econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 12 December 2016

To Borrow, Or Not To Borrow For University?

from the St Louis Fed

-- this post authored by Ray Boshara,

Have you ever wondered whether it makes sense to borrow for college? Or how much debt is worth taking on to get that dream home?

Well, we at the Center for Household Financial Stability did. Accordingly, we organized, along with the Private Debt Project, a research symposium back in June to see if there exist tipping points at which taking on more debt could be too financially risky. After all, if debt doesn’t lead to more income and wealth, what’s the point? Asking these questions is one of the driving forces at the Center because we don’t think enough attention is being paid to the debt side of family balance sheets.

For the symposium, we commissioned several new papers from Fed and non-Fed economists. The papers - along with my summary and reflection - were released last week.

The research findings were both interesting and often counterintuitive. Let me mention just a few.

My colleagues Bill Emmons and Lowell Ricketts looked at loan delinquencies. Reflecting our Center’s ongoing work on the demographics of wealth, they found that younger, less-educated and nonwhite families were more likely to tip into delinquency. No huge surprise there. But then the co-authors posed what I think is a groundbreaking framing question, including for many Fed economists: Are these struggling families at this greater risk because they make riskier financial choices or because of structural, systemic forces that are largely shaping their financial behavior? In other words, is our tipping points question whether more financial education is primarily needed or whether a change in public policy is primarily needed?

Neil Bhutta and Benjamin Keys also discerned some alarming tipping points by looking at the nearly $1 trillion in home equity extractions between the boom years of 2002-2005. Extractors, they found, were more likely to default on their mortgages, even after controlling for credit scores and other risk factors. Even more surprising, extractors were more than twice as likely to become severely delinquent on their mortgage debts and almost 40 percent more likely to become delinquent on other kinds of debt.

We didn’t just look at the numbers but also the psychology of tipping points. Christopher Foote, Lara Loewenstein and Paul Willen found that, leading up to the financial crisis, excessive mortgage borrowing was fueled not by a financial indicator (the amount of income needed for a mortgage) but by a psychological one (the expected increase in future housing prices).

The symposium also opened up new ways to think about tipping points: At what point, for example, is an aspiration given up because of too much debt? And do different generations - say Gen Xers and millennials - think differently about how much debt is good or bad?

Several trends suggest families will be struggling with high debt levels for years to come, and it behooves all of us to think more about when debt goes from being productive to destructive. The financial health of families and our economy may depend on it.

I hope you’ll have a chance to read all of the papers, each one novel and forward-looking.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2016/november/to-borrow-not-to-borrow

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government




























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2018 Econintersect LLC - all rights reserved