The U.S. has a record-breaking $1.73 trillion in student debt—borrowers from these states owe the most on average

The University of New Hampshire
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In the United States, student debt has grown significantly over the past several decades.

The Federal Reserve estimates that in quarter two of 2021, Americans owed a startling $1.73 trillion in student loans. The record-breaking total marks an increase of 3% compared to quarter two of 2020 — despite a lengthy pause on federal student loan interest rates and the elimination of billions of federally held student loans by the Biden Administration. 

The decades-long increase in student debt is even more noticeable when compared to decades prior. In quarter two of 2011, Americans owed roughly $905 billion in student loans which means that U.S. student debt has increased by more than 91% in the past decade. 

But not all states shoulder the same share of the student debt crisis. 

WalletHub recently compared the 50 states and the District of Columbia based on 11 measures of indebtedness (such as average student debt totals) and earning opportunities (such as unemployment among recent college graduates) to determine which states struggle the most with student debt.

They identified West Virginia as the state most impacted by student debt, with data suggesting that borrowers from the state experience some of the worst ratios of student debt to income (even when adjusted to account for the local cost of living) and that a high percentage of borrowers from the state are behind on their student loan payments. 

The second worst state for student debt holders is New Hampshire, according to WalletHub, thanks to the state having the highest average student debt totals and the highest proportion of students with student debt. 

States such as California and Utah were identified for having some of the least serious student debt difficulties. 

A 2020 report from The Institute for College Access and Success also identified New Hampshire for being a state with a significant student debt situation. According to the report, the average student debt total for New Hampshire residents in the college Class of 2019 is roughly $39,410 — the most of any state. 

Data source: The Institute for College Access and Success

"Student borrowing and debt varies a great deal across states and colleges because of variations in state and institutional policies, as well as state investment in public colleges. For bachelor's degree graduates in the Class of 2019, statewide average debt levels ranged from $17,950 (Utah) to $39,400 (New Hampshire), compared to the national average of $28,950," Oliver Schak, TICAS research director tells CNBC Make It. "States can also vary greatly in how likely students graduate with student debt, with the majority of graduates leaving with student debt in 38 states."

Schak explains that in recent years, some of the highest levels of student debt borrowing have been concentrated in "certain states and regions." He points to Pennsylvania, New Jersey and Massachusetts as examples of high-debt states in the North East and California, Washington and Arizona as lower-debt states in the West. 

"Pennsylvania, New Jersey and Massachusetts have also seen the largest increases in debt from 2004 to 2019, based on our 15-year trend analysis," he adds. "Eight out of 10 states on the high and low debt lists appear at the high and low end of the spectrum like previous years."

Research from organizations such as TICAS and the Federal Reserve Bank of New York suggests that how much states invest in public higher education — and in turn, lower costs — is the most significant cause for the geographical differences in student debt. 

For instance, the TICAS report highlights how "colleges enrolling the most low-income students and students of color often receive the least funding from states" and suggests that states that invest equitably in public institutions that enroll students who would be more likely to take on loans, can reduce debt burdens in their state.

Some low-debt states such as California, the researchers point out, also set default rate and graduation rate standards for schools in order to encourage schools to keep debt loads manageable.

Schak also points to need-based financial aid and state grant aid programs, such as California's Cal Grant program, as key tools for reducing net costs and limiting borrowing. By allocating state grant aid to students based on need, rather than merit, California is able to limit the amount that many low-income students need to borrow.

The range in student debt by state also highlights recent conversations about student debt forgiveness and who would benefit the most. 

"The average debt owed by borrowers varies considerably by state, but it's worth noting that states that would see the highest return on broad-based debt cancellation may be the ones with the lowest average balances," says Charlotte Hancock, senior director at the youth-centered research and advocacy group Generation Progress. "Borrowers with low balances often face the highest hurdles when it comes to repayment as they are the most likely to be in default and less likely to have salaries that allow them to pay down their debt."

While it is true that borrowers with less than $10,000 in student debt are the most likely to go into default, if a student debt forgiveness policy that eliminated up to $50,000 of student loans (as has been proposed by some Democrats) was enacted, states with larger average totals could theoretically have more funds forgiven per borrower.

But student debt cancellation "would benefit everyone," stresses Hancock. "Regardless of which state they live in."

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