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The headlines are scary. The says the Wall Street Journal.   says Bloomberg News.  Martin O’Malley, running for President, touts . Are state loan programs contributing to the student debt crisis?

According to the , eight states have state loan programs that range in size from around $1 million to almost $200 million loans made per year. Data from the Department of Education shows that of those who took out loans through these programs, the average loan per year was $6,400. And because those students presumably max out federal student loan first, state loans represent $25,000 (plus interest) of additional debt over four years of a college career.

While correlation and causation are different things, it’s worth pointing out that some states with high average student debt loads also sponsor their own loan programs. Four states with the largest loan programs are among the top 20 for average student debt loads according to the .  I look closer at those programs here:

Minnesota students are the fifth most indebted in the country with an average of $30,894 of total debt burden for students who borrow.  The offers Minnesota students attending a four-year college anywhere in the country or any student attending college in Minnesota up to $10,000 a year for college expenses. Students can borrow up to $50,000. They offer both adjustable rate (currently 3.3% with a limit on how fast it can rise) and fixed rate (currently 6.5%) loans. The length of the repayment term depends on how much students borrow with ten year plans for anyone borrowing under $20,000 and up to 20 years for anyone borrowing $40,000 or more.

Alaska’s average loan balance is $28,570 from all sources for students who took debt ranking them 13^th in loan burden. Alaska runs two separate loan programs: one for students and another for families.  Both programs up to between $7,500 and $14,000 (depending on the type of program and enrollment intensity) a year with a $56,000 lifetime limit for undergraduate education. Both programs also share a 6.25% although the student loan program has a six month grace period.

Massachusetts borrowers have an average debt burden of $28,565 from all sources ranking them 14^th most indebted in the country. The state provides (based on the federal Expected Family Contribution formula, for those with an EFC of 0 to $15,000). The a year with a lifetime limit of $20,000. Students six months after leaving school.

New Jersey borrowers have an average loan burden of $28,109 from all sources ranking them 18^th nationally and they also provide a large and complex system of state loans. New Jersey’s program is unique among the programs we look at here: It includes. The program also provides with different repayment time horizons that affect not only the interest rates but also when students are required to repay. For example, the twenty-year fixed rate loan to defer payment until six months after leaving school but the other loans require payment of principle and interest or just interest while in school.

See this for more details comparing these programs to federal loans.

Massachusetts has by far the most generous programs of the ones covered here and New Jersey’s is the most complicated. Most of the programs are more generous than federal PLUS Loans. Which begs the question: how do institutions inform students and families of these options? Are schools allowed to package state loan programs before federal PLUS loans if they are a better deal for students and families? How do the different state underwriting standards play into this?

These state loan programs may also be contributing to the levels of indebtedness of students from these states.  At the same time, the different designs of these state loan programs may tell us something about the design of the federal loan programs. Do variable or fixed rate loans lead to less default? What is the right loan limit?  State loan programs deserve more attention and study as part of the larger student loan debate.

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