Over the past five years, student loan borrowing among undergraduates has dropped by $15 billion. But while there’s less new student debt, a new Student Loan Hero study shows that the average debt per student loan borrower is on the rise in most major U.S. metro areas.
This seemingly contradictory result might have less to do with new student loans and more to do with interest accruing on existing debt. Fewer than half of borrowers we looked at were in active repayment, and of those, about 30% were on an income-driven repayment plan that limits the amount borrowers must pay, even as interest accumulates.
And just as some places have more student debt than others, how fast those student loan balances are rising also varied widely, depending on geography. While a quarter of the top metro areas saw an easing in total student debt, the rest saw gains. Here are some of the details:
- The median student loan balance rose in 81 of the 100 metro areas we reviewed.
- In 12 of the metros, the median balance jumped by more than 10% between 2018 and 2019.
- In Winston-Salem, N.C., the typical student debt load rose by 21% over the same period, while New Orleans and Scranton, Pa., each saw their median balances rise by nearly 18%.
- On the other hand, the median student debt dropped by about 5% in McAllen, Texas, and Oxnard, Calif. Similarly, Fresno, Calif., and Melbourne, Fla., both saw their median balances fall by almost 4%.
3 metros where student loan balances grew the most
After a year with student loans, you’d expect to see your balance decrease, right? Unfortunately, individual balances increased for students in most metro areas.
Often, balances rise when borrowers pause payments through deferment or forbearance or lower them by extending their repayment timeline, maybe via income-driven repayment. In such cases, the debt loan can grow over time due to interest.
As we’ll see, some of the places with the fastest-growing student loan balances have a large number of borrowers without degrees or with large debt burdens from graduate school. Such might struggle with repayment and be more likely to pause or reduce their monthly payments.
1. Winston-Salem, North Carolina
Home to Wake Forest University and Winston-Salem State, this North Carolina city has its fair share of college students. And unfortunately, its population of student loan borrowers saw their balances increase significantly between 2018 and 2019.
In 2018, individual borrowers had a median balance of $21,395, but just a year later, that figure grew to $25,830, marking an increase of almost 21%.
Why are student loan balances growing among Winston-Salem residents? One factor might be the relatively large amount ($21,395) owed by the median borrower. On a 10-year payment plan at 5.05% interest, a loan of that size would require $227 in monthly payments, a bill that might be burdensome for some borrowers.
Another factor could be Winston-Salem’s larger-than-average population of residents who left college without earning their degree. Among Winston-Salem residents who are 25 years and older, 21.6% attended college but didn’t earn their degree (beating the national average of 20.8%). These borrowers may have taken on student debt but never earned the diploma that would have led to a high-paying job.
Winston-Salem is also home to slightly more graduate students among its over-25 population — 13.6% compared to an average of 11.8% nationwide. Graduate students tend to take on more student debt than undergraduates, and their balances can grow significantly if they put off payments until after they’ve graduated or finished a residency.
2. New Orleans, Louisiana
Between 2018 and 2019, student loan borrowers in New Orleans saw their median balances increase by 17.8%, going from $22,217 last year to $26,182 this year.
Like Winston-Salem, N.C., New Orleans’ borrowers hold relatively large balances, which could be difficult to pay back on the standard 10-year plan. At 21.7%, the proportion of New Orleans residents over 25 who left college without earning a degree is almost identical to that in Winston-Salem. And the percentage who hold a graduate or professional degree is even larger, at 15.8%.
3. Scranton, Pennsylvania
Like Winston-Salem, N.C. and New Orleans, Scranton has its fair share of growing student loan balances. In 2018, borrowers had a median balance of $19,018, but in 2019 it was up to $22,342, marking an increase of more than 17%.
Unlike those other metro areas, however, Scranton has lower-than-average numbers of students who left college before earning their degree (17.6%) and small number of graduate students (7.3%) among its 25+ population.
On the other hand, its bachelor’s-degree-holding population is also smaller — 14.8% as opposed to the national average of 19.1%. This lower level of educational attainment might lead to lower salaries for residents, which in turn could make it harder to pay back student loans.
3 metros where student loan balances decreased
Of course, student loan balances haven’t increased everywhere. In some metros, individual balances decreased between 2018 and 2019, though generally by only a small amount. Here are the three metros where student loan balances went down the most.
1. McAllen, Texas
Residents of McAllen saw their student loan balances go down over the past year, easing more than 5%, from a median $14,393 down to $13,641.
As you can see, that median balance for McAllen residents was already a lot lower than those for borrowers in Winston-Salem, N.C., New Orleans or Scranton, Pa. A lower balance means more manageable student loan payments, which in turn might explain the decrease here.
2. Oxnard, California
Oxnard also saw its median student loan balance go down, falling by 4.6% (from $20,515 in 2018 to $19,574 this year). Although this median balance is fairly high, the higher-than-average household income among Oxnard residents might have made it easier to pay back their student debt.
According to the U.S. Census Bureau, the median per capita income in Oxnard in 2017 was 64,837, solidly above the U.S. average of $57,652. This appears to have overcome Oxnard’s relatively low rate of educational attainment — just 12.1% have a bachelor’s degree and only 4.7% have a graduate degree.
3. Melbourne, Florida
Melbourne borrowers also chipped away their student loan balances, with the median edging 3.8% lower. While the median balance was $24,531 last year, it went down to $23,597 in 2019.
As with Oxnard, Calif., Melbourne has a slightly lower educational attainment than the country as a whole. Among those 25 years and older, 15.8% have a bachelor’s degree and 10.2% have a graduate or professional degree (the national average is 19.1% and 11.8%, respectively).
However, the area’s lower-than-average cost of living might make it easier to afford keeping up with student loan payments.
Why would student loan balances increase?
Depending on your approach to student loan repayment, your balance could certainly increase over time instead of decrease. Here are some reasons why:
Your loans are in a grace period
Current students typically have a grace period where they don’t have to make payments while in school or for six months after they graduate. Although pushing off repayment lets you focus on your studies, it could also mean that your balance is quietly collecting interest the entire time you’re in school.
Once your loans enter repayment, that interest will capitalize, meaning it gets added onto the principal amount. So when your grace period ends, you could be facing a bigger balance than you initially borrowed.
Your loans are on income-driven repayment
Student loan balances can also increase when you choose an income-driven repayment plan. Plans such as Income-Based Repayment and Pay As You Earn may lower your monthly payments, but those payments might not be high enough to make a dent in your balance.
Although most of these income-driven plans lead to loan forgiveness after 20 or 25 years of on-time repayment, you could be forking over a lot more in interest than if you stuck with the standard 10-year plan. This is also true if you lengthen the repayment schedule through other means, such as via an extended repayment plan.
Your loans have entered delinquency or default
Borrowers who miss payments might have their loans enter delinquency, or even default. Along with harming your credit score, delinquency and default could cause your balance to balloon even further, making it harder to catch up.
You can get your loans back into good standing through consolidation or rehabilitation, but you might be facing an even bigger debt than you had before you stopped making payments.
How can you pay your balance down faster?
While income-driven repayment can be a smart option for borrowers who need to lower monthly payments (or who are working toward Public Service Loan Forgiveness), it won’t help you pay off your loans ahead of schedule.
If you can afford to stay on the standard plan, you’ll very likely see your debt paid off in 10 years. And if you have room in your budget, making extra payments on your debt will help you get debt-free even sooner.
Consider a $30,000 loan at a 5.5% rate. On the 10-year plan, you’d pay $326 per month and more than $9,000 in total interest. But if you could increase your monthly payments by $100, you’d be out of debt 2 years and 10 months sooner and save north of $2,700 in interest. And if you could pay $200 extra, you’d be debt-free 4 years and 5 months sooner, saving almost $4,200 in the process. (You can run the numbers on your own loans with our prepayment calculator.)
Although making extra payments might not be possible for you right now, it might become easier in the future if you’ve adjusted your budget or started making more money.
If you have strong credit and a steady income, you could also consider refinancing your student loans to save even more on interest. Not only might you get a better rate, but you could also choose a shorter repayment term to get out of debt faster.