Paying down Student Debt: Where you live can make a difference

The average graduating student carries nearly $40,000 in debt by the time he or she walks through the graduation line.


WASHINGTON, June 22, 2017 – Student loan debt in America has surpassed total credit card debt. According to Student Loan Hero, student debt is now about $1.4 trillion. Spread out over roughly 44 million borrowers, that averages to almost $33,000 per borrower.

The average graduating student today carries nearly $40,000 in debt by the time he or she walks through the graduation line. This has graduates looking for clever ways to overcome this debt. 

If you find yourself in a student debt dilemma, it may be worth your while to move to a state that doesn’t charge income tax. Here’s what that might look like if you do decide to go this route.

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Income Tax Averages

According to Forbes, Americans pay 4.05% in state income tax on average. For the person earning $65,000 a year, that would be about $2,632.50. The states with the highest income taxes are Oregon (7.75%), Washington, D.C. (5.86%), Iowa (5.03%), New York (5.01%), and Idaho (4.98%).

A poll conducted by Student Loan Hero shows that a good number of people with student loans would move someplace else if it meant they could pay off their loans faster. Just under 20 percent of those polled said that they would consider moving to a different state if it meant they could save money. Another 12 percent agreed that moving would be a good idea, provided that they could save at least $3,000 on their income tax by making the move.

One person highlighted by Student Loan Hero, Andrew Josuweit, netted an annual savings of $15,640 by moving to a state that had no city or state taxes. He was able to put the money that he once put toward his income tax toward his student loans instead.

By using this strategy, he was able to pay off more than $100,000 in loans.

Other Financial Breaks

Those who are willing to move may save more than just state income tax payments; there’s a chance that the place that they move to may have a lower cost of living.

For example, according to Numbeo, it costs approximately 22 percent less to live in Los Angeles as it does in New York. And there are even cheaper places, some that rank much higher on the liveability scale than big cities, still to be found in the U.S. The savvy student loan borrower who chooses a new location to live, work, and play has the opportunity to put even more money toward that student debt.

What are Your Priorities?

There does need to be a word of caution about having extra income. You need to have the discipline to apply your extra money toward your debt or your move won’t do you much good. Around 38 percent of those polled by Student Loan Hero said that they’d put their extra money toward their student loan debt.

However, only 12 percent of them said that they’d put all of their extra money toward the debt.

An article on Empowered Dollar suggests that paying down your student loan debt quickly depends on you picking your priorities. It’s a good idea to select three of your top financial goals and put most of your money and energy toward those goals.

All other financial expenditures come after the big three are funded.

Are There Other Options?

What if you’re interested in moving to a state with no income tax, but you have a few constraints, like you must live someplace to be near an elderly parent? If that is the case, then you might want to look at the states that have the lowest income tax, instead.

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no state income tax at all. The others with the lowest rates are North Dakota (0.86%), Ohio (2.18%), Arizona (2.52%), New Jersey (2.76%) and Vermont (2.78%).

Suppose you’ve looked at this list and think you can find a job in Arizona. It’s a relatively low-cost state with a good climate. After a general Internet search for terms like “best places to live in Arizona” or “best cities to live in in Arizona,” you discover Peoria, Arizona.

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You discover that the average income there is in the mid-60s and you can get a nice apartment for around $700.00 month.

If you find a good job there (always an important consideration!), your income tax in will be around $1500.00. By moving there, you’re still paying less in taxes and cost-of-living expenses than in other parts of the country. Additionally, you’re making a good income in a city that costs a great deal less than, say, New York City does. And the quality of life index is high, which is why it is on a “best places to live” list

That leaves you more money to pay toward your student debt.

Final Thoughts

The savviest of student loan borrowers are willing to do what it takes to quickly pay down their debt, including moving to a state with no income tax or with very little income tax. They weigh all of their options and make the best choice, based on their needs. Finally, those who are the most interested in paying down their debt have made getting out of debt one of their top three priorities. They spend very little of their money on activities like eating out and they put other non-essential spending on hold. However, by doing that, they’re able to pay off their student debt a lot faster than those who don’t employ such tactics.

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