What do you think of when you hear the phrase “financial advisor?” For many, the title conjures images of older men behind big, fancy mahogany desks that could have cost more than our cars, giving advice to other older, rich people.
You wouldn’t normally think of a financial advisor as someone who can help someone like you, with few assets and a whole lot of student loan debt – right?
That’s not necessarily the case anymore. The number of financial planners who want to work with Gen X and Gen Y is on the rise. And these advisors don’t push products, make commissions from sales, or require you to have a minimum amount of money to invest before working with you.
In fact, many of these advisors have clients with more debt than assets!
Many not only focus on working with Gen X and Gen Y, but also specialize in serving people with student loan debt. They’re experts at providing counsel and advice on the best ways to manage and repay these loans.
That’s why we reached out to them to ask what exactly what advice is and we’re sharing their insights and ideas with you.
Understand your unique situation – then take action
Mark Struthers is a CFA, CFP, and runs Sona Financial. He says that, in general, the best tips he can offer to clients dealing with student loan debt are:
- Don’t ignore the problem.
- Don’t give up!
- Understan 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 must understand what that unique situation is. 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 his clients depends on where they fall in this spectrum.
How to handle student loans when you’re in “Good Shape”
Struthers gives the example 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, but make about $155,000 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 considering refinancing or consolidation.
“For the in-good-shape borrower,” says Struthers, “it’s about making the most out of their situation. 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 little 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 payment 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 close to default on your student loans. Struthers says 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 advises. “It’s still about making the most out of what you have, including assets, liabilities, income, and cash flow.”
Ask for forgiveness when you can
Marcio Silveira is a CFP® and founder of Pavlov Financial Planning. He’s based out of Washington, D.C. and 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,” he explains. “It may be a very valuable tool.”
Silveira says he has one client who works as a doctor and has over $300,000 in student loan debt. She was recently accepted to a highly competitive three-year residency program at a prestigious non-profit institution in the Mid-Atlantic and is considering getting married.
The client wanted to understand her options for repayment. Silveira recommended that she apply for Public Service Loan Forgiveness (PSLF). And 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,” says 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.”
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,” says financial advisor and CFP Angel Melgoza.
He finds that, with most clients, he moves through three main processes to help them better manage their student loans.
First, he suggests establishing a written budget. “I used to be a personal fitness trainer and I always describe a budget like a diet,” says 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 loan services can offer flexibility with payment arrangement, but only if you ask. “They’re not mind readers,” he says. “If you do not contact them to make suitable payment arrangements, they will not help.” By reaching out, you can tap into new options to make sure you stay in control of your financial life.
Melgoza also walks clients through payment plans that could help them manage payments that work into their monthly budget, including the Standard Repayment Plan, the Extended Repayment Plan, and plans that are income-driven, 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. “Deferment is where the principal and interest of your loan is delayed for a certain period of time. During deferment, the government pays the interest on subsidized loans,” he explains. “Forbearance is where your can stop making payments on your loans or significantly reduce the payment amount for up to a year. During forbearance, interest is still due on all of your loans.”
Finally, Melgoza notes that your student loans and debt repayment don’t need to be the center of your financial life. “It’s okay to have other goals,” he says. “Many graduates panic about the need to be debt-free to the point that they forget to live their lives.”
He’s seen clients overwhelm themselves with 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 shares. “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 okay to have a life, maintain goals, and still be in debt.”
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|