Why take out loans?

Loans allow for greater access to higher education, including two and four year college, graduate school, and certificate programs. Each additional year of school leads to 10% higher earnings (1), and college graduates have three times as much accumulated wealth as high school graduates. College is also a protective factor against unemployment. College graduate unemployment rates are half that of high school graduates (2). However, the wage differential between high school and college graduates has flatlined in recent years, while the differential between college and graduate school graduates has increased (3, 4). However, heavy debt is associated with graduate school attendance, especially for first-generation students (5). 

How much of a financial burden are student loans?

The cost of tuition at a 4-year university has increased 497% in the past forty  years (6), more than twice the rate of inflation, and state funding of public schools has fallen by a third since 1990 (7). While student loans were originally introduced as a stopgap measure intended to supplement summer earnings (8), students today often rely on student loans to afford college and graduate school. Student debt today is second only to mortgages as the biggest loan burden on Americans.

How many students take out loans?

Approximately 70% of college and graduate students take out student loans, and 55% graduate with some form of debt. The average student loan debt in the United States is $35,286 and the average debt on graduation from undergrad is $29,350, leading to a total national debt of approximately $1.77  trillion. This debt is also difficult to discharge; today, more than one third of borrowers are 40 or older (9). 2.2 million people over the age of 55 have student loans, and average debt increases as people get older. Borrowers in their 50s have an average of $47,660 debt and those 62 and up have an average debt of almost $50,000.

A vertical bar char displaying the average overall student debt and average undergraduate debt among U.S. graduates by state. In some states, values are near or exceed $40,000 in overall debt.

What options do borrowers have?

The Federal Government offers multiple loan forgiveness and repayment assistance programs. These include public service loan forgiveness programs, income driven plans, or the Biden administration’s Saving on a Valuable Education (SAVE) plan. These are typically available to borrowers with Federal Student Loans; loans owned by the Department of Education.

Many borrowers turn to state loan forgiveness and repayment assistance programs as well. These programs are funded by individual states for residents of the state. While much of the public discourse regarding loan forgiveness focuses on federal programs, state programs provide excellent opportunities to broaden the loan forgiveness landscape.

What stress does debt place on households?

Student loan debt places a huge stress on households. Forgiveness of only $10,000 in student loans would double the number of households able to purchase better food, go back to school, get married, or have a child. It would increase the number of people who could save for retirement. 

Borrowers are considered in default once they fail to make payments for 270 days. This will disqualify them for most student loan programs, including the majority of state and federal programs. Default rates are similar regardless of the current economic climate. By age 30 37% of associate degree holders and 21% of bachelor’s degree holders have defaulted at least once, with higher odds for default among those with lower family income and less familial education (10, 11). A third of first-generation college students default on their loans within two decades. 

What is unique about state loan forgiveness/repayment assistance programs?

State programs are typically public service focused, with strict professional requirements.  They are usually available to individuals working within legal, medical or educational fields. Many require borrowers to commit to working within rural, underserved, or shortage areas for a contracted number of years.

Understanding the landscape of state student loan forgiveness and repayment programs

To better understand how state program availability may benefit borrowers, we built a policy database. We tracked a total number of 175 programs, and documented eligibility requirements, payment schedules, and program intent. We link this dataset to state-level information addressing student loan debt burden, economic characteristics, educational attainment and demographic profiles using public sources such as the National Center for Education Statistics and the U.S. Census American Community Survey.

Who is helped by these programs?

Many state student loan forgiveness or repayment assistance programs encourage or require applicants to work in rural or underserved areas, suggesting that these programs are designed to boost state wellbeing as much as they’re designed to help individual borrowers. 

Moreover, the professional requirements set forth by these programs have the potential to exclude large categories of borrowers. While most programs are designed to assist legal and medical professionals – many of whom graduate with overwhelming debt – data from the National Postsecondary Student Aid Study, Graduate (NPSAS: GR) indicates that these borrowers do not reflect states’ true diversity. Find out more in our exploration of the race and class implications of student loan debt.

Explore further

You can download our policy tracking sheet here (Microsoft Excel Sheet coming soon) and the data used for analysis (Microsoft Excel Sheet). Learn more about our findings by clicking the links below:

Program eligibility and professional requirements
Program availability across the U.S.
Focus: Programs targeted at educators
Focus: Programs targeted at healthcare professionals
Focus: Programs targeted at legal professionals
Program variation by state political leaning

 

References

  1. Card, D. (1999). The causal effect of education on earnings. Handbook of labor economics, 3, 1801-1863.
  2. US Department of Labor, Bureau of Labor Statistics (2024). Employment status of the civilian population 25 years and over by educational attainment. Retrieved from: https://www.bls.gov/news.release/empsit.t04.htm
  3. Ashworth, J. and Ransom, T. (2019). Has the college wage premium continued to rise? Evidence from multiple US surveys. Economics of Education Review, 69, 149-154.
  4. Valletta, R. (2015). Higher education, wages, and polarization (No. 2015–2). San Francisco, CA: Federal Reserve Bank of San Francisco.
  5. Chen, R. and Bahr, P. R. (2012). Investigating the effects of undergraduate indebtedness on graduate school application and enrollment. Annual Meeting of the Association of Studying Higher Education.
  6. Ma, J. and Pender, M. (2022). Trends in College Pricing and Student Aid 2022, New York: College Board. Retrieved from: https://research.collegeboard.org/media/pdf/trends-in-college-pricing-student-aid-2022.pdf.
  7. Mitchell, M., Leachman, M., & Saenz, M. (2019). State higher education funding cuts have pushed costs to students, worsened inequality. Center on Budget and Policy Priorities, 24, 9-15.
  8. Herrine, L. (2020). The Law and Political Economy of a Student Debt Jubilee, 68 Buff. L. Rev. 281 . Available at: https://digitalcommons.law.buffalo.edu/buffalolawreview/vol68/iss2/1.
  9. Hanson, M. (2024). Student Loan Debt Statistics. Education Data Initiative. https://educationdata.org/student-loan-debt-statistics.
  10. Hanson, M. (2021). Student loan debt by Race. Education Data Initiative. Retrieved from https://educationdata.org/student-loan-debt-by-race.
  11. Sullivan, L., Meschede, T., Shapiro, T., & Escobar, F. (2019). Stalling Dreams: How Student Debt Is Disrupting Life Chances and Widening the Racial Wealth Gap. Waltham, MA: Institute on Assets and Social Policy, Brandeis University. Retrieved June 3, 2021 from https://heller.brandeis.edu/iasp/pdfs/racial- wealth-equity/racial-wealth-gap/stallingdreams- how-student-debt-is-disrupting-lifechances.pdf.