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Working Paper
Does getting a mortgage affect credit card use?
Buying a house changes a household?s balance sheet by simultaneously reducing liquidity and introducing mortgage payments, which may leave the household more exposed to other shocks. We find that this change affects credit card use in two ways: A debt effect increases credit card spending, while a credit effect leads to higher credit limits. In the short run, a new mortgage acquisition has a robust and statistically significant positive effect on credit card utilization ? the fraction of a consumer?s credit card limit that is used ? of approximately 11 percentage points. Before the 2008 ...
Journal Article
On the record: Texas students often lack skills, financial knowledge for college success
Jeff Webster is assistant vice president for research and analytical services for TG (Texas Guaranteed Student Loan Corp.), a nonprofit that promotes educational access and administers the Federal Family Education Loan Program. He has studied student loan default, debt burden and student retention.
Journal Article
When Nations Don't Pay Their Debts
Features article: When Nations Don't Pay Their Debts: What happens when countries can't or won't repay
Working Paper
Stimulus through Insurance: The Marginal Propensity to Repay Debt
Using detailed micro data, we document that households often use "stimulus" checks to pay down debt, especially those with low net wealth-to-income ratios. To rationalize these patterns, we introduce a borrowing price schedule into an otherwise standard incomplete markets model. Because interest rates rise with debt, borrowers have increasingly larger incentives to use an additional dollar to reduce debt service payments rather than consume. Using our calibrated model, we then study whether and how this marginal propensity to repay debt (MPRD) alters the aggregate implications of fiscal ...
Discussion Paper
Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race
In an October post, we showed the effect of college tuition subsidies in the form of merit-based financial aid on educational and student debt outcomes, documenting a large decline in student debt for those eligible for merit aid. Additionally, we reported striking differences in these outcomes by demographics, as proxied by neighborhood race and income. In this follow-up post, we examine whether and how this effect passes through to other debt and consumption outcomes, namely those related to autos, homes, and credit cards. We find that access to merit aid leads to an immediate but temporary ...
Working Paper
Targeted business incentives and the debt behavior of households
The empirical effects of place-based tax incentive schemes designed to aid low-income communities are unclear. While a growing number of studies find beneficial effects on employment, there is little investigation into other behaviors of households affected by such programs. We analyze the impact of the Texas Enterprise Zone Program on household debt and delinquency. Specifically, we utilize detailed information on all household liabilities, delinquencies, and credit scores from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, a quarterly longitudinal 5% random sample of ...
Identifying the Most Financially Vulnerable Families
Households with less than two months’ income in liquid assets and those with high debt-to-income ratios face the greatest risk of serious delinquency.
Journal Article
Spotlight on Research: Youth Debt and College Graduation
The rise in debt among youth to finance their higher education has engendered a great deal of discussion. Much of the attention has been focused on the angst that arises when the debt has to be repaid. This has been especially burdensome on students from lower-income households. While this is worthy of concern, another aspect of the educational-related debt that is being examined is whether the debt was worth it. More specifically, what is the association of the debt with the borrower?s graduation from college? Some investigations not only consider the relationship between educational loans ...
Journal Article
Risk of Business Insolvency during Coronavirus Crisis
Many businesses had amassed high levels of debt, or leverage, before the COVID-19 pandemic. Out of precaution or necessity, firms increased their borrowing further after the onset. Although the shock to those firms’ value significantly increased their risk, measured by their distance-to-default, the default risk remains relatively small for most corporate debt. Nevertheless, the amount of outstanding liabilities among firms with elevated risk of insolvency is more than two times higher than at the peak of the global financial crisis.
Discussion Paper
Is There Too Much Business Debt?
By many measures, nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Our bloggers review measures of corporate leverage in the United States and find that, although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.