Since 2012, student loans have had the highest delinquency rate of any form of consumer debt. And while recent data from the New York Fed suggests that student loan delinquency rates have declined during the COVID-19 pandemic, this data actually reflects the effect of government forbearance programs.
While a large share of student loans currently are in forbearance due to COVID-19 aid programs, students — many of whom might struggle to find work in a depressed economy — will be put in a precarious situation when aid programs end. How the new administration tackles the student loan crisis will be critical for many degree holders struggling to make their payments.
While forbearance programs keep the rate of delinquencies and the burden of student loan debt suppressed in the short term, the longer-term trend shows that student loan debt has been rising steadily. Since 2005, while total household debt rose 56%, student loan debt grew by more than 330% — reaching a staggering $1.5 trillion in the third quarter of 2019. Apart from mortgages, student loans now are the largest source of consumer debt, accounting for 35% of non-mortgage household debt.
Making the situation more challenging for borrowers with student loan debt, these loans can be extremely difficult to discharge, even after filing for bankruptcy. While discharging this type of debt can be challenging, it is not impossible, and student loan debt forgiveness is a growing topic of discussion in Congress and within the Biden administration.
To find where students have been most impacted by the growing student debt problem, researchers at Smartest Dollar ranked states based on the average student loan debt per borrower using data from the Federal Reserve Bank of New York’s Consumer Credit Panel. Researchers chose to use 2019 data (instead of 2020 data) since reporting changes in 2020 stemming from COVID-19 forbearance programs resulted in substantial drops in delinquency rates that were not the result of individuals paying off their loans. As a result, the 2019 data better reflects the actual state of student loan delinquency rates.
The analysis found that borrowers in coastal states tend to have the most student loan debt. While borrowers in California and Oregon have average student loan debts above $35,000, those in the South and East Coast states like Maryland, New York, Georgia and Virginia have even higher debt burdens.
Missouri ranks at 20, with an average $33,700 in student loan debt, 850,800 borrowers and 15.9% in delinquency. The good news, said Zora Mulligan, Missouri’s commissioner of higher education, is that student loan default rates have fallen, which signals more people are getting back on track.
“Students entering repayment is a confirmation that colleges and universities are helping students to make smart financial decisions and to only borrow what they need,” she said.
Methodology & detailed findings
The student loan debt data used in this study is from the Federal Reserve Bank of New York’s Consumer Credit Panel. Researchers chose to use 2019 data (instead of 2020 data) since reporting changes in 2020 stemming from COVID-19 forbearance programs resulted in substantial drops in delinquency rates that were not the result of individuals paying off their loans. As a result, it was determined that the 2019 numbers better reflected the actual state of student loan delinquency rates.
States were ordered based on the average student loan debt per borrower. In the event of a tie, the state with the greater amount of total student loan debt was ranked higher. Data on the number of college graduates by state is from the 2019 American Community Survey.
Andrew Gaug contributed to this story.