Advisers step up efforts to help clients manage student loan debt

As some Democrats campaign to wipe the slate clean, financial planners focus on limiting the amount students borrow

Jun 25, 2019 @ 1:52 pm

By Jeff Benjamin

While many of the Democrats running for president are proposing new ways to shift the cost of college onto taxpayers, some financial advisers are focused on helping their clients to better understand and manage the financial burdens of higher education.

"We help students and parents keep their student loan debt in perspective by getting them to think about what that first year out of college will look like in terms of their starting salary," said Liz Gillette, financial planner at MainStreet Financial Planning.

As college costs maintain their long-term trend of climbing by more than 5% per year, financial advisers like Ms. Gillette are part of an expanding network of advisers who are finding success by putting the potential debt into perspective for college students, rather than just trying to deal with it after the fact.

"We're getting the students to recognize this as a financial decision, then I go to the other side and talk about compound interest and what the future will look like if they don't have lots of debt when they graduate," said Ms. Gillette, who often meets with both parents and students before they start college.

At Capstone College Partners, a subsidiary of Capstone Wealth Partners dedicated to college financial planning, founder and CEO Joe Messinger prefers to be as specific as possible when he's helping clients understand the realities of college debt.

"For every $10,000 you take on in student loan debt, you should expect to pay back about $100 per month for 10 years," he said.

According to the Federal Reserve, there is more than $1.5 trillion worth of outstanding student debt owed by more than 44 million people.

Mr. Messinger is critical of a system that fuels student debt, including Congress' 2010 move to nationalize student loans as part of the Affordable Care Act, which reduced competition and drove interest rates higher.

"The federal government is promoting extending the loans for 20 or 30 years, because student loan debt makes up 45% of the federal government's assets," he said. "This is the most valuable asset of the U.S government, and they need it and they're binging on it."

Mr. Messinger, who works with the Financial Planning Association, XYPlanning Network, and NAPFA to help educate advisers on college funding, tells his clients they shouldn't borrow more than they expect to make during their first year out of college.

"We think student loans should be preapproved, just like a mortgage that is based on what you can afford to pay," he added.

Mr. Messinger's second rule: Never extend the loan beyond 10 years.

"I've been beating the drum on 10-year payment plans," he said. "Otherwise, you're dealing with the crippling effects of people paying student loans into their 30s and 40s, so they can't save for their own kids' college."

Thomas Rindahl, a financial adviser at TruWest Wealth Management, drives the seriousness of student debt home by explaining to his clients what the monthly payments will look like down the road, and for how long.

"We've been recommending that students should consider their expected income once they graduate and ask how they plan to service their debt," he said. "It's an eye-opener for people once they understand the monthly bill."

Of course, limiting student loans doesn't change the reality of runaway college costs — up 160% over the past 10 years — which is why advisers also encourage some extra scrambling for grants, scholarships and work-study programs.

"Still get the education, but find other ways to pay for it," Mr. Rindahl said. "Work your way through college, pay for things out of pocket, find employers that will supplement the cost of college, or join the military."

Dennis Nolte, vice president at Seacoast Investment Services, advises clients to start saving for college as early as possible and utilize available programs like 529 college savings plans and prepayment options that lock in tuition at current levels.

When it comes to loans, Mr. Nolte suggests borrowing from a retirement plan or from home equity as opposed to jumping into the nationalized student loan programs.

"Ever since the government took over the student loan program, it has been much less competitive from an interest-rate perspective," he said.

Mr. Nolte said it's also important to resist the temptation to go out of state to expensive, high-profile institutions when local colleges will usually suffice.

"Social work, which is what I used to do, pays about $30,000 a year," he said. "If you want to go serve humanity, that's great, but you don't need to go to MIT for that."


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