Penn professors addressed the ways widespread college student debt may affect the United States economy and students' later life decisions in a new article by Knowledge@Wharton.
Wharton Real Estate professor Benjamin Keys, who studies issues related to household finance and debt, said the cost of tuition relative to wages is one metric that has drastically increased.
“The growth of tuition costs relative to teen wages — indeed, all wages — has veered sharply upwards,” Keys said.
Peter Cappelli, Wharton management professor and Wharton's Center for Human Resources director, said that even though the economic recovery since the Great Recession has helped to create more jobs, lack of income growth remains a problem.
“For many students, they can make their payments but do little else: They can’t buy houses or start families," Cappelli said.
Keys noted that this difficulty was especially faced by students who graduated with debt on their shoulders during the Great Recession.
“They are certainly starting off at a disadvantage relative to previous generations, and a lot of the scrutiny of millennials is really misplaced given the disadvantages they’ve had in terms of their costs of education and poor labor market upon entry,” Keys said. “It’s hard to say that they won’t eventually catch up. It depends on the health of the labor market, and how stable the economy is.”
Similar to Keys, Penn Graduate School of Education professor Laura Perna said getting a bachelor’s degree today means students often have to borrow.
In 2015, 32 percent of Penn’s graduating class took on student loans, ending up with an average debt of $18,900 in federal and non-federal student loans, according to Student Registration and Financial Services.
Perna said that “promise” and “free tuition” programs that are appearing in certain states should be considered further.
Kent Smetters, Wharton business economics and public policy professor, said education debt is “good debt,” but becomes an issue for students who are not doing well academically or challenging themselves with regards to courses or majors.
Perna added that higher education continues to be growing in importance.
“With higher levels of education attainment, there is also less reliance on social welfare programs," she said. "Higher levels of education are also associated with greater civic engagement, as well as lower crime.”
Some Penn graduates are directly tackling the student debt issue with innovative finance solutions. In February of 2018, two Wharton graduates launched a fintech startup providing an alternative to student loans.