4 advisor reminders for clients, as student loan repayment looms

4 reminders for clients as student loan repayment looms

August 23, 2023 6:14 PM

piggy bank With Graduation Cap on old wood,Money saving concept.

Financial advisor Preston Cherry finds that many of his clients who are student loan borrowers feel overwhelmed and confused at the thought of restarting loan repayments next month.

"There's a lot of information continuing to be released," said Cherry, who is the founder and president of Concurrent Financial Planning, a registered investment advisor based in Green Bay, Wisconsin. Cherry is also a professor and head of the financial planning program at University of Wisconsin-Green Bay and director of the Charles Schwab Center for Personal Financial Planning there.

With the payment and interest pause on federal loans from the past few years coming to an end and the Supreme Court striking down President Joe Biden's student loan debt cancellation program, Americans are rushing to figure out what's next for them and the collective $1.64 trillion of federal student loans they owe. However, advisors have an opportunity to help if they spend some time guiding borrowers — or their next-generation children who may be borrowers — on all the questions they have now.

Dr. Preston Cherry — Preston Cherry, the founder and president of Concurrent Financial Planning, head of the financial planning program and director of the Charles Schwab Center for Personal Financial Planning at University of Wisconsin-Green Bay.

"'Do I consolidate? Do I not? What do I need to do?'" Cherry said clients asked recently.

Another common, even more basic question: "'Where is my loan?'" Cherry laughed. Even knowing where to log in to pay one's loans can be a challenge. "Servicers have been switched around during the pause. Some went away, some have been added."

Cherry, a certified financial planner, held a free online webinar this week titled "Discover Freedom From Your Student Loans" — open to current clients or anyone from the general public — where he presented updates on the student loan landscape and discussed different options for borrowers to consider when restarting payments.

Below are some important things advisors can remember to ask clients about in the coming weeks, as borrowers get ready for repayment. For more tips and reporting on the fast-evolving student loans situation, read our coverage here, here, here and here.

Student loans, education planning, college savings

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Where is your loan now?

It's no joke that for many clients, simply hunting down where their student loans are actually housed can be a necessary first step.

"One thing that a lot of people may not know is that your loan provider could have sold your loan to another provider, meaning that you need to login to another provider's website in order to set up payment instructions going forward," said Pierson McAtee, Wealth Advisor at Prime Capital Investment Advisors.

McAtee asks every client to "double check with their old provider to be certain their loan is still carried there," he said. "Since it's been almost 3.5 years with suspension of payments I, unfortunately, believe that a lot of borrowers won't even seek out to confirm that their loan is still at the same institution."

Do you have employee benefits that can help?

It's possible that those paying off student loans can obtain added benefits from their employers. SECURE 2.0 legislation allows employers to make matching contributions to a worker's 401(k) if that worker is making payments on their student loans.

"That amount that you paid toward your school loan debt, your employer would then use… as a part of your match," Cherry said.

Cherry said it's important to ask a client if their employer offers this new benefit, which could help them ensure they're still socking away money for their retirement or other financial goals — especially if the client is part of the sandwich generation, mainly mid-career Gen X professionals who have to raise children as well as provide caregiving to their aging parents.

"That's a great benefit because individuals were making the decision whether to place more contribution into their retirement plan or pay down their student loan debt," Cherry said.

Are you taking advantage of savings opportunities?

Cherry said borrowers might not be aware of certain opportunities that they could still be eligible for to help ease their financial burdens, and advisors should review all possible options for each borrower client, including pros and cons, to see what the best fit would be.

For example, public service loan forgiveness enrollees — who can get accelerated forgiveness after working a qualified job as a public servant for a certain number of years — are eligible for payment credit for months they were employed as a public servant during the pause.

"Certifying your employment during the (payment) pause is very important because although you weren't submitting a dollar payment during that time … you are still, under the Department of Ed rules, eligible to receive payment credit," he said.

What are your options to lower that interest?

Pierson McAtee, Wealth Advisor at Prime Capital Investment Advisors.

"The No. 1 financial concern that I see for my clients is control of cash flow, and that can be severely impacted by debt payments," McAtee said. "Moral of the story: control what you can control."

One factor that's in many borrowers' power to control is the interest growth on their loans, which can be formidable to keep up with over time.

"Once a borrower has simply located their loan, it becomes a whole new ballgame to understand their current loan terms, let alone shopping the market for better rates," said McAtee, adding that an advisor can help with this process. "Make sure you have established the best lending terms for repayment going forward."

The new Biden SAVE plan, under which eligible federal student loan borrowers can qualify for reduced income-based monthly payments, is one potential tool for advisors to put on clients' radars when it comes to lowering interest. Enrolled borrowers, as long as they make the monthly minimum payments under this new payment plan, can get their remaining interest eliminated, according to the federal student aid website — which effectively continues the interest pause on their loans.