More than 44 million Americans have taken out student loans to pay for school and their debt now totals $1.4 trillion. The average debt for 20-year-olds is $22,135 while for 30-year-olds, it’s $34,033.
And loans are about to get more expensive. In an interview with CNBC, student loan expert Mark Kantrowitz estimated that the annual interest rate on federal Stafford loans for undergraduates could hit more than 5 percent by the 2018-2019 academic year. For grad students, interest could reach 6 percent or higher in the same time frame.
If you want a college degree but want to minimize your debt, you could apply for scholarships and grants. You could consider working for a company like Starbucks that offers tuition assistance to employees. And if you’ve already graduated, you could look into forgiveness options, lower payment plans and prepare to throw yourself at your loans for a few years and prioritize getting them paid off ASAP.
If you’re still deciding on a school, though, you could also try a different strategy: Be strategic about what state you choose for college and be ready to stay and work there after you complete your degree.
Student Loan Hero conducted a study that analyzed the state-by-state return on investment of a college degree five years after graduation and finds that students who attend college and land a job in certain states can recoup the cost of their degrees more quickly than in others.
In the following five states, students who attend college and land a local job can recoup the cost of their degrees in less than three years:
High school graduate salary: $31,936
College graduate salary: $45,519
Pay difference with college degree: $13,583
Cost of a bachelor’s degree: $22,422
5-year ROI of a bachelor’s degree: 202.89 percent
Years to break even on cost of degree: 1.65
High school graduate salary: $25,747
College graduate salary: $43,257
Pay difference with college degree: $17,510
Cost of a bachelor’s degree: $34,945
5-year ROI of a bachelor’s degree: 150.54 percent
Years to break even on cost of degree: 2
High school graduate salary: $25,767
College graduate salary: $44,101
Pay difference with college degree: $18,334
Cost of a bachelor’s degree: $41,629
5-year ROI of a bachelor’s degree: 120.21 percent
Years to break even on cost of degree: 2.27
High school graduate salary: $27,232
College graduate salary: $51,701
Pay difference with college degree: $24,469
Cost of a bachelor’s degree: $57,121
5-year ROI of a bachelor’s degree: 114.18 percent
Years to break even on cost of degree: 2.33
High school graduate salary: $26,350
College graduate salary: $49,989
Pay difference with college degree: $23,639
Cost of a bachelor’s degree: $57,719
5-year ROI of a bachelor’s degree: 104.78 percent
Years to break even on cost of degree: 2.44
“These findings show that a college degree is still a good bet that pays off,” Elyssa Kirkham, lead researcher on the study, tells Student Loan Hero. “A bachelor’s degree results in annual wages that are $19,356 higher, on average, and most college graduates break even on their investment within 3.7 years.”
She continues: “In the 10 states with the highest ROIs for a bachelor’s degree, the initial expense of college is low compared to the pay bump that usually follows graduation.”
Seven states have negative ROIs after five years. Among them are Pennsylvania and Massachusetts. In Vermont, the lowest-ranked state, the average graduate is $75,000 in debt five years after graduation.
Overall, “whether your college degree pays off comes down to how well you limit your initial costs and debt and how much you maximize your earning potential after graduating,” says Kirkham.
“Fortunately, today’s college students are increasingly focused on minimizing college costs and debt. Knowing the ROI of a degree in their state can help college students make important decisions, such as whether to attend an in-state college or how much debt to take on.”
This is an update of a previously published story.
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