What do you think of when you hear the words “financial planner”? For many, the title may conjure images of older men behind fancy mahogany desks who primarily give advice to other older, wealthy people.
You typically may not think of a financial planner as a person who can help someone like you, with few assets and a lot of student loan debt — right? That’s not necessarily the case.
There are financial planners who want to work with Gen Xers and millennials. And these advisors don’t necessarily push products, earn commissions from sales or require you to have a minimum amount of money to invest.
In fact, some advisors also specialize in providing financial advice regarding student loan debt. They have expertise on the best ways to manage and repay student loans so that their clients can focus on their financial futures.
That’s why we reached out to them to ask what exactly what their financial advice for student loan debt is, and we’re sharing their insights and ideas with you.
Understand your unique situation — then take action
Mark Struthers is a chartered financial analyst and certified financial planner who founded the financial advisory firm Sona Financial. He said the best financial advice for student loan debt he can give, in general, is:
- Don’t ignore the problem.
- Don’t give up.
- Understand that things are rarely cut and dry on either side — for you as the borrower or for your loan servicer.
- Make the most of your situation.
To follow Struthers’ fourth tip, you need to understand your unique situation. He believes there are three main types of borrowers: the “almost bankrupt,” the “in-between” and the “in good shape.” The advice he gives to clients depends on where they fall on this spectrum.
How to handle student loans when you’re in ‘good shape’
Struthers offers examples of real-life clients to illustrate what it means to have loans but still be in good financial shape.
One couple he works with has about $100,000 in debt, and they make about $155,000 in gross income per year. They maintain a low standard of living to leave room in their cash flow to contribute to retirement accounts and make at least the minimum payments on their student loan debts.
Their financial planning challenge — as it is with anyone in good shape but with loans to repay — is understanding how to make the most of their cash flow and prioritize their goals. Struthers looked at his clients’ goals in relation to what they had to work with, including cash flow, assets, interest rates on their loans, loan balances and their job security. Then, he evaluated their options, which included various repayment programs, and considered refinancing or consolidation.
“For the in-good-shape borrower, it’s about making the most out of their situation,” said Struthers. “This means balancing goals and risk and return, and making the most out of the assets and opportunities.”
If you’re feeling financially sound, you probably need help in understanding how to change your spending or how to set up a better budget. You may benefit from looking into refinancing to lower your interest rate, or bumping up your monthly payments to make more than the minimum so your loan balance is repaid faster.
What to do when you’re “almost bankrupt”
If you’re in this category, you likely don’t have assets and are in or about to default on your student loans. Struthers said it may be time to get a lawyer involved if you find yourself here.
“Stay calm, get good representation and know it usually works out better than you think,” he said. “It’s still about making the most out of what you have, including assets, liabilities, income and cash flow.”
Ask for student loan forgiveness when you can
Marcio Silveira, an associate financial advisor at Toler Financial Group in Silver Spring, Md., likes to make sure his clients are well aware of their options for student loan forgiveness. “I believe that anyone working for nonprofits or the government should get informed about Public Service Loan Forgiveness (PSLF),” he said. “It may be a very valuable tool.”
Silveira said one of his clients is a doctor who has over $300,000 in student loan debt. She was accepted to a highly competitive, three-year residency program at a prestigious nonprofit institution in the Mid-Atlantic area and is considering getting married.
The client wanted to understand her options for repayment of student loans. Silveira recommended that she apply for (PSLF) program. He also suggested his client postpone getting married.
“The reason is that the amount of loan repayments is a function of the adjusted gross income,” said Silveira. “If she files as a single taxpayer, her income is small, but if she checks the ‘married filing jointly’ box, the combined income — and therefore, her monthly loan repayment amounts — would be much larger.”
Financial planner do more than just math
“Whenever I advise clients on student loan debt, I find that it’s more of a counseling session than trying to figure out the best or fastest strategy to pay down debt,” said Angel Melgoza, a CFP based in Texas.
He finds that, with most clients, he moves through three main processes to help them better manage their student loans.
First, he suggests they establish a written budget. “I used to be a personal fitness trainer and I always describe a budget like a diet,” said Melgoza. “The only way it works is if you can stick to it. I caution my clients to let themselves have fun in their budget — not too much, but enough to let them live a comfortable lifestyle where they don’t feel the stress of paying off a large student loan.”
Next, he advises his clients to speak with their loan servicers. He says the loan companies can offer flexibility with payment arrangement, but only if you ask. “They’re not mind readers,” he said. “If you do not contact them to make suitable payment arrangements, they will not help.”
Melgoza also walks clients through payment plans that could help them manage payments that work with their monthly budget, including the standard repayment plan, the extended repayment plan and various income-driven repayment plans, which are designed to help you manage your debt by reducing the monthly payment to a certain percentage of your discretionary income.
Beyond payment plans, Melgoza also educates clients on options like deferment and forbearance. With deferment, you can pause payments on your student loans and, depending on the type of loan, you may not be responsible for interest charges that accrue. Forbearance allows you to stop making payments or reduce the payment amount for up to a year. During forbearance, however, interest is still due on your loans.
Melgoza’s final piece of financial advice is that your student loans and debt repayment don’t need to be the center of your financial life. “It’s OK to have other goals,” he said. “Many graduates panic about the need to be debt-free to the point that they forget to live their lives.”
He has seen clients overwhelm themselves with making extra payments and going to extremes, focusing on their debt with tunnel vision.
“Life passes them by, and they forget to travel and celebrate special occasions,” he said. “They delay marriage, put off buying a home and even neglect saving for retirement. From my experience, most clients just need reassurance that it’s OK to have a life, maintain goals and still be in debt.”
Emily Long contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.