The rapid rise in personal bankruptcy filing rates in the last decade with a historic high of 7% in 1997 (of U.S. adult population) centered attention on the nation’s bankruptcy rule. The literature is voluminous with the main focus on studying incentives created by various bankruptcy laws on filing behavior within unsecured credit. In the same period, default rates for student loans averaged 12% with the highest rate of 22.4% in 1990 (a 2-year basis cohort default rate). The total amount of outstanding debt reached $25 billion in 2001. Little attention, however, has been given to analyzing bankruptcy rules under the student loan market. But evidence about how much borrowers and lenders respond to the incentives in bankruptcy laws would help policy makers as they work to redesign it. This paper studies repayment incentives in an environment that mimics the student loan market characteristics and considers effects of changes in the bankruptcy rule across different groups of college graduates.
The Federal Student Loan Program (FSLP) has grown significantly in the recent years with 7 million people currently borrowing under the program. One in twenty of them defaults on his loan payments. High default rates in the late 1980s have led legislators to introduce a series of policy reforms that gradually made student loans nondischargeable under Chapter 13 in the Bankruptcy Code. Rather than a disposal of the assets through liquidation sale under Chapter 7, the reorganization chapter gives the debtor the opportunity to restructure his assets and liabilities. He needs to reorganize and start repaying his loans. Dischargeability was initially restricted in 1990 to a 7-year first payment basis or undue hardship basis, the former feature being eliminated by Higher Education Amendments to the Bankruptcy Code in 1998. A couple of questions arise immediately: How are the repayment incentives affected by the change in the bankruptcy rule? What are the implications for welfare and default rates? I am concerned in particular with redistributional effects. Finally, what are the consequences for the decision to invest in college?.
The congruence of many types of scientific evidence has led to general agreement in the medical community of the need to lower blood cholesterol to reduce the incidence of CHD. In 1985, the NCEP, a consortium of practitioners, public health professionals, voluntary health organizations, and government agencies, began a collaborative effort of professional and public education.
In 1988, the Adult Treatment Panel of NCEP delineated guidelines for the detection, evaluation, and treatment of high blood cholesterol in adults. Treatment of individuals at risk cannot proceed, of course, until their cholesterol levels have been defined. Accordingly, NCEP advises adults: “Know your cholesterol number.”
In the spring of 2009, world financial markets were in the midst of a credit crisis of historic proportions. While unfortunate, the financial crisis environment created a unique opportunity to draw crisp inferences about how firms vary the use of internal and external funds, and how funding options affect real-side decisions such as capital spending.
There is a long literature on the importance of internal funds as a source of financing for corporate investment. According to this literature, profits are likely to become a crucial funding source when firms face financing constraints (Fazzari et al. (1988)) or when credit is tight in the aggregate economy (Bernanke and Gertler (1989)). In this paper, we study the interaction between different sources of corporate funding and how that interaction affects decisions such as capital investment, technology spending, and employment. We do this using data collected in the midst of the 2009 financial crisis. While previous papers focus on the impact of firms’ internal liquidity (namely, cash holdings and cash flows) on their real policy variables, we consider an additional form of liquidity: bank lines of credit.
