Ten States With the Most Student Debt

Average student debt levels have skyrocketed in recent years, reaching nearly $30,000 in 2012 from $18,650 in 2004. With debt levels swelling, President Barack Obama has recently addressed the issue, proposing an option to reduce monthly payments to 10% of a person’s income.

In addition to growing debt levels, a larger proportion of students are taking out loans, increasing from 67% in 2008 to 71% in 2012. The states with the highest student debt per borrower also had among the highest proportion of students with debt. Of the 10 states with the highest average student debt, seven also had the highest proportions of students going into debt. Based on data from the Institute for College Access and Success, 24/7 Wall St. examined the 10 states with the most student debt.

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Interestingly, some states with the highest levels of student debt tended to have lower levels of total debt, including mortgage, credit card, and auto debt. This may be due to the fact that higher student debt discourages future borrowing. According to Ann Marie Wiersch, senior policy analyst at the Federal Reserve Bank of Cleveland, “If you look at debt-to-income ratios, it’s not surprising that someone with the burden of student debt faces challenges with purchasing a home or a vehicle.”

States with the highest debt levels in 2012 were disproportionately located in the Northeast, where private schools are more prevalent than in other parts of the country. More prestigious schools with higher tuition on the east coast may lure students who could otherwise attend a less known — but also less expensive — school that provides more financial aid.

The explosion of student debt comes at a time when wages have stagnated, making it difficult for graduates to repay their loans. To make monthly loan payments, graduates have two options: make smaller payments and extend the life of the loans or forgo saving money for emergencies and retirement. Indeed, low 401(k) enrollment is an indicator that recent graduates may be less prepared for retirement than previous generations.

This may not be as big of a problem as people think, however. According to a recent report by the Brookings Institution, monthly student loan payments may account for a smaller proportion of monthly income than is commonly believed, making loan repayment more manageable. Critics of the study argue that the conclusion of the Brookings Institution report may downplay the social costs of student loan debt.

Student loan growth is not the only trend to watch. “The fact that delinquencies and defaults are also rising is a significant factor,” Wiersch said. This creates challenges for certain borrowers who dropped out of school or can’t find a job.

High debt levels also mean that graduates have to spend their money paying off debt rather than spend it as consumers and stimulate the economy. There are also concerns about the impact this may have on future wealth inequality between those who graduated from school with debt and those who graduated without debt. “The average credit score of someone with student debt is lower than someone without debt,” Wiersch said, making it more difficult for indebted individuals to qualify for other loans.

One way student loans interfere with Americans’ long-term financial plans appears to be through the housing market. According to a survey by the National Association of Realtors, student loans were an obstacle to homeownership with 77% of people surveyed.

Using data from the report, “Student Debt and the Class of 2012” published by The Institute for College Access and Success, 24/7 Wall St. reviewed the 10 states where students graduated with the most debt. TICAS also provided data on the proportion of students with student debt in 2012 and in the preceding decade. We also reviewed data on educational attainment and median annual earnings from the U.S. Census Bureau. Unemployment rate figures are from the Bureau of Labor Statistics and are as of April. Student loan default rates come from the U.S. Department of Education. Credit Karma provided other debt figures.

These are the states with the highest average student debt.