Practice Management

What advisers need to know about working with student loan debt

Experts in giving advice to those saddled with student debt recommend this approach

Jul 9, 2019 @ 1:58 pm

By Ryan W. Neal

The issue of student debt isn't going away. Congress has introduced multiple bills addressing student loans, and early leaders in the Democratic primary race have made student debt a campaign cornerstone. It's also an increasing part of how some financial advisers serve clients, especially as firms try to build connection with younger consumers.

While certain firms are looking to educate clients on college expenses to avoid student debt, other advisers see an opportunity to help clients manage and repay loans.

(More: Ladenburg looking at student loans, impact investing, health care for future fintech investments)

Scott Snider decided to launch his own financial planning practice after a 10-year career at larger firms when a friend asked him what to do about ballooning expenses for veterinarian school. Seeing an opportunity to work with younger clients, Mr. Snider launched Mellen Money Management in 2016 as a specialist in college planning.

Today, he helps 24 households paying back a collective $4.2 million in student debt.

"I've helped someone with over a half-million in debt, and a dentist with $600,000. It's not uncommon to see over $100,000," Mr. Snider said. "Unfortunately, it's become the reality of anyone going to school anymore."

To serve these clients, Mr. Snider charges a one-time fee ($495 for individuals, $695 for a couple) to create a plan to tackle student loan debt. Mr. Snider also offers clients on tighter budgets a monthly payment of $50, or $70 for couples, for a year.

Flexibility on fees, and collecting them, is key for any advisers looking to help clients with student loan debt, Mr. Snider said. His firm is a member of the XY Planning Network, which provides digital tools like AdvicePay to collect monthly subscription fees.

The same applies to more established financial advice firms. David Demming, founder and president of Demming Financial Services, has been helping clients with loans and mortgages since 1978 and now does a lot more to help clients pay for higher education costs. While his firm doesn't make much money from the service, Mr. Demming said it earns respect and loyalty from clients who know the firm works in their best interest.

Mr. Demming's firm also will bill an hourly rate or even sometimes work pro bono to help to connect with next-generation investors.

"Ultimately, these youngsters as they mature will pay their own bills," Mr. Demming said. "We're teaching them principles of finance and the procedures of a lending institution. It's a primer for them."

That doesn't mean advisers should treat student loans as they would any other debt. To start, they need to understand the myriad of federal loan programs and repayment options available, Mr. Demming said.

But there is even more nuance to student debt, said Ryan Frailich, founder of Deliberate Finances. For example, a change in marital status can impact repayment plans and have major tax implications. If both people have their own loans, it gets even more complicated.

Changing jobs also makes things complicated. Federal loans have forgiveness options available to public employees, but those disappear if the person moves to the private sector.

(More: Advisers step up efforts to help clients manage student loan debt)

This can all impact decisions around refinanicing as well.

"Don't advice on this if you don't have expertise." Mr. Frailich said. "It's every bit as important or impactful as retirement planning, and you can easily give advice that costs people a lot of money."

Mr. Frailich and Mr. Snider both recommended advisers interested in student loan planning take classes such as those offered by specialists like Heather Jarvis or even seek out credentials such as the Certified Student Loan Professional program.

Most importantly, student loan planning cannot be kept in a silo. Some clients can get so focused on paying off their student loan debt, they sacrifice saving for retirement or other financial goals, Mr. Snider said.

Advisers must consider student loans within the context of income, taxes, investments, the client's career path and an evolving financial plan.

"Know that [student debt] touches every aspect of finances — it really can impact everything," Mr. Frailich said. "Make sure you have someone who does know what they are doing, or get someone on staff that does."

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