If it often feels like you can’t ever make more than a small dent in your student loan debt, you’re certainly not alone. And according to our latest study, it’s not just a feeling – it’s a fact.
We took a look at the average student loan balance for 2015 graduates in each state and compared it to the state’s living costs and wages. The goal: to see how affordable student loan payments are (or aren’t) for new grads across the country.
The key indicator Student Loan Hero examined to determine student loan affordability was the percentage of a typical graduate’s monthly disposable income that would go towards student loan payments (assuming the standard 10-year repayment period).
To be considered affordable, the average student loan payment should equate to 10% or less of a graduate’s disposable income – similar to how the federal government caps payments under most income-driven repayment plans.
However, none of the states or the District of Columbia passed this standard. The state with the most affordable student debt came close at 10.9% of disposable income.
On the other end of the spectrum, graduates in the state with the least affordable student loans could expect to put about 30% of disposable income toward their debt.
Finally, on the national level, student loan payments are equal to 17.3% of disposable income, on average.
Here’s a look at the five states where graduates have the most room in their budgets to repay loans and the five states where graduates are most burdened by their student debt.
5 best states for paying back student debt
In the five states that top our rankings, residents have more room in their budgets to repay student loans than the rest of the country. Among the states where student loan repayment is most affordable, a common trend is lower levels of debt upon graduating.
Utah, the top-ranking state in this study, had an average student loan balance of $18,873 among 2015 graduates. That’s more than $11,000 less than the 2015 national average of $30,100.
But that doesn’t tell the whole story. Low cost of living was an important factor in making student loan payments more affordable for many of these states. And for states in which cost of living and student loan debt crept higher, such as Colorado and Washington, the best states matched those with higher wages.
Here’s an overview of the five states that topped our rankings for student loan affordability.
- Average student loan balance: $25,840
- Average annual wage: $51,180
- Ratio of student payments to disposable income: 13.86%
For Colorado residents, the state’s higher wages give them the biggest boost in keeping up with student loans. Plus, cost of living in this state is slightly cheaper than the national average.
An average Colorado resident earns an additional $2,860 per year over the national average of $48,320, according to the Bureau of Labor Statistics. That’s an extra $240 a month, which is close to the $262 monthly payment on the average student loan balance.
- Average student loan balance: $24,600
- Average annual wage: $54,010
- Ratio of student payments to disposable income: 13.33%
Washington edged out Colorado for the No. 4 spot with both higher incomes and lower levels of student debt.
Wages in Washington are $5,000 higher than the median, while residents pay living costs on par with the rest of the country.
This combined with lower balances means that a typical Washington graduate can easily cover a $249 monthly payment still have $1,620 in disposable income left over each month.
- Average student loan balance: $22,683
- Average annual wage: $45,850
- Ratio of student payments to disposable income: 13.31%
Wyoming very barely edged out Washington, mostly due to lower starting student loan balances. Graduates of Wyoming schools are likely able to keep borrowing low thanks in large part to the state’s low tuition rates. Annual in-state tuition and fees at public Wyoming colleges are the lowest in the nation at just over $5,000, according to data from The College Board.
Residents of Wyoming are also helped by below-average living costs and earning wages higher than residents of most other states.
2. New Mexico
- Average student loan balance: $20,193
- Average annual wage: $43,170
- Ratio of student payments to disposable income: 12.22%
New Mexico landed in the No. 2 spot due to its low levels of student loan borrowing and affordable living costs.
With typical student debt at $20,193, the average New Mexico graduate owes about $10,000 less than the national average. Even with annual wages that are $5,000 below the national average, New Mexico graduates’ low debts are still affordable.
1. Utah (best)
- Average student loan balance: $18,873
- Average annual wage: $44,130
- Ratio of student payments to disposable income: 10.89%
Of all the states, Utah’s ratio of student debt to income is closest to the affordable level of 10%. This reflects the state’s affordable in-state tuition, currently the fourth-lowest in the nation at $6,581 per year at a four-year institution.
But it’s also indicative of a student culture that’s resistant to borrowing for college. Both the amounts borrowed by Utah graduates, just under $19,000 on average and the portion of graduates with student debts, 41%, are the lowest in the nation.
“I think that Utahns reflect the conservative nature of trying to avoid debt and trying to be very responsible about the debt that is taken on,” said David Buhler, commissioner of higher education, in an interview with Utah news network KSL.
5 worst states for paying back student loans
In the states where student loans are the least affordable, high costs of living make it difficult for graduates to keep up with their higher student loan balances.
Among these states, the ratio of student debt to disposable income was as high as 30%. This is despite the fact that residents of these states earn wages that are in the top half of states.
Residents these states devote so much of their income to basic living expenses that they end up with little disposable income. Hawaii and New York, for instance, landed among the top 5 due to having some of the highest costs of living in the nation.
But the five worst-ranked states include those with the highest levels of student loan debt. In New Hampshire, for instance, the average student loan balance for a graduate is a staggering $36,101 (nearly twice as much as best-ranked state Utah).
Here’s a rundown of the five states where graduates’ budgets are stretched the thinnest and student loans are the least affordable.
5. Rhode Island
- Average student loan balance: $32,920
- Average annual wage: $50,780
- Ratio of student payments to disposable income: 22.64%
Rhode Island graduates have the fifth-highest student loan debt in any state, which results in average monthly payments of $333. The state also has a cost of living that’s 15.6% higher than the national average.
The combined higher student loan balances and living costs means Rhode Island residents will have a hard time keeping up with student loan payments. This is true even though the state’s typical wages that beat the national average by $2,460 annually (an extra $205 a month).
- Average student loan balance: $34,773
- Average annual wage: $56,280
- Ratio of student payments to disposable income: 24.52%
High student debt (the third-highest in the nation) put Connecticut among the five worst states for student loan affordability. Monthly student loan payments tip the scales at $352, which is a quarter of the typical Connecticut resident’s $1,436 monthly disposable income.
The high student debt is offset somewhat by higher wages, which amount to an extra $663 a month above the average. But it’s not enough to match the state’s costly expenses. Connecticut’s average wages are 16% higher than the national average, while its living costs are 23% higher.
3. New Hampshire
- Average student loan balance: $36,101
- Average annual wage: $48,710
- Ratio of student payments to disposable income: 25.35%
Graduates in this state have to stretch those average wages a lot further to cover the state’s high student debts. New Hampshire has the highest rate of student borrowing of any state, topping out at $36,101 (with typical monthly payments of $366).
It shouldn’t be surprising that New Hampshire graduates borrow the most, since they face the highest in-state tuition costs in that nation, according to The College Board. At $15,650 a year, New Hampshire students pay three times more for their educations than those in the lowest-cost state, Wyoming.
These high student loans are a big burden on New Hampshire graduates, especially with the state’s living costs that are 14% higher than average.
2. New York
- Average student loan balance: $29,320
- Average annual wage: $57,030
- Ratio of student payments to disposable income: 25.83%
New York’s 2015 graduates actually had student loan debt below the national average, though higher than the median. A seemingly reasonable monthly payment of $297 turns out to be a financial burden for New Yorkers facing living costs that are 34.4% higher than the national average.
These high costs leave New York residents only $1,150 a month in disposable income, of which typical student loan payment would be more than a quarter. That’s despite New Yorkers earning some of the nation’s highest wages.
1. Hawaii (worst)
- Average student loan balance: $23,456
- Average annual wage: $47,740
- Ratio of student payments to disposable income: 30.61%
At first glance, things seem pretty good for Hawaii college graduates. They have the sixth-lowest average student debt. And the state’s wages beat those in most other states, on par with the national average.
But the island state’s notoriously higher living costs are 43% above the national average. These extra costs stretch Hawaii residents’ budgets to the limits, leaving them $776 in disposable income each month — that’s less than half the study’s average of $1,663.
With disposable income so low, the average $237 monthly payment eats up over 30% of the typical graduate’s disposable income.
How can students lower the cost of student loans?
This survey shows that where borrowers attend college, live, and work can greatly affect whether they can afford their student loan payments. Some might have the deck stacked against even their best efforts to repay student loans thanks to lower wages and higher living costs.
But the Student Loan Hero study also reveals a few ways borrowers can improve their financial outlook post-graduation.
Rely less on borrowing to cover costs
Graduates with less debt can more easily afford student loan payments and build financial security. Sure, this might seem obvious, but it’s not uncommon for students to borrow more than they need simply because they don’t know their other options.
A University of Kansas study found that borrowers with an extra $10,000 in student loans accrue wealth much slower than their less-indebted peers, reports MarketWatch. Those with this extra debt will take 26% longer to reach the national median net worth.
In fact, our study found that at average wages and costs of living, a college graduate would need to limit total educational borrowing to $16,400 or less to keep repayment affordable. That’s the limit for student loan balances that can be covered with 10% or less of a typical graduate’s disposable income.
Compare income against cost of living
Our study also found that while earning higher income is a key component of a graduate’s ability to repay student loans, it has to be considered alongside local living costs.
This study’s rankings found that student loan affordability correlated more closely with a state’s living costs than with its median wages. That’s likely because cost of living varies more widely than salaries do. Additionally, states with higher living costs don’t always have higher wages to match.
In general, it might be more advantageous for graduates to consider jobs in states with lower cost of living and relatively higher wages.
Consider an income-driven repayment plan
As none of the states’ levels of student borrowing qualify as affordable, our study reveals how common it is for student borrowing to outpace graduates’ abilities to repay. Graduates who are having trouble keeping up with their student loans can see that, if nothing else, they’re not alone in this struggle.
Considering these findings, it’s likely that a significant portion of student loan borrowers in each state could qualify for lower payments under an income-driven repayment (IDR) plan. Graduates living in the worst states, in particular, are likely to benefit from enrolling in an income-driven plan. Lower payments under IDR can free up monthly cash flow and create some much-needed breathing room in borrowers’ budgets.
College students and graduates should do their part to limit borrowing and responsibly repay student loans. But overall, Student Loan Hero’s study findings prove that student debt is far past the point of affordability for typical college graduates — no matter where they live.
This study compared average earning in each state* to costs of living and average student loan balances to find the states where student loan repayment is most affordable.
First, the disposable income of an average worker was calculated in each state. This was based on the Bureau of Labor Statistic’s reported mean wage in the state, less living expenses such as housing, transportation, food, and health care (based on national consumer data and adjusted for cost of living).
This disposable income was compared to typical payments on the average student debt balance of a 2014 graduate in each state. This was based on a 10-year repayment term, assuming a 4% interest rate.
In line with federal standards for student loan affordability, student loan monthly payments equal to 10% or less of monthly disposable income were considered affordable.
*Note: North Dakota was excluded from this study due to insufficient data on student loan borrowing in the state.
Sources: Bureau of Labor Statistics, The Council for Community and Economic Research’s Cost of Living Index, The Institute for College Access & Success
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1 Important Disclosures for Earnest.
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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.