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Stress Testing Household Debt
We estimate a county-level model of household delinquency and use it to conduct "stress tests" of household debt. Applying house price and unemployment rate shocks from Comprehensive Capital Analysis Review (CCAR) stress tests, we find that forecasted delinquency rates for the recent stock of debt are moderately lower than for the stock of debt before the 2007-09 financial crisis, given the same set of shocks. This decline in expected delinquency rates under stress reflects an improvement in debt-to-income ratios and an increase in the share of debt held by borrowers with relatively high ...
The Consequences of Student Loan Credit Expansions: Evidence from Three Decades of Default Cycles
This paper studies the link between credit availability and student loan repayment using administrative federal student loan data. We demonstrate that expansions and contractions in federal student loan credit to institutions with high default rates explain most of the time series variation in student loan defaults between 1980 and 2010. Expansions in loan eligibility between 1976 and 1988 led to the entry of new, high-risk institutions, and default rates exceeding 30 percent in the late 1980s. Credit access was subsequently tightened through strict institutional and student accountability ...