College debt and student financial concept as a graduation mortar board and diploma with a cast shadow as an icon for tuition loan repayment or lending and education financing with 3D illustration elements. Getting out from under student debt is a major stepping stone for graduates eager to invest in their future. Graduates can come out of school with accumulated debt of 30K and more. Millennials and others are seeking the help of financial advisers so that they can focus their energy on saving for homes, providing for children and retirement. Advisers can help graduates in selecting the best ways to pay down student loan debt. Let’s take a look at how some financial advisers are assisting overwhelmed graduates get over the hurdle of their accumulated school loans:
Understanding the Student Debt Problem
The dollar amount of student loan debt is significant and on the rise. After home mortgages, it is the second largest source of debt for graduates. The month of May’s Federal Reserve Bank of New York’s quarterly household debt and credit report shared that $1.3 trillion is owed in student loans from approximately 40 million Americans. And, the amount owed in student debt far outpaces debt from car loans ($1.1 trillion) and credit cards ($712 billion).
According to Mark Kantrowitz, a higher-education expert, approximately 70 percent of college graduates in 2016 will have to deal with student loan debt and they owe on average, $37,172. Student loan debt can delay the ability of graduates to save for retirement or buy their first home. Alicia Munnell, director of the Center for Retirement Research at Boston College, said:
“We should be very concerned. This is not just like having car loans. Student debt has a big impact on households and the number of people who will not be able to maintain their standard of living during retirement.”
Student loan debt has become a significant issue for young professionals beginning their careers.
How Advisers Can Help
Often, clients who seek the guidance of a financial adviser are not aware of how much is owed and to whom. Advisers help clients sort out:
- Debt owed to private lenders or government entities;
- Individual interest rates; and
- A review of agreed-upon terms.
Some financial advisers can assist clients in finding loans with better terms and investigate federal government programs that may be difficult for individuals to thoroughly understand on their own. Clients should avoid defaulting on school loans as this can undermine their credit score for years to come and result in exorbitant fees. In addition, if bankruptcy is declared, graduates will still be on the hook for student loan debt as it is not discharged through bankruptcy.
One should ensure that any financial adviser chosen is well-versed in complicated student loan issues. Financial advisers may seek training or do their own research. With new options such as using reward points for repayment and employee tuition reimbursement programs, there are additional options to paying down loans that may work for some clients. Clients need to understand the advantages and disadvantages of paying off federal government loans and the specific requirements for borrowers from online lenders. Bottom line, the selected financial adviser needs to have a thorough understanding of the repayment options from private and federal government lenders to help clients make headway.
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