The Finatical

Week of October 11th, 2022 - Investment Banking, Mortgage Rates, President Biden’s Student Loan Relief Program

Finatic

Aditya Bagga

Ksheeraj Sanga

, and 3 others

Oct 11, 2022

Topic Breakdown - Investment Banking

Investment banking is a branch of banking that focuses on providing funds to governments, businesses, and other organizations. In this article, we’ll be diving deeper into what investment banking is, how to become an investment banker and the purpose that investment bankers serve.

Introduction

To begin, Investment banking is a specialty within banking that coordinates massive, intricate financial transactions like mergers or the underwriting of initial public offerings (IPOs). In addition to underwriting the issuing of new securities for a corporation, these banks may raise money for businesses in a number of other ways. Investment bankers are professionals who are acutely aware of the state of the market for investments. Essentially, they assist their clients in navigating the difficult high finance industry.

Careers

A significant financial career like investment banking requires strong analytical, quantitative, and critical thinking abilities. To succeed in this industry, many investment bankers rely on their financial knowledge and expertise. Starting with a top-notch education, there are several crucial measures to take in order to prepare for a career as an investment banker. The first step to becoming an investment banker is by getting your bachelor's in finance or a closely related profession. Then, you may want to consider a graduate degree or an MBA. After this, you will want to sign up with the Financial Industry Regulatory Authority (FINRA) and get certified to be an investment banker by taking an exam. You can then get an entry-level position in order to take part in on-the-job training. Eventually, you can advance and work your way up the investment banking ladder. You may also want to know that salaries for investment bankers start at around $85,000 and can go up to $200,000 as you gain more experience in the field.

Investment Banking’s Importance

So why are investment bankers in such high demand? Investment banks generally support significant, complex financial transactions. If the investment banker's client is considering an acquisition, merger, or sale, they might offer guidance on how much a firm is worth and the best way to organize a deal. In addition to these services, investment banks may also issue securities to raise funds for their clientele and prepare the paperwork required by the Securities and Exchange Commission (SEC) for a firm to go public. This is why companies need the help of investment bankers. The job is difficult and frequently requires analysts or associates to work more than 80 hours a week. Because the jobs are renowned and the potential incomes are great, the majority of investment bankers are extremely ambitious and competitive.

Financial Trends

Mortgage Rates Rise

As mortgage rates show no signs of slowing down, more and more people are revisiting the age-old question with housing: renting or buying? This has been a relevant decision amid the U.S.'s exponentially high housing prices, resulting in monthly mortgage payments becoming more difficult for home buyers to manage and pay off. Additionally, renting also has been very high, regardless of the location, making it one of the economy’s most difficult problems to deal with in terms of inflation. Despite the latest Federal Reserve interest rate increase not being completely related to the rise in mortgage rates, it is still having an impact on lending money and home prices.

According to Bankrate.com, the average 30-year fixed-mortgage rate was 6.1% as of September 13th and has been steadily increasing up to 6.43%, on Tuesday. As a result, this had led to a lot more potential homebuyers deciding to pull out of their bids on homes given the circumstances in the economy. However, it is not a good idea for first-time homebuyers attempting to time the market because if the buying elements are suitable to your needs, then it is beneficial to take immediate action before prices skyrocket to unaffordable prices. Prospective homebuyers should also consider what they are paying when deciding to rent or buy, as the premium for buying homes is over a long-term of payments, whereas renting has a temporary premium.

President Biden’s Student Loan Relief Program

Federal student loan borrowers whose loans were not held by the U.S. Department of Education will no longer be able to consolidate in order to qualify for President Biden’s student loan forgiveness program. The most recent update from the Education Department is that one-time student loan debt relief may consolidate their debts to Direct Loans in order to qualify for the relief plan. Biden’s plan includes up to $10,000 in forgiveness for federal student loan borrowers and up to $20,000 in financial relief for Pell Grant recipients. In order for students to qualify for these forgiveness plans, borrowers of federal money need to be under certain income thresholds established by the federal government —- $125,000 for individuals and $250,000 for households, annually.

However, Biden’s plan has received a lot of skepticism with the total price of the plan amounting close to $400 billion, impacting the nation’s economy which is battling with record levels of inflation. Additionally, there have been questions about whether borrowers with the Federal Family Education Loan Program (FFEL), loans not held by the federal government, are also eligible for this relief plan. Initially, the Education Department announced that they would be exploring various strategies to allow those “overlooked borrowers'' opportunities to be excused from forgiveness, which amounted to roughly 5 million people. According to an administration official, that number was in fact only 770,000 people. Some people were excluded for exceeding the income thresholds that were set by the government to be qualified.

Financial Guidance

“We should remember that good fortune often happens when opportunity meets with preparation.” ― Thomas A. Edison

When we see what we perceive good fortune to people, we often attribute it to luck or other extraneous factors. While a certain element of truth exists within that statement, what we often fail to acknowledge is that even with good luck and fortune, all of that doesn’t matter if there is no preparation done ahead of time.

Term of the Week

Loan Forgiveness - Loan forgiveness is when a borrower is forgiven from paying back a part of the entirety of their loan. Partial loan forgiveness tends to be more common than full forgiveness. There are certain criteria that must be met in order to qualify, such as a certain income requirement, etc. Recently, loan forgiveness has been a major talking point, as President Biden announced his plans to forgive up to $10,000 for students who met certain criteria.