Abstract

The thesis studies student debt in the United States. The first chapter examines the quantitative effects of rising college costs, wage inequality, and delinquencies on growing student debt balances in the U.S. We build an incomplete markets overlapping-generation (OLG) model with choices for a college education, student loans, and delinquency. We solve transitional dynamics with the estimated time-varying changes in college costs and wage inequality, in addition to a stronger preference for college education, that affect the repayment decision of borrowers. We find that these sources increase aggregate student debt balances by $480 billion between 1979 and 2015. Rising college costs increases borrowing by recent college students. The declining average ability of college students and increasing volatility of wage shocks lead to a higher delinquency rate among borrowers over time. Importantly, we find that when borrowers are not delinquent on their payments, the aggregate student debt only increases by 50% of the increase in the benchmark economy, despite all the time-varying sources. This suggests that although the rising college costs largely affect the borrowing behavior of college students, the increasing delinquency rate over time significantly contributes to the rapid growth of U.S. student debt. The second chapter empirically studies how holding student debt affects initial labor market outcomes for college graduates in the United States. In particular, I examine the implications of student debt on college graduates’ initial unemployment duration, underemployment rate, and initial labor income. By conducting hazards models analyses using the NLSY97 and O*NET dataset, I first find that college students graduating with student debt, on average, have a shorter unemployment duration before their first job compared to those graduating without student debt. Furthermore, using the average, excluding a self-amount, institution-level grant amount as an instrument, I find that graduating with a higher level of student debt increases the probability of underemployment for college graduates and decreases the initial labor income at their first jobs. The results highlight the impact of student debt on the trade-off between search time and the job quality.