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3 Steps for Tackling Student Loan Debt Repayment with Clients

Posted by Anne Laffin on July 12, 2018

Summer is here, which means over 4 million1 recent college grads put on their caps and gowns, listened to inspirational speeches from their professors, packed up their U-Haul and headed off into the real world with their shiny new degrees.  There’s no doubt that college graduation is a milestone for adults that opens up a lot of doors.  However, along with the opportunities a degree provides frequently comes the daunting task of finding a job and repaying student loans.

There are currently more than 44 million American’s that owe over $1.5 trillion in student loan debt2 and those numbers are growing.  Recent graduates know they need a plan to pay off their debt, but many aren’t sure how to get started and are left feeling overwhelmed and confused. 

Point clients in the right direction

If you are looking to help more prospects or clients create a plan for paying down their student debt, there are 3 important steps you should follow: 

  1. Understand what type of loan(s) they have
  2. Identify their available options
  3. Create a plan based on need and lifestyle

Step 1: Understand what type of loan your prospect has

Loan type dictates your client’s repayment options. Generally speaking, federal loans have far more options for repayment than private.  That’s why the first step in creating a plan for paying off student debt is finding out whether your client or prospect has a federal loan such as a Direct Loan or a Federal Family Education Loan (FFEL) or a private loan.   This will help you determine whether or not your clients are eligible for an Income Driven Repayment Plan or Public Service Loan Forgiveness.

Step 2: Identify their available options

Once you have determined the type of loan(s) your client or prospect has, you can begin working on a strategy for repayment.  If your client is eligible for an income-driven repayment plan (a repayment plan that sets the monthly student loan payment at an amount that is intended to be affordable based on your client’s income and family size) you should review the payment plans available to them along with their pros and cons.

These payment plans are split into 4 categories:

    1. Income-Based Repayment Plan (IBR)
    2. Pay As You Earn Repayment Plan (PAYE)
    3. Revised Pay As You Earn Repayment Plan (REPAYE)
    4. Income-Contingent Repayment Plan (ICR) 

comparison of income-driven repayment plans

You should also see if your client is eligible for Public Service Loan Forgiveness.  Do they work for a public service organization? Do they have Direct Loans, an Income Driven Repayment Plan and 120 on-time, full, scheduled, monthly payments?   If the answer is yes, your client may be eligible to have their remaining payments forgiven.   

 

student loans2

Step 3: Create a plan to meet your client’s needs

Now that you have the facts, it’s time to get planning. There are a lot of moving parts to consider when deciding on a repayment plan, including the lifestyle, current work situation, and overall financial goals of your client.  Here is a quick visual to show the options your clients may have when working on their repayment plans.  As you can see, debt repayment is not one size fits all.  Getting an understanding of your clients individual needs will go a long way to finding a plan that works best for them.

 planning opportunities for federal loans

 

Best plan of action

If you are working with Gen X/Y clients or recent college graduates, their path to financial success will likely have a student loan repayment component. Let your clients know that debt is not insurmountable, review their current financial situation, and show them easy to use tools that are available to help. RightCapital financial planning software provides assistance with debt management and has a new, easy to understand Student Loan module which can help you show your clients what the best options are to keep them on track and living comfortably. 

Want to learn more about our #1 user rated software? Schedule a demo today and get your free trial.

RightCapital is the leading financial planning software for advisors. Click here to schedule your demo.

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1 https://www.quora.com/How-many-students-graduate-college-in-the-US-each-year
2 https://www.marketwatch.com/story/student-debt-just-hit-15-trillion-2018-05-08

 

Topics: "Student Loans"

Written by Anne Laffin