The diploma deficit: the problem is not college debt, it's low graduation rates. Fix that, and you fix the economy.

• Author: Fishman, Rachel
• Position: AMERICAN LIFE: AN INVESTOR'S GUIDE

In 2007, I graduated from the University of Wisconsin. As I walked across the stage to accept my diploma, I wasn't thinking about the $30,000 federal student loan bill on which payments would start six months later. Once the Great Recession hit, however, I started to feel the pinch. I struggled to hold on, living paycheck to paycheck and working at a job with no opportunity for growth. So I decided to take an even bigger risk, and get a graduate degree--a choice that would, of course, put me further into debt.

My combined debt after leaving grad school was over $60,000. This time when I crossed the stage, the debt number felt crushing. For a few months after graduation, I was unemployed. Forced to move back into my childhood home for the first time since I was eighteen, I thought I had made a financial miscalculation.

Among the Millennial generation, this story is a common one. Outstanding student loan debt among all graduates now tops $1 trillion--more than credit card debt--with my generation particularly hard hit. The Federal Reserve recently reported that both the proportion of young families with student debt and the amount they've incurred have nearly doubled since 2001. In 2012, 60 percent of graduates from four-year colleges faced an average student loan balance of $26,500. Not surprisingly, delinquent payments are also on the rise, even as they are falling for all other types of debt. Ten years ago, student debt only accounted for about 3.5 percent of new delinquent balances on all debt. Now it accounts for over 14 percent.

These alarming numbers have led to stories in the media about how student debt may lead Millennials to delay getting married, having children, and buying houses and furniture. If that is the case, our demand-starved economy will be deprived of a much-needed jolt of purchasing that such "family formation" typically provides. So far, however, there's not much evidence that more Millennial college grads are deferring home purchases compared to their peers a generation ago. Indeed, a recent Brookings study that looks at student loan borrowers shows that the extra earnings that come with a college degree have allowed college graduates under forty to manage their debts reasonably well. The reason is simple: college degrees generally provide students enough of a bump in income to cover the cost of paying back their loans.

Though I had a slow start, I eventually landed a job in Washington, D.C., and the debt burden has become more manageable over time. My post-secondary education eventually got me where I needed to go. This is true for many college graduates of my generation.

So what's behind the soaring increase in student debt delinquency? Evidence suggests that the problem is students who attended college and accumulated debt but left without earning a degree. Students who haven't graduated are more than four times as likely to default on their student loans as those who have, according to a study by the think tank Education Sector. Recent research from the economist Beth Akers shows that borrowers with less than $5,000 in student debt are the most likely to be late on payments. In fact, the more college debt a student incurs, the less likely he or she is to default. This may seem counterintuitive, but it's not--a low loan balance is indicative of a borrower who didn't complete school, and is therefore less likely to repay. According to Department of Education statistics, defaulters also tend to be older (the median age is thirty-eight), from low-income backgrounds, with poor financial literacy, and with no degree to show for their efforts. A disproportionate number of them attended for-profit colleges.

This is all evidence of a large crisis in American higher education: we have a big college completion problem. More than thirty-one million adults have earned college credit within the last twenty years but left without any postsecondary credential. By 2012, only 59 percent of students seeking a bachelor's degree graduated within six years. For students seeking a...