As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have A. increased because the terms of repayment have been made more generous. B. decreased because people may be worried about their ability to repay. C. not changed because people already have loans. D. not changed because many people do not want to work for the government.
Added by Nicholas R.
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If the terms of repayment have been made more generous, this typically means that borrowers may have lower monthly payments or more flexible repayment options. Show more…
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The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011 , President Barack Obama convinced Congress to pass these changes to the federal student loan programs: $(1)$ Payments were capped at 10 percent of a borrower's discretionary income; $(2)$ any unpaid balances for people working for government or in the nonprofit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years. a. As a result of these changes in the federal student loan program, would you predict that the total amount that students borrowed under these programs increased or decreased? Briefly explain. b. As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to part (a), do you think President Obama was likely to have recommended changes that would increase or changes that would decrease the payments that borrowers would have to make? Briefly explain. c. How might President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs?
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If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then a. higher interest rates would not be a consequence of an increase in the budget deficit. b. an increase in the budget deficit would cause the demand for loanable funds to decrease. c. crowding out would not be a consequence of an increase in the budget deficit. d. we would be making only a semantic change in how we analyze the effects of government budget deficits.
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