This heavy burden of debt, combined with a troubling job outlook, has led to an understandable rise in student loan debt default rates.
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Graduates from institutions within the Association of American universities, the 62 leading North American research universities, have far lower student-debt burdens and loan-default rates than graduates of the for-profit institutions that supposedly will end college as we know it.
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Earlier this week, a FICO study revealed that student loan debt has increased dramatically and the default rates on these loans are now much higher than previous years.
They argue that such a rash move will cause the U.S. to default on outstanding debt obligations, thereby sending interest rates sharply higher across the board.
One way to visualize the damage from ZIRP is to recognize that the spread between real and nominal interest rates is analogous to the spread between rates on default-free and risky debt.
As they put it, the student loan system, is a mess because, at its current rate, aggregate student debt is doubling every seven years (and growing much faster than other forms of debt which traditionally dwarfed student loans), student loan default rates are rising, and a large portion of student borrowers is in poor financial shape, even after graduating from college.
It was considered the supportable ceiling for sovereign debt in the old days of higher interest, but current 100% levels of debt to GDP require low interest rates or the sovereign goes into default.
Mr. Agarwal found that younger Indians (less than 30 years old), had debt levels that were two to three times higher than older Indians, and their default rates were also higher.
They artificially lower the interest rates and increase the size of credits as the risk of any future debt rescheduling or default is transferred from private commercial banks to Western taxpayers.
"If they are able to get the Foothill deal done, it would send a tremendous signal to the market, " says Fitch analyst Philip Walker, who still rates Amerco's senior unsecured debt DD, the second lowest of Fitch's default ratings.
If economic growth does not return, deficit reduction proves too painful or interest rates are much higher than we assume, the debt ratio is likely to spiral upwards until default becomes all but inevitable.
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