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Student Debt Picture Varies Widely by State, Study Finds

September 17, 2019
By Shannon Watkins

The states with the highest levels of student debt, on average, are all on the East Coast.

Outstanding debt for private and public student loans now exceeds $1.6 trillion nationally, and the cost of college has been rising dramatically, but the financial condition of borrowers varies widely by state, a new report says.

The states with the highest levels of student debt, on average, are all on the East Coast. In descending order, they are Connecticut, Pennsylvania, Rhode Island, New Hampshire, and Delaware, reports the personal finance website WalletHub in an analysis published on July 10. They are also among the top 12 states with the most expensive public colleges and universities.

The states with the lowest average student debt are all in the western half of the country, in ascending order: Utah, New Mexico, Nevada, Wyoming, and California.

Big Cost Variations

The average individual debt for loans by  U.S. public college attended was $26,900 in 2017, College Board data indicate. For public colleges nationally, the average cost of in-state tuition and fees for the 2018-2019 academic year is $10,230.

College Board data affirm costs vary widely from state to state. The average public university student in Utah pays $5,400 a year in tuition and fees, for example, while the average public university student in New Hampshire pays $16,460.

Which Students Default?

The study found high amounts of student debt are not strongly correlated with high default rates.

Even though New Hampshire has some of the most indebted students, for example, WalletHub rated it as one of the five states with the lowest default rates. New Mexico, among the five states with the lowest average student debt, is among the five states with the highest default rates.

Borrowing larger amounts indicates students are likelier to attain a degree and better able to pay off their loans, says Preston Cooper, a research analyst in higher education policy at the American Enterprise Institute.

“Paradoxically, students who borrow more are often more likely to pay down their loans, or at least stay out of default,” Cooper said. “This is because one of the strongest predictors of student loan nonpayment is whether the borrower actually finishes college.”

Individuals with smaller outstanding loans are less likely to have persisted in their studies for four or more years, Cooper says.

“A student who attends college for a couple of semesters and drops out might have less than $10,000 in debt, but she also doesn't have a degree to help her find a good job and pay down that debt,” Cooper said.

“Meanwhile, a student who finishes college probably has closer to $30,000 in debt,” Cooper said. “However, the college completer's prospects in the job market are much brighter, so she'll probably be able to pay down what she owes.”

Unemployment Factor

WalletHub’s analysis found a correlation between unemployment rates and student loan default rates.

the states with the highest levels of unemployment, in descending order, are Alaska, West Virginia, Mississippi, and New Mexico.  and they are among the five states with the highest percentages of student-loan balances past due or in default, WalletHub reports.

In Alaska, student debt as a percentage of income is low, but the state’s unemployment rate of people aged 25-34 is the highest in the country.

‘Look at Actual Programs’

Although the WalletHub report provides useful information, lawmakers should take care in attempting to draw policy recommendations from it, says Jay Schalin, director of policy analysis at the James G. Martin Center for Academic Renewal. Many factors could explain why some states fare better in student debt than others.

“It may be that looking to get a handle on student debt on a state-by-state basis is the wrong way to go,” Schalin said. “It might be better to look at actual programs than trying to glean understanding through ranking states by aggregating disparate data.”

Shannon Watkins (swatkins@jamesgmartin.center) is senior writer at The James G. Martin Center for Academic Renewal.

Internet Info

Adam McCann, “2019’s States with the Most and Least Student Debt,” WalletHub, July 10, 2019: https://wallethub.com/edu/d/best-and-worst-states-for-student-debt/7520/

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