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College Debt

In which states do student loans hit the hardest?

Student loan debt in the U.S. now totals more than $1.5 trillion, but students in some states are getting hit harder than others.

Students in the Northeast have the heaviest burdens. Nearly 75 percent of college graduates in New Hampshire have outstanding student loans and they owe an average of $36,367 — that's the highest rate in the country, according to the Institute for College Access and Success's 12th Annual Student Debt report.

The report, published annually, breaks down both the percentage of students carrying undergraduate student loan debt, and the average amount each graduate owed in every state (with the exception of North Dakota, where there was insufficient data). TICAS's report used the most up-to-date data based on the Class of 2016.

Pennsylvania, Connecticut, Delaware, Minnesota and Massachusetts rounded out the top six states with the highest average amount of undergraduate student debt: Recent grads in these states carry over $31,500 on average.

It makes sense that the Northeast states are carrying higher student loan debt, according to Adam Minksy a lawyer specializing in student loan law. "Certain states have less robust, affordable state education systems," Minsky tells CNBC Make It.

States like California and Florida have major state universities that are both affordable and prestigious, so many students end up going to these institutions and taking on less debt, Minsky says. However, states such as New Hampshire and Massachusetts host Ivy League schools — including Dartmouth College and Harvard University — as well as private universities that may be less affordable. And while several Ivy League schools offer generous financial aid packages, other elite, expensive private universities don't always offer the same level of support.

Utah has the lowest average rate of student loan debt in the U.S., $19.975, and the state's most popular colleges are public schools with in-state tuition of less than $6,000: Utah State University, Weber State University and Utah Valley University. New Mexico, California, Arizona, Nevada and Florida round out the states with the lowest levels of student loan debt, all with average levels under $25,000. This is well below the average debt of $32,731 owed by graduates of the Class of 2016.

More and more, high school students and their families are getting very practical when it comes to picking a college. "I was told by everyone to go to the best school you can get into, even if it's more expensive, it will be a good investment," Minsky says. "Now we're starting to see a shift toward making responsible financial choices about college."

How Student Debt Reduces Lifetime Wealth

Student debt has skyrocketed over the past decade, quadrupling from just $240 billion in 2003 to more than $1 trillion today.1 If current borrowing patterns continue, student debt levels will reach $2 trillion in 2025.2 Average debt levels have risen rapidly as well: two-thirds (66 percent) of college seniors now graduate with an average of $26,600 in student loans,3 up from 41 percent in 1989.4 The rise of this “debt-for-diploma” system over the past decade was largely caused by the sharp decline in state funding for higher education, which has fallen by 25 percent since its peak in 2000.5

However, despite the fact that student debt is now nearly a prerequisite for a college degree, we have not yet fully explored the impact of tying opportunity to debt. Though a college education remains the surest path to a middle-class life, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families.

This brief attempts to quantify just how much these soaring debt levels impact college-educated households’ financial stability over a lifetime. It creates a model using data from the Federal Reserve Board’s Survey of Consumer Finances and other datasets to estimate household debt and assets, comparing the projected debts and assets of a college-educated household with average levels of education debt to a similar household without debt. It finds that, over a lifetime of employment and saving, $53,000 in education debt leads to a wealth loss of nearly $208,000.

We can generalize this result to predict that the $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households, not even accounting for the heavy impact of defaults. The model’s prediction of lifetime lost assets due to student debt also understates the impact of education debt on many borrowers in another way. Student debt levels vary widely by both race and family income of graduates; thus, for low-income and minority borrowers, the lifetime cost of student loans will likely be even greater (see the box on the following for more detail).

Before we can account for the large differences in debt burdens by race and family income, we need to establish a baseline scenario to examine the lifetime impact of student debt on assets for an average borrower, which is the focus of the model in this brief. Even when we consider this average borrower who (as explained below) saves and accumulates under somewhat ideal circumstances, the lifetime impact of student debt paints an already troubling picture

How the 1.2 Trillion College Debt Crisis is Crippling Students, Parents, and The Economy

Two-thirds, that’s right, two-thirds of students graduating from American colleges and universities are graduating with some level of debt. How much? According to The Institute for College Access and Success (TICAS) Project on Student Debt, the average borrower will graduate $26,600 in the red. While we’ve all heard the screaming headlines of graduates with crippling debt of $100,000 or more, this is the case for only about 1% of graduates. That said, one in 10 graduates accumulate more than $40,000.

It’s a negative sum game for both student-borrowers and the economy. According to the Consumer Financial Protection Bureau, student loan debt has reached a new milestone, crossing the $1.2 trillion mark -- $1 trillion of that in federal student loan debt.

This pushes student loan debts to dizzying new heights, as they now account for the second highest form of consumer debt behind mortgages. With the federal debt at $16.7 trillion, student loan debts measure at 6% of the overall national debt. This is no small figure, and national debt carries many consequences including slowing economic growth (translating into fewer jobs being created) and rising interest rates. Capital will not be as easy to access.

The majority of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education. Translation: the creditor in this scenario is the U.S. tax payer, who if students default on these loans will be subject to carry the burden of these loans.

DMU Timestamp: September 17, 2018 17:21





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