On the one hand taking on that student debt to the extent it's successful in building skills that put people in higher wage jobs and qualify them for better work is really critical to their getting ahead.

On the other hand, there's a lot to worry about with student debt, with people attending colleges or gaining education where they don't finish, the reward isn't there. To me that's a major concern, is that people may not be well-informed about what the benefits are of what they are taking on.

And if an individual finds themselves in difficult financial straits for any reason, that debt, because it's not dischargeable in bankruptcy, can be a very severe burden that really holds people back.

In terms of studies, there has been, it would appear, a decline in new business formation. I have not seen anything myself, but I might not be aware of studies that link it to student debt. I haven't seen that. It's certainly possible, but I'm not aware of that.

With respect to housing, some economists at the Fed have tried to look at that and others have, and I think the results are mixed. It is not clear that student debt is a major factor responsible for inability to buy homes or get ahead in the housing market, although I understand it's quite logical that a heavy student debt burden would make it difficult

Thus far, the quality of other consumer loans has remained satisfactory. However, the delinquency rates on credit cards and consumer installment loans at banking organizations increased over the second half of the year. Moreover, although household bankruptcy filings remained below the levels seen before the changes in bankruptcy law implemented in late 2005, the bankruptcy rate rose modestly over the first nine months of 2007 and could be a harbinger of increasing delinquency rates on other consumer loans. In view of this risk, Federal Reserve supervisors are monitoring these consumer loan segments for signs of spillover from residential mortgage problems, particularly in regions showing homeowner distress, and are paying particular attention to the securitization market for credit card loans.

While identifying housing as still a key drag on the economy, he warned, "We must not allow our concern about 5% of the economy to screw up the other 95% of the economy." 

"Consumer debt, putting mortgages aside, is not likely to be a serious issue unless we have a serious rise in unemployment," he said.
"If we get a big decline in employment then there will be further shoes to drop."

From Q&A as reported by Market News International

Despite the increased complexity of financial products and the wider availability of credit in many forms, U.S. households overall have been managing their personal finances well. On average, debt burdens appear to be at manageable levels, and delinquency rates on consumer loans and home mortgages have been low. Measured relative to disposable income, household net worth is at a fairly high level, although still below the peak reached earlier this decade.

The expansion of retail credit has brought an increase in what one might call “bad outcomes” — households that face high debt burdens, have trouble meeting payment commitments, and perhaps even default and resort to bankruptcy.

Much of the popular response to consumer credit expansion and its byproducts has been less about prudential supervision, however, and more about consumer protection. Many proposals amount to calls for lending restrictions or the outright prohibition of some lending practices. This strikes me as a dangerous approach. In the long run, it would tend to slow innovation and constrain the availability of financial products to a broad range of consumers in order to protect the relatively few who use a credit product inappropriately or unadvisedly.

[Consumers] are capitalizing on low mortgage rates by increasing their mortgage debt, while at the same time reducing other debt obligations...So, all in all, the consumer sector’s financial situation appears to be reasonably sound and should provide a firm base for continued growth in consumer spending as incomes and employment expand.

Rising debt-to-income ratios can be somewhat misleading as an indicator of stress. Indeed the ratio of household debt to income has been rising sporadically for more than a half-century, a trend that partly reflects the increased capacity of ever-wealthier households to service debt. Moreover, a significant part of the recent rise in the debt-to-income ratio reflects the remarkable gain in homeownership...Thus, short of a period of appreciable overall economic weakness, households, with the exception of some highly leveraged subprime borrowers, do not appear to be faced with significant financial strain.

The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit, which...will rise significantly as the baby boomers start to retire in 2008. Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances.

Debt-service ratio has been stable and the financial obligations ratio has receded a bit, an indication that households, in the aggregate, have been keeping an eye on their financial commitments. Consistent with these patterns, delinquency rates for a wide range of household loans either have drifted down over the past year or held about steady at levels below recent highs.