Would You Relocate to Save $1,977 a Year and Pay Off Student Loans?

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State income tax

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While repaying $107,000 in student loans, Student Loan Hero CEO Andrew Josuweit employed a unique debt payoff strategy: moving to a state with no income tax.

Josuweit was living in New York City – and paying some of the highest state income tax rates in the nation – when he decided to move to Austin, Texas. With no state or municipal income taxes in his new city, relocating freed up around $15,640 of Josuweit’s income.

Taking advantage of these tax savings and a 20 percent drop in living expenses, Josuweit used his newly freed-up money to make extra payments and knock out his remaining student loan balance. He sent his final payment in September 2016.

While Josuweit’s results might not be typical, the savings can be real for any resident of a state that levies a local income tax. That’s why Student Loan Hero conducted a study to see how much an average worker could potentially save if they live or work in a location with no state income tax.

Here’s how much you could potentially save – or put toward your student loans – without paying state income tax.

No state income tax could save an average of $1,977

Looking at how much a typical wage-earner makes in each state, we calculated the state income tax a single filer with no dependents could expect to pay.

Overall, the average state income tax – among states that levy an income tax – was $1,977 with an average effective tax rate of 4.05% compared to the national average salary.

That’s a significant cost, one that taxpayers can avoid altogether by living or working in one of the following nine states with no income tax:

  • Alaska
  • Florida
  • Nevada
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

These savings are especially advantageous when combined with high incomes. For instance, average workers in Alaska, Washington, and New Hampshire all earn more than $50,000 a year.

Effective state income tax rates are as high as 7.75%

But the differences in state income tax burdens varies widely. The five states with the highest effective income tax rates include:

  1. Oregon: 7.75%
  2. Washington, D.C.: 5.86%
  3. Iowa: 5.03%
  4. New York: 5.01%
  5. Idaho: 4.98%

Workers in Oregon face the highest income taxes of all, with an effective tax rate of 7.75% on a median salary of $49,710. That comes out to an average state income tax payment of $3,851 a year.

While New Hampshire residents earn similar wages, an average of $50,180 a year, they face no state income taxes. That means, compared to Oregon residents, they save $3,851 a year working in a state that doesn’t tax income.

Right behind Oregon is the District of Columbia, with an effective tax rate of 5.86%. But D.C. residents also have much higher incomes on average, at $82,950. High state income tax rates, combined with high incomes, gives D.C. residents the highest state income tax bill at $4,858.

Some states have tax codes that keep the burden on residents low. The five states with the lowest effective income tax rates are:

  1. North Dakota: 0.86%
  2. Ohio: 2.18%
  3. Arizona: 2.52%
  4. New Jersey: 2.76%
  5. Vermont: 2.78%

A third of student loan borrowers would move

But would people be willing to move states to save on taxes? A recent Student Loan Hero survey of student loan borrowers found that some would. Here’s a quick breakdown.

  • 18 percent would move to a state with no income tax save money.
  • 12 percent say they would move if it could save them $3,000 or more in state income tax.
  • 70 percent say they would not be willing to move for income tax savings.

Overall, 30 percent of respondents who work in a state that levies an income tax say that they would be willing to move to a different state with no income tax to save money.

Additionally, 38 percent of these taxpayers say they’d use state income tax saving savings toward their student loans.

  • 12 percent would put all of their state income tax savings toward student loans.
  • 26 percent would put a portion of the money saved from less state income tax toward their student loans.

How does not paying a state income tax affect student debt repayment?

The money you could save not paying state income taxes can go directly towards your student loan balance, placing you that much closer to your final payoff date.

Putting down more money toward your student loans also lowers the principal balance you’re paying interest on. That can help you save big over time.

Average savings for undergraduate debt: $872

Take the average American who pays $1,977 in state income tax. If she avoided this cost when filing taxes, she could instead put those funds toward student loans.

For a new graduate with $35,000 in Direct student loans at an interest rate of 3.76%, an extra one-time payment of $1,977 would let her save $872 in interest over 10 years, according to our Lump Sum Extra Payment Calculator. Plus, it would take off eight months of her repayment period. This assumes the borrower is currently making student loan payments of $350 a month.

But the savings are even greater if the student loan borrower rolls over these tax savings into extra student loan payments each month.

For instance, let’s say you broke up that $1,977 into 12 lump sum payments of $165 and applied them as an extra monthly payment on student debts. According to our Student Loan Prepayment Calculator, the same borrower listed above would save $4,154 in interest and get out of student debt in 6.4 years, rather than 10.

student loans vs. state income tax

Average savings for graduate debt: $1,684

Let’s take a graduate who earned a master’s degree and has a median debt of $57,600, as reported by the New American Education Policy Program.

Due to a higher interest rate of 6.31% attached to Graduate PLUS loans, putting a lump sum of $1,977 in income tax savings toward a student debt would net even bigger savings: $1,684. This assumes the borrower is currently making student loan payments of $648 a month.

When you apply an extra monthly payment of $165 toward your PLUS student loans rather than a lump sum, these state income tax savings add up. A borrower would avoid $5,508 in student loan interest and finish repaying student loans in just 7.4 years.

state income tax savings

Calculate your potential income tax savings

Of course, everyone’s student debt and tax situation are different. There’s no guarantee that moving to a tax-free state would net you these kinds of savings.

The calculator below can help you estimate how much an out-of-state move would affect your tax liability. And it can show how much you’d save if you applied any extra savings to your student debt, including both federal and private student loans.

State Tax Savings Calculator

State taxes

Effective tax rate

Net taxable income

State taxes
Effective tax rate
Net taxable income

Loan balance

Total loans paid

Total interest paid

Payoff date

Loan balance
Total loans paid
Total interest paid
Payoff date

While there are many factors that go into a major life choice like choosing where you live, this study reveals that state income taxes should be a key financial consideration during your decision-making process.

What’s more, your state’s income tax laws can either help you get ahead financially or set you back if your state’s effective tax rate is higher than most.

Study methodology

This survey calculated the typical state income tax burden in each state using May 2016 Bureau of Labor Statistics wage data from the U.S. Department of Labor, as well as state tax data from the Federation of Tax Administrators and Tax-Brackets.org. Tax calculations assumed a single filer was claiming one exemption and a standard deduction, according to the state’s tax laws.

Projected student loan savings assumed a borrower was just entering repayment on a 10-year standard repayment schedule. Calculations for undergraduate debts assumed a balance of $35,000 at the current Direct federal loan rate of 3.76%. For graduate debts, this study assumed a balance of $57,600 at current Grad PLUS loan rates of 6.31%.

The survey was conducted as a Google Consumer Survey, run from March 11-14, 2017. It collected answers from 1,018 respondents who have student loans. The largest margin of error present in any survey response was 3.1 percent.

The table below displays the projected income tax of a single person earning an average wage in each state. It also shows the potential savings one could net if they had no state income tax and applied savings to student loan repayment, per the assumptions above.

State Average salary Estimated
income tax
tax rate
Student loan
interest saved
National $49,630 $1,977 4.05% $872
Alabama $42,510 $1,886 4.44% $831
Alaska $56,710 $0 0.00%
Arizona $46,290 $1,164 2.52% $521
Arkansas $39,590 $1,644 4.15% $729
California $56,840 $2,267 3.99% $996
Colorado $52,710 $2,440 4.63% $863
Connecticut $57,960 $2,738 4.72% $868
Delaware $50,930 $2,150 4.22% $943
District of Columbia $82,950 $4,858 5.86% $2,012
Florida $44,050 $0 0.00%
Georgia $46,540 $2,302 4.95% $1,006
Hawaii $49,430 $2,416 4.89% $1,054
Idaho $41,910 $2,088 4.98% $917
Illinois $51,500 $1,851 3.59% $817
Indiana $42,940 $1,384 3.22% $617
Iowa $43,540 $2,191 5.03% $960
Kansas $43,950 $1,495 3.40% $665
Kentucky $41,760 $2,075 4.97% $911
Louisiana $41,260 $1,220 2.96% $546
Maine $44,180 $1,726 3.91% $764
Maryland $56,120 $2,366 4.22% $1,033
Massachusetts $60,840 $2,878 4.73% $1,243
Michigan $47,350 $1,845 3.90% $814
Minnesota $51,330 $2,461 4.79% $1,072
Mississippi $38,300 $1,350 3.52% $602
Missouri $44,620 $1,948 4.37% $858
Montana $41,440 $1,842 4.45% $813
Nebraska $44,170 $1,610 3.65% $714
Nevada $44,030 $0 0.00%
New Hampshire $50,180 $0 0.00%
New Jersey $56,030 $1,549 2.76% $688
New Mexico $44,160 $1,377 3.12% $614
New York $58,910 $2,950 5.01% $1,272
North Carolina $45,280 $2,146 4.74% $941
North Dakota $47,130 $405 0.86% $184
Ohio $45,930 $1,000 2.18% $449
Oklahoma $42,760 $1,584 3.71% $703
Oregon $49,710 $3,851 7.75% $1,629
Pennsylvania $47,540 $1,459 3.07% $649
Rhode Island $51,920 $1,490 2.87% $662
South Carolina $41,530 $1,686 4.06% $747
South Dakota $40,070 $0 0.00%
Tennessee $42,350 $0 0.00%
Texas $47,770 $0 0.00%
Utah $45,490 $2,125 4.67% $932
Vermont $47,620 $1,323 2.78% $590
Virginia $53,090 $2,569 4.84% $1,117
Washington $55,810 $0 0.00%
West Virginia $40,250 $1,496 3.72% $665
Wisconsin $45,240 $1,848 4.08% $815
Wyoming $46,840 $0 0.00%

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 8.179% APR (with AutoPay). Variable rates from 2.570% APR to 6.980% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. SoFi rate ranges are current as of September 14, 2018 and are subject to change without notice. See APR examples and terms. Lowest variable rate of 2.570% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.740% margin minus 0.25% AutoPay discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.

5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.57% – 6.98%3Undergrad
& Graduate
Visit SoFi
2.47% – 5.87%1Undergrad
& Graduate
Visit Earnest
2.47% – 8.03%4Undergrad
& Graduate
Visit Lendkey
2.80% – 6.22%2Undergrad
& Graduate
Visit Laurel Road
2.48% – 6.25%5Undergrad
& Graduate
Visit CommonBond
2.57% – 8.17%6Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.