Most Americans have had a reprieve from needing to make student loan payments during the coronavirus pandemic; however, that relief is soon set to expire in a few months if President Biden doesn’t do something about it. There are over 40 million student loan borrowers in the United States, in total carrying more than $1 trillion in loans from various lenders. Estimates put about 1 in 5 Americans in forbearance for those student loans, too, and a large portion of student loan borrowers recently surveyed shared that they’re not ready for student loan payments to resume on October 1st, as scheduled.
Many current college students have seen the way that student loans have impacted older generations, and so for Americans who are 24 or younger, student loan debt is less than $15,000 on average. However, as you look at older age groups, the average student loan debt continues to increase, with borrowers aged 25 to 34 and 35 to 49 owing about $33,000 and $42,000 on average, respectively.
While age is one way to analyze higher education costs—and the debt Americans have incurred to pay for that education—it certainly isn’t the only way to look at the issue. In fact, comparing average student loan debt by state can also provide some interesting insight, since it allows you to evaluate yourself compared to other residents in your geographic area.
Whether you have private student loans or federal student loan debt, here’s a quick overview of how student loan debt stacks up from one state to the next—including which state has the highest average student loan debt.
Average student loan debt by state
How does your state stack up to its neighbors when it comes to student loan debt? Do you owe more or less than other people living in your state? See how you compare to other student loan borrowers in your region and the rest of the United States in this chart.
As you can see, the picture isn’t pretty no matter where you live, with most borrowers in America carrying more than $30,000 in student loan debt. The states with the highest average student loan debt in 2020 were Maryland and Georgia, followed by California and Virginia. On the other end of the spectrum, borrowers living in North Dakota owed the least in student loan debt—although they still owed, on average, about $30,000.
All of these facts point to the fact that student loan debt is something that a wide number of Americans have to contend with, regardless of whether they live in the midwest, west, east, northeast, or south. Indeed, four of the states with the highest average student loan debt by borrower in 2020 are in disparate parts of the country, illustrating that it isn’t just one region that is dealing with a large amount of student loan balances. As such, it’s no surprise that Americans across the country are calling for student loan forgiveness from the Federal Reserve and the U.S. Department of Education.
Different kinds of student loans
Many times, all student loans get lumped into one topic, which is understandable given the complexity of some student loan products. That being said, there are about six different kinds of student loans that are regularly offered to students. Some loans are only offered by the federal government, while others are lent to borrowers by private companies. Some student loans are only available for undergraduate students, and some are only available to graduate students, or students signing up for the loan with their parents. Here’s a quick rundown of each loan.
Direct subsidized federal loan
This type of federal student loan is also sometimes referred to as a Stafford loan. This type of student loan is given directly to the student to use towards education costs after that student has demonstrated financial need. In a subsidized loan, the government helps cover the interest that accrues while you’re enrolled in school. This means that if you have an interest rate of 5% on your loan of $6,000 for one school year, you wouldn’t need to worry about paying back the $300 of interest that would technically accrue while you’re enrolled in classes at least half-time. This type of loan is only available for undergraduate students.
Direct unsubsidized federal loan
Unlike subsidized federal student loans, a direct unsubsidized federal loan is available to undergraduate and graduate students. That being said, you’ll be responsible for the interest that is generated while you’re in school, which means that it can be a more expensive option than a subsidized loan. You’re also responsible for any interest that is generated while you’re in forbearance or a grace period—and your interest can capitalize (be added to the principal) if you miss a payment. These disadvantages mean that it’s important to fully understand the ins and outs of unsubsidized loans if you plan on using them to fund your schooling.
Direct Grad PLUS loan
A PLUS loan for graduate students involves a credit check to qualify for the loan product. With a direct Grad PLUS loan, you’ll also get a six-month grace period after you leave school to begin making payments on your loan. If you have good credit, it’s not a bad idea to look into PLUS loans to see what you might be able to qualify for.
Direct Parent PLUS loan
With a direct parent PLUS loan, parents can take out student loans for their children. This applies to adoptive and stepparents as well as biological parents and is a loan that requires payments to be made while the child is enrolled in school. A parent PLUS loan is solely the parent’s responsibility, and can’t be transferred to the student.
Direct consolidation loan
If you’ve dropped out of college or are looking for a way to combine many different loans into one loan with a lower interest rate, a direct consolidation loan isn’t a bad idea to look into. If a single monthly payment would be advantageous to you, for example, a direct consolidation loan may be worthwhile. In some situations, consolidation or refinancing may also qualify you for income-based repayment programs. That being said, if you’ve been working towards a public service loan forgiveness program, consolidation could jeopardize your progress.
In-school private loan
There are dozens of companies providing private student loans, meaning that if you’re interested in shopping around and comparing products, you can likely find a private loan that works for you. One of the largest private loan companies, Sallie Mae, offers more than ten different student loan options, providing a wide range of financing opportunities for borrowers of all stripes. When looking at in-school private loans, make sure that you’re paying close attention to repayment terms as well as interest rates. Some lenders may offer deferment or interest-only payments while you’re in school, while others promise low-cost monthly payments as low as $25.
Forbearance vs deferment
If you’re one of the 20% of Americans struggling to make your student loan payments, it can feel like there aren’t any options for you. However, there are two choices you have beyond the relief provided by the president as a result of the coronavirus pandemic. Deferment and forbearance are both options to weigh, although each has its pros and cons. Learn more about both below.
Deferment is generally your first line of defense if you’re struggling with student debt. If your financial situation qualifies you for deferment, you can defer payments on your loan in increments of six months for up to three years. Generally speaking, the sorts of financial situations that qualify you to defer your student loans include things like studying half-time or full-time in another collegiate program, being unemployed, serving in the military, or facing another form of economic hardship. When you defer, you should do so to improve your financial situation.
If you’re not able to receive a deferment on your loans, then forbearance is the next option to weigh. When you’re in forbearance for your student loans, you may be able to either lower the total monthly payment you make towards your loan or even pause payments for up to a year.
There are two types of forbearance that you might qualify for. The first type, mandatory forbearance, is required of lenders if your financial situation meets certain criteria. For example, if you’re called into active military duty or your monthly payment exceeds 20% of your gross monthly income, your lender must provide mandatory forbearance. However, if you don’t meet these criteria, you’ll be required to speak with your lender directly about forbearance and may have fewer options available to you.
Ways to lower student loans
Just because you have a certain student loan amount doesn’t mean that you can’t lower your payments or interest rate. There are a few different strategies to consider when it comes to lowering the cost of your student loans. Here are some of the most popular.
Income-driven repayment plan
Enrolling in an income-driven repayment plan can be a great way to keep your monthly student loan payment manageable as you work towards repaying your loans. Generally speaking, if you’re enrolled in an IDR program, your monthly payment will increase or decrease based on how your income grows or shrinks year-over-year. This means that you may pay more in interest over time, but after a set number of years your loan will be considered paid off as long as you’ve continued to make your monthly payments. Depending on your situation, your monthly payment may be as low as $0 but could increase as you get raises or switch jobs.
Graduated repayment plan
Some people may not qualify for income-driven repayment plans if they make too much money. In these sorts of situations, a graduated repayment plan may be worth exploring. With a graduated repayment plan, your monthly payment will start smaller and increase every two years. After ten years in a graduated repayment plan, your loan will be considered paid off.
Extended repayment plan
Another option to consider if you have a federal student loan balance greater than $30,000 is something called an extended repayment plan. With an extended repayment plan, your loan terms will increase to either 20 or 25 years, which will result in you paying a lower monthly payment on average. That being said, extending your loan will also mean you pay more in interest over the lifetime of the loan, so it’s important to weigh the short-term and long-term benefits of this sort of repayment plan before enrolling.
Debt consolidation is another option if you’re looking to refinance your loan and get a better interest rate. Especially if you’ve improved your credit since taking out your loan, debt consolidation could mean that you lower your overall costs. Additionally, getting one single payment rather than having to juggle multiple lenders could also be a welcome relief. If you’re considering debt consolidation, make sure to pay close attention to any terms surrounding prepayment.
Pick up a side gig
While not everyone can do this, starting a side hustle or working a part-time job could be the secret to lowering your overall student loan costs. Even bringing in an extra $50 or $100 a month can help your overall costs when you apply that extra money towards your student loan principal each time your payment comes due. Delivery drivers for apps like DoorDash and Grubhub, not to mention restaurants, can make up to $500 a week driving part-time in some cities thanks to tips, which can make a big dent in your debt.
If you’re open to the idea of working extra hours and putting in the legwork, this sort of strategy can lead to great results, even if you can only commit to six months working this way. Even if you’re only making an extra $100 a week as a delivery driver, being able to apply $400 to your student loan principal each month for a year means you’ll shave about $5,000 off of your principal.
The bottom line
Student loans are a complex topic that’s affecting a wide range of Americans. Whether you’re struggling to stay on top of federal student loans or a loan from a private lender, you’re not alone, as the chart above shows. The average student loan debt in America is more than $30,000 in most states, with several states cresting the $40,000 mark. As such, it’s no surprise that student debt forgiveness has the kind of support it does, particularly after a year and a half in a pandemic with student loan payments on pause.
Whether or not President Biden will choose to forgive a portion of student loans or keep loans on pause remains to be seen, even as congressmen and women continue to press him to do something about student debt relief. As a result, you must have a solid understanding of various loan products if you’re looking to enroll in school and ways to lower your student loan burden if you’re already struggling to make your loan repayments.
Student loans are a hot topic solely because of the weight they place on the more than 40 million Americans who carry this kind of educational debt. For many millennials, it may feel like student loans were sold to them as a necessary evil that wouldn’t have much bearing on their life, only to discover that student loans have been holding them back from property ownership and even having children. The best thing anyone can do in this situation continues to arm themselves with information, so that whatever happens on October 1st, 2021 doesn’t continue to set them back. It may seem difficult (especially if you’re a resident of Maryland, Georgia, Virginia, or California), but it is possible to chart a path forward.