College and university students all over the country have racked up an unprecedented amount of student debt in pursuit of their degrees. According to the Economist, current U.S. student loan debt exceeds $1.2 trillion, a staggering increase of over 300% for the past decade. The extreme level of student debt that's taken on in the wake of the 2008 economic crisis affects spending power and threatens to curb economic growth.
Seven out of 10 graduating seniors leave school with student debt.
According to analysis by student debt expert Mark Kantrowitz, the class of 2016 bears the highest average debt to date - $37,172, compared to $28,950 in 2014. For the past decade, student debt levels have risen twice as fast as inflation, according to The Institute for College Access & Success (TICAS). The organization compiles figures from their annual survey of 1000 plus colleges, as well as a government survey of former students that is compiled every four years.
Student debt weighs down individuals and families, who postpone dreams of home ownership, starting a business or having children. Others might shy away from higher education altogether, deterred by high tuition and the fear of taking on a crushing debt load.
Average Student Loan Debt - Key Findings
In this guide we'll look at the increase in student debt, as well as the increase in the cost of higher education. You'll also find information on the best and worst states for student debt as well as strategies and advice for managing student debt. Our analysis of the data revealed the following:
- Student debt is at an all-time high and continues to grow faster than inflation.
- There are differences in the level of student debt by region and state.
- States with the lowest student debt also have the lowest percentage of students carrying debt.
- States with the highest student debt tend to be in the Northeast and Midwest.
- Strategies for managing student debt include both private and federal consolidation loans.
Student Debt Crisis Continues to Grow
The nature of student debt changed in the decade from 2004 to 2014, according to TICAS. The average student loan debt for a bachelor's degree increased at more than double the rate of inflation in this period. It grew notably faster in some states.
"Borrowers are graduating with a lot more debt than they did 10 years ago...," said Lauren Asher, TICAS president. "Student debt has rightly become a major policy issue. Students and families need better information and better policies to make college more affordable and debt less burdensome."
These graphs show the ten-year change for the best and worst states for student debt from 2004 to 2014. One of the most notable points about this data is that the rate of increase in student debt was much faster in the worst states for student debt.
Top 10 States with highest student debt: 2004 vs 2014
As you can see below, states with lower average debts tended to rise consistently with the economy. Only a few (like Hawaii and Wyoming), had more dramatic increases.
Top 10 States with Lowest Student Debt: 2004 vs 2014
Though it's important to consider the states with the highest amounts of student debt, it's also important to note that some states are increasing faster than others. In the chart bellow you can see that, again, Delaware makes the top of the list by a wide margin. Maryland is next with a 129% increase, though it is not on the list of states with the highest average debt. Even Hawaii, one of the states with the lowest debt, has seen an 82% increase since 2004.
Top 10 States with the Highest Increase in Student Loan Debt: 2004 vs 2014
College Costs vs. Value
Despite the student debt crisis, Americans still have faith that a college degree is the path to earning more and getting ahead. The evidence does back this up. The Economist cites Federal Reserve calculations indicating that a bachelor's degree offers a 15% return on investment.
But is college really worth the cost? Again the Economist weighs in with this blunt assessment: many degrees are a waste of money, and that the return on investment would be improved if college were cheaper.
One driver of student debt is the skyrocketing costs of attending college. The average cost of a non-profit private four-year college for 2014-15 was $42,419, up from $30,664 from 2000-2001. Public four-year college costs grew from $11,635 to $18,943 over the same time period, according to CNBC.
A number of factors have pushed up the cost of higher education. The economic collapse of 2008 and subsequent recession led to an increase in college enrollment and simultaneous job instability. State funding for higher education decreased during the recession. The stock market crash didn't just wipe out Americans' savings - it also caused colleges and universities to lose money on their endowments.
National Student Loan Debt - Regional Differences
The level of student debt varies widely by region. Students in the East and Midwest are borrowing amounts well above those in the West and South. There are a variety of factors at play in driving the difference in student debt by state.
These differences are due to the cost of living and income demographics of each state, the financial aid packages available from schools, and the access to state loans and grants. Additionally, some states have a larger tax base to draw on for higher education funding, along with a tradition of allocating such funds.
Average Student Debt by State: 2014
The level of student debt also varies according to which college you attend. In 2014, student borrowing by college averaged as low as $4,750 up to a high of $60,750. The percentage of students borrowing by college ran the gamut from two percent to 100%.
States with High Student Loan Debt
State averages for student debt at graduation in 2014 ranged from $18,900 to $33,800. The percentage of students carrying debt varied by state from 46% to 76%.
Graduates of the class of 2014 in Delaware had the dubious honor of carrying the highest student debt load, averaging $33,808. New Hampshire, Pennsylvania, Rhode Island and Minnesota round out the five worst states for student debt, with an average of over $31,000. These states tend to have a higher overall percentage of students carrying debt. For example, a whopping 76% of students in New Hampshire shouldered debt upon graduation.
Top 10 States with Highest Percent of Students with Debt: 2014
States with Low Student Loan Debt
Utah tops the list of states with the lowest average student debt, coming in at $18,921 for the class of 2014. Just 54% of grads in this state carry any student debt at all. While states like Utah have lower percentages of students in debt, higher debt averages tend to plague states with a higher rate of students in debt. The other states at the bottom of the student debt scale are New Mexico, Nevada, California and Arizona, with an average of $20,418 owed. These states with the lowest student debt boast just 52% of grads leaving school with this kind of financial obligation.
Top 10 States with Lowest Percent of Students with Debt: 2014
Help with Student Loan Debt
If you have substantial student debt, first and foremost you want to retire the debt as soon as you can. But it's also important that you are able to afford the payments. Be sure you know the details of each loan when payments are due, and how much. Your repayment options may vary depending upon whether you have federal or private loans.
Federal Student Loans
Do you have federal loans, private loans, or both? Some federal loan programs qualify for federal consolidation loan programs. If you are eligible, you can reduce your monthly payment. You'll pay more in interest if you take longer to repay, but it may help you to breathe easier each month.
Check the federal Direct Consolidation Loan webpage to see if your federal loans qualify for the program. Direct federal subsidized or unsubsidized loans, as well as Federal Family Education Loan Program (FFELP) loans can be consolidated with the program.
With a direct federal loan, you also have the option to switch to a fixed interest rate in place of a variable rate, helping you budget for your payments. The Direct Consolidation Loan program limits fees, and often can lower monthly payments. Again, you pay more interest over the life of the loan with a longer repayment term.
Private Student Loans
Private loans can also be rolled into one consolidation loan, but with a private lender, as these loans do not qualify for federal student loan consolidation programs. Some private lenders will consolidate both federal and private student loans. If you combine private and federal loans, you will lose any benefits associated with your former federal loan, such as typical protections like forbearance or deferment.
You'll need a good credit score and proof of steady income just as in borrowing for an auto or mortgage. You may qualify with average credit but you'll pay a higher interest rate. Those with lower credit scores might consider bringing on a cosigner with a good rating to help you get a lower interest rate.
Take your time shopping for a consolidation loan, looking at lenders and checking what interest rate you qualify for. With the growth of online lending, you can get interest rate quotes from several lenders without affecting your credit score, as most use a soft credit check to quote rates. Calculate whether you'll save money over the life of a given loan based on interest rates and the term of the loan. Look at all fees associated with any loan, especially origination fees.
How to Get Out of Student Loan Debt
You can get a quote on a consolidation loan for your student debt without any cost or commitment. The goal is to see if you can find a loan that can save you money with a lower interest rate. It can also simplify your life to have only one monthly payment for student debt.
While many online lenders are fair and transparent in their business practices, be aware that there are predatory lenders out there. Your best protection is to scrutinize any loan offer carefully before accepting it and check consumer reviews of any lender before signing on with them. It takes time to read through loan papers and check the details, but in the long run it's well worth the effort and can save you money.
Find Out What Type of Loans You Have
- Do you have federal student loans, private student loans, or a combination of both? The U.S. Department of Education provides education funding via the Federal Direct Loan Program with several categories of direct loans, and the Federal Perkins Loan Program, where loans are generated through the individual school.
- Private student loans tend to be more expensive than federal student loans. Students often require a cosigner for these loans and the interest may not be tax deductible. With private loans, pay close attention to the details of the loan agreement.
- With federal student loan programs, you may qualify for perks allowing you to reduce or temporarily stop payments under certain conditions. Some federal loans offer advantages to teachers and those working in public service. Check the terms of your specific federal student loan to see if you qualify for any of these perks. If you have concerns about private student loans, you can contact the Consumer Financial Protection Bureau with your questions.
- When does your repayment period start? Some private student loans require payments while you are still in school. With federal student loans, there is often a grace period after graduation before you must begin repayment. Not all federal loans have a grace period, however.
- Do you have protection against job loss? If you are unable to pay your federal student loan, you may qualify for forbearance or deferment, where you pay less or pause your payment temporarily. Interest does continue to accrue during this time period. A few private lenders, such as SoFi, offer unemployment protection, but this is unusual for private lenders.
Know Your Loan Terms
- Can you change your terms without penalties? Those who combine federal student loans into a Direct Consolidation Loan from the federal government can choose from multiple repayment plans, and may switch repayment plans if they want to without penalty. If you consolidate federal loans with a private lender, you lose the perks and advantages associated with the federal loan under a new private consolidation loan.
- Review your loan documents so you are familiar with your interest rate, late fees, payment terms, whether you can prepay without a penalty, and how much longer your repayment term is. Put yourself in the driver's seat so there are no surprises.
Create a Lean Budget Focused on Repayment
- In pursuit of paying off student debt, it's important to track your finances. Create a monthly budget listing all your income and expenses. How much can you budget for your student loan payment? Look for expenses you can cut. Can you drop your cable subscription and add the money saved to your student loan payment? Get creative to save on food, clothing, transportation and more. Embracing frugal alternatives puts money in your pocket.
- New to budgeting? Consider using budgeting software to give you a leg up on the process.
As long as you know exactly what you're dealing with and have a manageable plan in place, student loans don't have to become a source of constant stress in your life.
Student Loan Debt Statistics - Final Considerations
Once you've finished school and finally embark on your career path, you'll be faced with budgeting not only for your loans, but also planning for your long-term financial health. Conventional wisdom has long held that paying off student loans should take priority over other financial goals. A report released in 2016 by HelloWallet - creator of employee financial wellness tools - is turning that advice on its ear. Forbes covered the report, which highlights data revealing that contributing excess funds to retirement rather than paying extra on student loans can actually result in a higher net worth later in life.
Ultimately only you can make the best decisions for your own personal financial situation as you complete your higher education. Don't let these student loan debt statistics intimidate you, rather, use them as a reference point as you map out a feasible plan for making your college degree pay off.