The Treasury Department, Federal Reserve and other federal financial regulators are all worried that the rise in student debt risks slowing economic growth. Bankers worry it'll lead to a decline in other types of lending. Some policymakers are concerned it will hurt home sales, cause a decline in new small businesses and result in lower retirement savings.
But Arne Duncan, President Barack Obama's education secretary, thinks that's all overblown.
Instead, Americans should be more worried about how few people are earning college degrees, Duncan argued in a Monday speech in Baltimore.
"Student debt is a burden for too many students, but most ultimately repay their loans, and for those who get their degree, college is an excellent investment," Duncan said. "The degree students truly can’t afford is the one they don’t complete, or that employers don’t value."
Student debt has become the second-largest source of U.S. household debt, after home mortgages. Outstanding student debt, which totals nearly $1.4 trillion, has climbed 86 percent since Duncan took office in January 2009, Federal Reserve data show. The figure stood at $730.7 billion three weeks before he took office, and that amount is expected to double by early next year, despite the Obama administration's successful efforts to increase the amount of grants available to students from low-income households.
But according to Duncan, skyrocketing student debt levels are a concern largely because they're connected to low graduation rates. He pointed on Monday to data suggesting that borrowers with higher debt levels are more likely to have graduated with a credential, and other data showing that borrowers who default are more likely to drop out of school. In fact, Duncan even suggested that increasing worries about student loans may be to blame for disappointing graduation rates.
Duncan consistently emphasized low college completion rates as a bigger problem than student debt, and suggested that a renewed focus on college completion and holding institutions accountable for low rates will help reduce punishing student debt burdens.
His speech pointed to statistics showing that the U.S. has fallen from first in the world to twelfth in college completion rates, and noted that tuition at four-year schools, after adjusting for inflation, has more than doubled over the past three decades.
"A spiral of cost and debt today threatens to take college, America’s engine of social mobility, and kick it into reverse," he said.
Duncan also cited flawed federal graduation rate data to argue that "barely half" of students at four-year schools complete their degrees within six years, while only a third of those at two-year schools earn their degree within three years. (The statistics he cited don't include part-time or transfer students. Transfers typically make up about a third of all undergraduates.)
"The administration's inaction has likely contributed to the growth of [student] debt," said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities.
Duncan's speech, Nassirian said, "comes across as not sufficiently cognizant of the debt-financing boom that this administration's tenure represents."
Nearly half of borrowers said they had to cut spending because of their monthly student loan payments, according to Fed survey results released last July. The survey also found that borrowers with student debt were more likely to avoid medical treatment because they couldn't afford it.
Borrowers' average monthly payments are $681, according to separate Fed survey results released in May. Roughly two in five borrowers with student debt said they aren't making payments at all, and about one in seven borrowers are either behind on their payments or in default.
Borrowers are nearly three times as likely to be severely delinquent on their student loans than on all other types of debt, including credit cards, according to the Federal Reserve Bank of New York. Researchers there believe that the delinquency and default rate on student loans may be twice as high among borrowers actually making payments.
The total amount of higher education debt carried by households may also be understated, the Fed's July 2014 survey suggests. Just 89 percent of debt is in the form of student loans, according to the survey, while the remaining 11 percent is in the form of home equity loans, credit cards and other loan products.
This suggests that U.S. households may be saddled with an additional $170 billion of debt as a result of pursuing higher education, for a total of more than $1.5 trillion, according to survey and separate Fed data compiled by The Huffington Post.
Duncan suggested on Monday that debt is probably worth it if it leads to a credential. Yet researchers at the New York Fed, using earnings data, found that for as many as a quarter of college grads, the degree probably wasn't worth it.
Similarly, the education chief said a bachelor's degree can increase lifetime earnings by about $1 million, even though the recent growth in the so-called college wage premium is due to decreased earnings for non-degree holders, rather than a college degree “becoming more valuable," according to Rohit Chopra, the Consumer Financial Protection Bureau's former top student loan official.
Duncan dismissed concerns about student loans holding back household consumption by pointing to a recent expansion of federal repayment plans that let borrowers make payments based on their monthly incomes.
"In very real terms, this means that the young man or woman who dreams of being a teacher, a social worker, an artist or a nurse now knows that they can pursue their dream without worrying about unmanageable debt that will prevent them from buying their first house or car," Duncan said, despite recent Fed research that found young Americans with student loans are actually retreating from the housing market.
Student debt loads are rising faster than annual earnings, according to the federal government. The average borrower carries nearly $29,000 in federal student loans, Education Department data show. That's an increase of more than 48 percent since a few months before Duncan took office. Government-backed student debt constitutes nearly 90 percent of the market, according to data from the Federal Reserve and the Education Department.
"It strains credulity to assume that the last 18 months of this administration will accomplish that which the six and a half years prior failed to address or take notice of," Nassirian said. "Most of what they've done has been talk. I seriously doubt that much else will change."
In his speech, Duncan acknowledged the Education Department's past shortcomings, such as its lackluster efforts to hold various actors in the higher education sector accountable.
He also blamed a number of other actors: colleges, for failing to control costs and dodging the government's attempts to hold them accountable for student outcomes; Congress, for delegating quality assurance to accrediting agencies; accreditors, which Duncan described as "watchdogs that don’t bark," for their general inability to hold low-performing colleges accountable; and state governments, which have cut per-student spending by 25 percent over the past 25 years, after adjusting for inflation.
Duncan pointed to a 2006 report that cited a failure to hold colleges accountable, and said that "quite frankly, not much has changed" since then.
HuffPost asked Duncan on Monday whether any of the proposals he made in the speech could have helped to mitigate the increase in student debt under his watch, had he announced them at the start of his term. Duncan declined to answer the question.