Student loan debt is a long-term drag on wealth accumulation for young people. As economists at the Federal Reserve Bank of New York recently determined, graduates with student loan debt are less likely to own homes than graduates without it. A recent AICPA survey found that half of all families with student loan debt are putting off saving money for retirement so they can pay off their debts. Student debt is an especially important issue for women, who make up 56% of all undergraduate students but hold 65% of all student loan debt.
Nationally, student loan debt is a mounting problem. Not only is it the second-fastest growing type of debt (after home mortgages), but it now exceeds the total amount of credit card debt. And many of the debtors are behind in their payments.
It is highly likely that many of your clients or prospective clients have children with large amounts of student debt. Many "boomerang" children—those moving back home to live with mom and dad—are unable to live on their own, in part, because they owe thousands of dollars of student loan debt.
However, student loan repayment alternatives are complex. Federal loans alone may involve:
- Over 50 repayment strategies;
- Complex rules regarding repayment strategy eligibility that borrowers seldom understand and have difficulty implementing;
- Assistance for the borrower if the repayment plan causes financial hardship;
- A variety of default options;
- Garnishment appeal procedures;
- Debt consolidation choices; and
- Cancellation and forgiveness options.
Often, borrowers struggle to make sense of their options. This is where CPAs can make a difference.
By offering student loan debt counseling as a service, CPAs can help clients and their families better handle their debt. They can play a key role in helping borrowers understand which repayment programs they may qualify for and help them reduce the burden of their student loans so that they can focus on long-term wealth accumulation.
The potential client base for student loan debt counseling is huge and growing. According to the Federal Reserve Bank of New York, there are approximately 44 million student loan borrowers. CPAs may be surprised how many of their existing older clients have children or grandchildren burdened with student loan debt.
Sometimes, a CPA planner's greatest value will be in helping borrowers avoid mistakes. For example, many borrowers are enticed by advertising and direct-mail offers to consolidate and refinance their federal government student loans through private lenders. However, by doing so, they can inadvertently lose the ability to take advantage of valuable repayment strategies. Such offers need to be evaluated by someone knowledgeable about student loans.
Young clients can benefit from student loan debt counseling in more ways than one. For many, it may be their first opportunity to learn the value of financial planning, especially the careful use of debt. Having a CPA walk them through an analysis of their debt and the repayment alternatives may help many student debtors make more prudent financial decisions in the future.
Where to begin
The counseling process can be straightforward if you know what information to ask for and are using the right tools.
If a client has federal student loans, the best document to request is his or her National Student Loan Data System (NSLDS) file. This file provides much more detail than a typical account statement. It includes information about the school attended as well as the loan's balance, interest rate, origination dates, repayment status, past repayment status, and servicer information. Ask the borrower to provide the information since access to the file is confidential.
You will also need additional information on the debtor's adjusted gross income and family size.
Several software programs are available to help in the analysis. One example is eFiscal. This program uses a series of questions, the analysis of the NSLDS file, and the debtor's income and family size to provide an output of unique student loan solutions along with a step-by-step guide that includes important forms and resources. CPAs can use this program by uploading the client's NSLDS file as a .txt file.
Another good source of information is the Consumer Financial Protection Bureau section on student loans.
If the borrower has private student loans, however, the situation is more complicated. Federal government student loans provide the greatest opportunity for alternative repayment strategies, whereas private student loans vary in their terms for modification. Private lenders control the ability to lower the interest rate, extend payment terms, or accept a settlement offer on behalf of the debtor. In extreme circumstances, the debtor may need to file for bankruptcy.
Private student loans also present an opportunity to assist clients with obtaining loan modification terms from the private lender. The CPA is in a good position to represent the client in such negotiations given his or her familiarity with the client's financial situation.
A needed service
Gaining and sharing knowledge about student loan debt can help you build on your trusted adviser relationship with clients. In fact, many clients now expect CPAs to be able to address student debt issues. Being able to help them in this complex area can help you differentiate yourself from competitors. With the right tools, you can take advantage of a growing practice development opportunity while assisting student loan borrowers to get on track with wealth accumulation.
To learn more about assisting clients with student loan debt, read Sullivan and Towell's previous articles on what to know before taking out a student loan, options for retirees who are paying a family member's student loans, income-driven repayment plans, and debt relief for students who attended for-profit schools.
James Sullivan, CPA/PFS, is a board member, and Melissa Towell is a student loan counselor, both at Consumer Debt Counselors Inc., a not-for-profit debt counseling agency. To comment on this article, email senior editor Courtney Vien.