Economic Indicators also found a consensus for a mild recession in 2023.9–10
For now, the economy appears fairly strong despite high inflation, with a low November unemployment rate of 3.7% and an estimated 3.8% Q4 growth rate for real gross domestic product.11–12 Unfortunately, the indicators and surveys discussed above suggest an economic downturn in the next year or so. This would probably cause some job losses and other temporary financial hardship, but a brief recession may be the necessary price to tame inflation and put the U.S. economy on a more stable track for future growth.
U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid. Forecasts are based on current conditions, are subject to change, and may not happen.
1, 4) U.S. Treasury, 2023
2) Financial Times, December 7, 2022
3) Federal Reserve Bank of San Francisco, August 27, 2018
5) Federal Reserve, 2022
6, 11) U.S. Bureau of Labor Statistics, 2022
7) The Conference Board, December 22, 2022
8)The Wall Street Journal, October 16, 2022
9) SIFMA, December 2022
10) USA Today, December 15, 2022
12) Federal Reserve Bank of Atlanta, January 5, 2023
Student Loan Repayment Continue to be Challenged
Implementation for repayment of federal student loans has again been delayed by legal
challenges. If the courts have not resolved the issue by June 30, 2023, payments will start 60 days after that.1 The prior moratorium was set to expire on December 31, 2022.
Student loan payments will resume 60 days after the student loan debt relief program is implemented or the lawsuits are resolved.
Legal challenges lead to increased uncertainty
The latest extension is in response to court rulings that have blocked implementation of the student loan forgiveness program. Under that plan, announced in August 2022, federal student loan borrowers — including graduate students and parents with PLUS Loans — with an adjusted gross income under $125,000 ($250,000 for married couples filing jointly) are eligible for $10,000 in loan forgiveness, with Pell Grant recipients eligible for up to $20,000 in debt relief.2
In November, a federal judge in Texas ruled that the student loan forgiveness program was unlawful. And in a separate lawsuit, a federal appeals court issued an injunction against the program on behalf of six states — Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina — effectively stopping the Department of Education from accepting more applications and discharging any debt.3
The Biden administration asked the Supreme Court to review the lower court rulings during its current term, and the Supreme Court has agreed to hear the case, with arguments tentatively scheduled for February 2023. In the meantime, the Supreme Court left the injunction blocking the program in place.4
Pandemic-era payment pause continues
There have been nine student loan payment pauses since the start of the coronavirus pandemic. The first pause came in March 2020 when Congress passed the Coronavirus Aid, Relief, and Economic Security Act. Subsequent payment extensions have come via Presidential executive orders. The latest extension, to most likely sometime after June 2023, will bring the total payment pause to over three years.
Over 45 million Americans owe a collective $1.6 trillion in federal student loans, the largest category of consumer debt behind mortgages. 5To date, more than 26 million people have applied for debt relief under the program; an additional 8 million people who have their income information already on file will qualify automatically for the program.6
1-2) U.S. Department of Education, 2022
3, 6) The Washington Post, November 14, 2022
4) The New York Times, December 1, 2022
5) The New York Times, November 22, 2022
2022-2023 School Year College Cost Data for
The College Board annually releases new college cost data and trends. Average cost figures of approximately 4,000 colleges across the country are included in the survey.
Average price for tuition, fees, and room and board has increased 46% at public colleges and 30% at private colleges over and above increases in the Consumer Price Index over the past 20 years. The increase is reflected in the student debt increase.
Here are cost highlights for the 2022-2023 year.1 This year, public colleges have done a better job than private colleges at keeping tuition and fee increases under 2.3%. Note: “Total cost of attendance” includes direct billed costs for tuition, fees, and room and board, plus indirect costs for books, transportation, and personal expenses.
Public colleges: in-state students
Tuition and fees increased 1.8% to $10,940
Room and board increased 3.0% to $12,310
Average total cost of attendance: $27,940
Public colleges: out-of-state students
Tuition and fees increased 2.2% to $28,240
Room and board increased 3.0% to $12,310 (same as in-state)
Average total cost of attendance: $45,240
Private colleges
Tuition and fees increased 3.5% to $39,400
Room and board increased 3.0% to $14,030
Average total cost of attendance: $57,570
Note: Many private colleges are at or approaching $80,000 per year in total costs.
Sticker price vs. net price
The College Board’s cost figures are based on published college sticker prices. Many families pay less than full sticker price. A net price calculator, available on every college website, can help families see beyond a college’s sticker price. It can be a very useful tool for students who are currently researching and/or applying to colleges.
A net price calculator provides an estimate of how much grant aid a student might be eligible for at a particular college based on the student’s financial information and academic record, giving families an estimate of what their out-of-pocket cost — or net price — will be. The results aren’t a guarantee of grant aid, but they are meant to give as accurate a picture as possible.
FASFA for 2023-2024 year opened on October 1
Planning for college costs should start years before the first year of college. The Free Application for Federal Student Aid (FAFSA) for the 2023-2024 year opened on October 1. It’s important to keep in mind that the 2023-2024 FAFSA will factor in your income information from two years prior, which it will get from your 2021 federal income tax return, but it uses current asset information.2 Your income is the biggest factor in determining financial aid eligibility.
1) College Board, Trends in College Pricing and Student Aid 2022
2) U.S. Department of Education, 2022
What Does a Strong Dollar Mean for the U.S. Economy?
In late September 2022, the U.S. dollar hit a 20-year high in an index that measures its value against six major currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. At the same time, a broader inflation-adjusted index that captures a basket of 26 foreign currencies reached its highest level since 1985. Both indexes eased slightly but remained near their highs in October.1–2
Intuitively, it might seem that a strong dollar is good for the U.S. economy, but the effects are mixed in the context of other domestic and global pressures.
World Standard
The U.S. dollar is the world’s reserve currency. About 40% of global financial transactions are executed in dollars, with or without U.S. involvement.3As such, foreign governments, global financial institutions, and multinational companies all hold dollars, providing a level of demand regardless of other forces.
Demand for the dollar tends to increase during difficult times as investors seek stability and security. Despite high inflation and recession predictions, the U.S. economy remains the strongest in the world.4 Other countries are battling inflation, too, and the strong dollar is making their battles more difficult. The United States recovered more quickly from the pandemic recession, putting it in a better position to weather inflationary pressures.
The Federal Reserve’s aggressive policy to combat inflation by raising interest rates has driven demand for the dollar even higher because of the appealing rates on dollar-denominated assets such as U.S. Treasury securities. Some other central banks have begun to raise rates as well — to fight inflation and offer better yields on their own securities. But the strength of the U.S. economy allows the Fed to push rates higher and faster, which is likely to maintain the dollar’s advantage for some time.
Exports and Imports
The strong dollar makes imported goods cheaper and exported goods more expensive. Cheaper imports are generally good for consumers and for companies that use foreign-manufactured supplies, but they can undercut domestic sales by U.S. producers.
At the same time, the strong dollar effectively raises prices for goods that U.S. companies sell in foreign markets, making it more difficult to compete and reducing the value of foreign purchases. For example, a U.S. company that sells 10,000 euros worth of goods to a foreign buyer would receive less revenue when a euro buys fewer dollars. Some experts are concerned that the strong dollar will dampen the post-pandemic rebound in U.S. manufacturing.5 More broadly, the ballooning trade deficit cuts into U.S. gross domestic product (GDP), which includes imports as a negative input and exports as a positive input.
Overseas Exposure
Generally, large multinational companies have the most exposure to risk from currency imbalances, and the stock market has shown signs of a shift from large companies — which have dominated the market since before the pandemic — to smaller companies that may be more nimble and less dependent on overseas sales. The S&P SmallCap 600 index has outperformed the S&P 500 index through late October; if the trend continues through the end of the year, it would be the first time since 2016 that small caps have eclipsed large caps.6 The S&P MidCap 400 index has done even better. In the current bear market, however, better performance means lower losses; all three indexes have had double-digit losses through October 2022.7
Global Pain
A weak currency can be a boon for a country by making its exports more competitive. But with the world economy weakening, other countries are not reaping those benefits, while paying more on debt and imported essentials such as food and fuel that are traded in dollars. The Fed is focused on domestic concerns, but it is effectively exporting inflation while trying to control it at home, and global economic pain could ultimately spread to the U.S. economy.8
Slowing the Dollar
In the near term, the Fed’s aggressive rate hikes may reduce domestic demand for foreign goods, reducing the trade deficit and weakening the dollar. The advance Q3 2022 GDP estimate showed the trade gap closing, but it’s unclear if the trend will last.9
In the longer term, as inflation eases in the United States, the Fed will likely take its foot off the gas pedal and ultimately bring rates down. This would allow other central banks to catch up if they choose to do so and would make foreign currencies and securities more appealing. Lower oil prices (denominated in dollars) and/or any reduction in world tensions — such as a slowdown in the Russia-Ukraine war — might also help reduce demand for dollars.
The dynamics of these factors are complex, and it may take time for any of them to unfold. In the meantime, the strong dollar is a sign of U.S. economic strength, and it would not be wise to place too much emphasis on it for long-term investment decisions. However, this could be a great time for an overseas vacation.
U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid.
All investments are subject to market volatility and loss of principal. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, and economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost. The value of a foreign investment, measured in U.S. dollars, could decrease because of unfavorable changes in currency exchange rates.
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1) MarketWatch, October 19, 2022 (U.S. Dollar index)
2) Federal Reserve, 2022 (Real Broad Dollar index)
3, 8) The New York Times, September 26, 2022
4, 6) The Wall Street Journal, October 17, 2022
5) The Wall Street Journal, October 9, 2022
7) S&P Dow Jones Indices, 2022
9) U.S. Bureau of Economic Analysis, 2022
