Suppose chartered banks decide to greatly reduce the availability of student loa
ID: 1168978 • Letter: S
Question
Suppose chartered banks decide to greatly reduce the availability of student loans that are guaranteed against default by the Canadian government.
a.) What would you expect to happen to the demand for credit cards by students?
b.) What would you expect to happen to the quantity of credit cards issued to students? To the willingness of students to incur debt at the much higher rates of interest charged on credit cards?
Principles of Microeconomics, Frank, Bernanke, Osberg, Cross, Maclean, Chapter 4, Problem Question 4.
Explanation / Answer
A) Credit cards will be issued to students in large numbers, This is primarily because banks usually have a single line agenda, They have to get the money out into market to rotate and generate some intrest, Credit cards by students is probably one of the easy options.
B) The quality of credit will go down substantially, This is because students right now have to pay their short term debt while listening to classes and staying in college, This is a huge burden to them.
Students must get credit at same intrest rate as atleast a home buyer, Credit card debt is unsustainable and unwanted. So certainly student community will realise it sooner and will not apply for credit cards.