According to a new report from The Institute for College Access & Success, two-thirds of college grads with state-sponsored loans attended school in just three states: New Jersey, Texas and Minnesota. All three programs charge higher interest rates than federal loans and lack borrower protections.
The report, “Student Debt and the Class of 2015,” is an annual overview of each graduating class’s student debt, including national, state and college averages. This is the first year it has included data on these state-sponsored private loan programs due to availability, and the numbers are troubling for students in affected states.
“New Jersey is one of the states with the highest percentages of graduates carrying state loans, and the fact that they’ve been called out as predatory is important for consumers to know,” institute president Lauren Asher says.
Not all states offer these types of loans, and some state-sponsored loan programs do give students better loan terms than those from private banks and lenders. But state loan terms frequently have more in common with other private loans than federal ones. That means repayment is often more expensive and students have fewer options if they need help repaying their loans.
The study calls out New Jersey’s program for its fixed interest rates of up to 7.9% and the fact that its loans aren’t discharged on death. It’s also the largest state loan program in the country.
Other key findings from the study include:
- The average 2015 graduate was $30,100 in debt, up 4% from the class of 2014.
- Average student debt by school ranged from $3,000 to $53,000.
- In 12 states, the average debt load was more than $30,000 in 2015. That’s twice the number of states that reported debt levels that high the year before.
- New Hampshire had the highest average level of student debt: $36,101.
- Utah’s average level of student debt was $18,873, the lowest among the states and about half New Hampshire’s average.
- Similar to previous years, the highest debt levels were concentrated in the Midwest and Northeast, while the lowest debt levels were in the West.
There are notable limitations to the data in the report. For example, the data are self-reported, so schools could partially report or fail to report debt information about their graduates, as 98% of for-profit schools chose to do.
How future grads can keep debt under control
Fill out the FAFSA. The national average student loan debt load is increasing each year, but there are steps you can take to lower your postgraduate debt. For example, filling out the Free Application for Federal Student Aid, or FAFSA, can make you eligible for grants and federal loans that come with borrower protections such as income-driven repayment and public service loan forgiveness.
Use net price calculators. When researching colleges, check out the net price calculator on each school’s website to find out what students end up paying — it might be more or less than the sticker price. Then head to the Department of Education’s College Scorecard to find out how many students graduate or end up in default on their federal loans. That happens when they don’t pay for at least 270 days.
Max out federal student loans first. If you do borrow money to pay for school, take out as much as you can in federal loans before resorting to private ones. Federal loans not only have better borrower protections, but they tend to have lower interest rates than private loans.
As Asher puts it: “It’s not just how much you owe — it’s what kinds of loans you have that can affect how hard it is to repay.”
A previous version of this story misstated which students were included in the average debt amount. Only students with debt were included. The error has been corrected.