Final answer:
The likelihood of defaulting on a student loan increases with higher student loan balances due to the financial stress they impose on graduates. Proposals like extending repayment periods and loan forgiveness seek to alleviate this issue, while borrower confidence in future income also influences repayment capability.
Step-by-step explanation:
The relationship between student loan balances and the likelihood of defaulting on a student loan can be quite complex. Generally, higher student loan balances increase the financial burden on graduates, which can elevate the risk of default. As graduates begin their careers in debt, the pressure to manage loan repayments alongside other living expenses can be daunting. This is particularly challenging when starting salaries do not align with the debt accumulated, making it harder to keep up with repayment schedules. Factors such as the job market, salary levels, interest rates, and repayment terms all influence the likelihood of default.
Moreover, financial literacy and understanding the terms of the loan are crucial in managing debt responsibly. Proposals to extend the time for loan repayment could alleviate the stress and reduce the immediate financial strain, potentially lowering the default rates. However, this is but one solution among many that are being proposed to tackle the growing concern of student loan debt, including loan forgiveness programs and the push for more affordable higher education options.
Last but not least, borrower confidence in their future income plays a significant role as well. The capacity to repay student loans is higher when graduates have stable and well-paying jobs, which shifts the quantity demanded of financial capital at any given interest rate to the right, as they are more likely to meet their debt obligations.