Total student loan debt -- a titanic figure that has quadrupled since 2003 and now exceeds all other forms of U.S. consumer debt, even credit cards -- does not pose a significant threat to the nation's economic stability as far as Federal Reserve policy makers can see.
That's despite the fact that student debt has the highest delinquency rate of any consumer loan category and could affect the long-term financial future of graduates for decades to come.
The Consumer Financial Protection Bureau estimates that student loans outstanding total around $1.2 trillion, spread among 40 million borrowers, for an average debt of nearly $30,000 per graduate.
"This is an issue that has implications for economic growth and bears watching, but it's not necessarily a crisis in the making with respect to the nation's financial stability," said Ann Marie Wiersch, a senior policy analyst at the Federal Reserve Bank of Cleveland.
Many people, she said, are trying to draw comparisons to the housing crisis that helped trigger the Great Recession, but banks don't have the same exposure to the student loan market.
Financial institutions actively providing capital for student loans only accounted for 7 percent of the total market in 2010-11, the most recent year data are available.
The other 93 percent was provided by the federal government through its student loan programs.
So, while taxpayers bear some risk -- even though student loan programs are currently operating in the black -- an avalanche of defaults would not pose as much risk to bank balance sheets, which is important because it lowers the likelihood of another taxpayer-funded bailout for banks.
Still, the mushrooming student debt load will absolutely have some implications for the nation's economic health.
"From the Fed's perspective, the concerns about economic growth are a bigger issue," Ms. Wiersch said.
The ripple effect of so many young college graduates struggling with sizable student loan payments is broad: They are less able to contribute to their company 401(k) plans, reducing the value of retirement saving.
They are less able to move out of their parents' homes, creating a drag on household formation. And they are less able to be approved for other forms of consumer debt, including automobile financing.
"Student debt is a fact of life for more Americans than ever before, but how it affects the borrower isn't just about how much they owe but also what kinds of loans they have, as well as how much they earn," said Lauren Asher, president of The Institute for College Access and Success in Oakland, Calif.
Ms. Wiersch wrote in a report on rising student loan debt two weeks ago that the burden may also prevent recent college graduates with an entrepreneurial spirit from starting a new business or expanding an existing one.
Student debt can limit small business owners' ability to qualify for loans, preventing growth and payroll expansion.
"Doctors may avoid low-paying but much needed specialities, such as caring for elderly or for children. Talented teachers may leave their professions in search of higher-paying careers to offset the impact of student loan payments on their personal finances."
Ms. Wiersch said the Cleveland Fed has been emphasizing for years that education and innovation are the two main drivers of regional income growth. But the central bank is carefully watching the trajectory of student debt, mindful of its longer-term implications and potential drag on the economy.
"We don't want people looking at this thinking that [rising student debt] is no big deal because we won't have a banking crisis," she said. "We just want to make sure people are not fearing we will have 2008 all over again.
"This is different from the housing crisis. It's still a concern. But just a concern from a different perspective."
Tim Grant: firstname.lastname@example.org or 412-263-1591.