When the Great Recession slowed the global economy in 2007, a generation of new college graduates found their job prospects muted and their childhood bedrooms calling. Memes about never paying off student loans skyrocketed, while homeownership and childbearing fell. Debt kept many from finding love. It also widened the racial wealth gap.
In the years since, those early-naughts grads have served as a cautionary tale to future student loan borrowers that larger economic forces could make borrowing risky.
For one, searches in Google for “Are we in a recession?” have increased 209% in the last year, suggesting that many people fear the global economy is not exactly back on the right track. For another, college debt isn’t getting better. In fact, it’s growing, as more Gen Z students borrow more money than their millennial predecessors to pay for college tuition, up 31% between 2010 and 2020.
Yet students keep taking the risk because college is still the “surest path to the middle class,” a stepping stone for high-value knowledge workers to get a foot on the career ladder.
The result is that for 70% of degree-holding Americans, student loans are a necessary part of post-graduate life.
We wondered: Are some loan holders in some states doing better than others? Where in the U.S. are students having the easiest time getting through college, but also paying off their college loans when they’re done?
Massachusetts is the best state for student loan borrowers. Though graduates walk across the stage with average debt, both starting and mid-career salaries are high, making for some of the country’s lowest delinquency rates.
Slow and steady wins the race in central and high plains states: Borrowers take on less debt and are less likely to face joblessness in states like South Dakota, Nebraska, Minnesota, and Texas.
Mississippi has the blues: High debt, low salaries, and low job creation make it hard for borrowers to get ahead.
Mid-career salaries are a key to mastering student loan debt. Borrowers can skyrocket their salaries well beyond their debt loads in coastal states like Washington, New Hampshire, and New Jersey, absorbing the high cost of living while they do.
Jobs are boss. Job growth and low unemployment both predict low default rates, even more than total debt loads. States that excel at both include top ten states South Dakota, Texas, and Colorado
What are the best and worst states for the combination of student loan debt burden, city-level economic factors, and payback abilities? This map shows the top and bottom five states:
Let’s dig into how and why we ranked the states this way.
How We Found the Best States to Pay Back Student Loans
To find where students graduate with fewer loans, then pay them off faster, we analyzed all 50 states using the following criteria:
Who’s educating students with less debt and fewer defaults?
The percentage of residents with a bachelor’s degree
The average debt per borrower
The average delinquency rate of the state’s borrowers
Where can students earn enough to pay back loans?
The median entry-level salary compared to the average college debt ratio
The median mid-career salary compared to the average college debt ratio
The cost of living by state
Where can students land a great job?
The Bureau of Labor Statistics’ job growth rate
The state’s unemployment rate
Every State by Student Loan Debt & Payback Factors, Ranked
We’ve calculated the key factors at play for student debt holders, analyzing their ability to pay back loans based on debt burden, salary, job growth and other factors to tally the final score for every state.
Coasts and Plains are Best for Borrowers
Massachusetts, and Coastal Economic Giants, Keep Student Defaults Low
The Bay State takes the prize for taking care of its student borrowers. With a default rate under 10%, the state’s nearly 10 million borrowers are supported by some of the best-paying jobs in the country. A graduate here can expect to earn $32,252, almost enough to wipe out their $34,778 debt in a single year.
What’s the downside? Students won’t save big at Massachusetts schools (average debt per borrower comes in 24th), and the cost of living is second only to Hawaii. But high price tags come with salaries to match in an economy where job growth is 7th in the nation overall, and unemployment is below average.
The bottom line: if you’re looking for a place where your big investment in yourself pays off best, grab yourself a lobster roll and know you’re being wicked smaht.
Massachusetts is part of one group of top states in coastal areas, with high costs of living but where equally high salaries keep defaults low. Others are Washington, New Jersey, and New Hampshire. While none offer a bargain education or a discount on your first apartment, they make up for it with a pipeline of well-paying jobs for their highly educated residents.
That could make them feel like untenable landing pads for new graduates struggling to make ends meet while paying off loans. But for those who make it through the initial speed bumps, all of these coastal beacons offer their grads a lifeline in the form of salary acceleration: their mid-career earnings all rank in the country’s top 6 overall.
That means that no matter the cost of living, graduates who score jobs here can out-earn their debt as they advance in their careers.
Great Planning in the Great Plains
Other standout states for borrowers are clustered around the Great Plains: from Texas to Nebraska, South Dakota, and Minnesota, tornado alley creates the right conditions for new grads with student loans, though in a different way than their coastal counterparts.
Take South Dakota. This sparsely populated agricultural capital has only got a tenth of Massachusetts’ borrowers. Salaries in the region are low: a new South Dakotan on the job market can expect to earn just $28,394 annually. Even by mid-career, they’ll pull in $54,821 annually, 37% less than their counterpart who graduated in Boston.
But while salaries are low, the Mount Rushmore State keeps initial borrower debt low, too. Unemployment is also the second best overall, so grads with an already low debt burden can be sure they transition from the dorm room to the conference room and seamlessly make their first payments.
Other central states also excel when it comes to helping grads secure a future job: Texas and Colorado rank in the top ten for job growth, while South Dakota, Nebraska, and Minnesota boast low unemployment rates.
The top ten states for borrowers reflect two different paths for successful borrowers. In the first, students invest heavily in a pricey education in a state where high salaries help pay off big debts. In the second, they live frugally in a state with low unemployment, an affordable cost of living, and steady work.
Student Loan Danger Zones
Top-performing states offer new grads an advantage in managing student loans. But they also reflect the importance of a state’s economic environment in helping new grads juggle their careers and payments. So it’s only natural that states with fewer economic advantages are worse for borrowers.
The bottom of the pack? They’re the states where already disadvantaged students must carry high debt to finish college, then graduate to fewer jobs and low wages.
Mississippi comes in last. Students there take on the 12th highest high debt burden of any state and face the highest default rates in the country at 21.6%. Maybe that’s because Mississippi’s skimpy salaries (mid-career average salaries are the lowest in the nation) can’t make up for the high costs of attending college.
It’s also worth noting that students here take out more loans to attend college, starting out their careers further behind than students elsewhere in the country. Because college loan balances don’t reflect the total cost of attendance, just the average amounts that students can’t pay, Mississippi’s students look like they’re paying more for college. Mississippi grads rack up an average of $37,396 in debt, 12th in the nation.
The Magnolia State is also last in the nation for job growth, so new grads may find it tough to level up their careers to pay off debt. That’s also true in other states where students fare worst. Delaware, Arkansas, and Indiana are all in the bottom ten states overall for job growth, and West Virginia and Ohio aren’t far behind.
While starting out with high debt can hamstring borrowers, #49 Arkansas and #48 West Virginia demonstrate that aiming solely for a low starting loan balance doesn’t always help.
Students here start out with less debt than residents of other states. Their entry-level salaries are no more than 1.3x their loan values. The cost of living in both states is below the national average. Yet high defaults rank 36th and 48th respectively. Where are they falling behind?
The answer seems to be low salary and job growth. By the middle of their careers, workers here are out-earned by most other states (in fact, of the worst ten states for borrowers, just Delaware offers mid-career salaries in the top half of states). For job growth, not one of the bottom ten can break into the top half of all states.
Follow the Money to High-Salary States
Playing the long game? By mid-career, you’ll pull in the highest average salaries in Hawaii, New Hampshire, New Jersey, Maryland, and Massachusetts. While they’re all in the top 15 states for cost of living, median salary to average college debts are some of the lowest (New Hampshire is #1 overall).
Because the range of average salaries in different states is so much wider than the range of average college indebtedness, smart borrowers capitalize on salary discrepancies they can snag in high-earning states.
For example, a borrower in New Hampshire earning on average $75,432 would have accumulated $34,161 in debt to attend college. They carry a .5 ratio of overall income to average student debt at graduation. This student could pay off their student loans in their entirety with half a year of earnings.
On the other hand, a Mississippi graduate can expect to earn just $47,446 mid-career while they scramble to pay off their $37,396 college debt. That worker carries a .8 ratio of income to debt. After years in the workforce, debt remains a bigger part of their overall budget, making it harder to pay.
It’s one thing to be able to catapult yourself into mid-career greatness. However, if you’re looking for student loan relief in the short term, you’d do best to look for the highest salary available compared to your overall student loan debt starting the day you graduate.
For fast returns on investment, head to the Midwest and Mountain West. Nebraska, North Dakota, Idaho, Washington, and Wyoming boast the lowest entry-level salary to student debt ratios. That means that a starting salary in these states gives borrowers the best chance at paying off more of their loans with their very first job.
To make the most of your entry-level salary, steer clear of Georgia, Florida, and Illinois. These states saddle new grads with the highest entry-level salary to debt ratios due to high borrowing and low starting pay. In Georgia, graduates would need 1.7 years of salary to pay off their average college debt.
Hiring Hotspots Serve All Borrowers Best
In general, students struggle less with debt not based on the amount of money they need for their degrees, but the environment in which they start work. Are there jobs? What are the chances they’ll find themselves unemployed as they progress in their careers?
If we only looked at how much student debt the average student takes out to attend college in each state, we’d think Maryland was the worst state in the country for incoming college students. Its students graduate with a whopping $43,345 in student debt (it finishes 39th in the rankings).
Total debt doesn’t tell the entire story. After all, states with high poverty rates, which are getting large numbers of their low-income students into higher education, albeit with higher debt loads, might be doing things right.
The problem is whether those students are able to pay off their debt. It shouldn’t be a problem. After all, a bachelor’s degree should net recipients $1.2 million more over a lifetime.
More than average loan debt, job growth predicts the states where students thrive and pay off their college loans.
#5 Texas is the country’s #1 state for job growth, and #3 Colorado, #1 Massachusetts, and #8 Washington all make the top ten list for states where the future job outlook is good. All have student loan default rates at or under 13.5%, ranking in the top 20 of all states. Conversely, the state with the lowest job growth, Mississippi, is also the highest state for defaults.
There are some notable exceptions: Vermont, North Dakota, and Montana, which have small economies and stagnant job growth, also have rock-bottom student loan defaults. But what else do they have in common? Low unemployment. In fact, North Dakota has the lowest unemployment rate in the country, while Montana comes in #4.
In states with small populations, graduates have been able to find and keep jobs. Though new jobs aren’t coming, the old ones are working just fine to keep borrowers on top of their loan obligations.
However, graduates are almost always better off positioning themselves in a state that’s both growing new jobs and maintaining low unemployment to pay off student loans best.
Overcoming a Student Loan ‘Debt Sentence’
Students shouldn’t have to play loan roulette to access higher education, find a career, and grow their salaries across a lifetime. But the reality is that playing a smarter game can help their odds of beating their loans with less stress.
The most successful players look ahead toward graduation and formulate their strategies. They might plan to pay off low debt quickly in states where it’s easy to find a foothold in their new career. Or they might count on paying off a higher debt burden more slowly in a state where they’ll command a bigger salary.
Your best bet? That depends on your own career path, financial need, and where you’re already getting in-state tuition. Don’t forget to take into account whether you’ll thrive on the plains of South Dakota or in the crowded streets of Boston, since your network, grades, and happiness will play a role in landing that important first job.
College borrowers succeed when they prioritize the world they’ll enter at the end of their degree. And not all states are created equal. Plan the path that’s right for you, and you’ll find that you’re already winning the game.
We analyzed all 50 states using 9 key factors in 3 categories, with weighting noted:
What is the profile of state borrowers?
The percentage of residents with a bachelor’s degree, from the Federal Reserve Bank of New York Consumer Credit Index. Standard weighting.
The average debt per borrower, from StudentAid.gov. Standard weighting.
The average delinquency rate of the state’s borrowers, from the Federal Reserve Bank of New York Consumer Credit Index. Standard weighting.
What are the salaries and costs facing new grads?
The median entry-level salary, from ZipRecruiter, compared to average college debt ratio. Half-weighting.
The median mid-career salary, from Census, compared to average college debt ratio. One and a half times weighting.
The cost of living by state, from Missouri Economic Research and Information Center. Half-weighting.
What does the future look like for grads in the state?
The job growth rate, from the U.S. Bureau of Labor Statistics. Double weighting.
The state’s unemployment rate, from the U.S. Bureau of Labor Statistics. Standard weighting.