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Young, successful professionals face a staggering statistic when it comes to paying for college. According to Investopia.com,  Americans owe $1.57 trillion in federal student loan debt and another $132 billion held by private lenders! 

42.9 million people currently have student loan debt, and the average balance is more than $37,500. However, young professionals with advanced degrees have to repay massive student debts of $150,000 and more. And these borrowers with high student loan debts also have high incomes and the cash flow to pay for your financial advice. 

A study by the US Census Bureau found that a third of the outstanding student loan debt is held by those that earn $97,000 and above in yearly income. Additionally, almost 50% of student loan debt is held by graduate-level adults, such as doctors, lawyers, and industry executives with high-income levels. 

This is the perfect market for young financial advisors because many high-income, high student loan borrowers are looking for additional financial advice, such as buying a house, getting married, starting a family, launching a business, and other potential opportunities.

Student loan advice can be a profitable business for younger financial advisors. Especially since student loan servicers (Naviance, etc.) are not easy to work with and have a history of pushing borrowers into costly repayment plans that only benefit their bottom line.

GOOD STUDENT LOAN ADVICE CAN HAVE A HUGE IMPACT ON A CLIENT’S FINANCIAL PLAN

Advisors who understand the different rules for student loan repayment plans and how a borrower’s decision interacts with the tax, investment, and cash flow aspects of their lives can have a significant impact on a client’s financial plan. Here are two examples:

EXAMPLE 1:

Paula is a 35-year-old registered nurse who is single and earns $60,000 a year. Her undergraduate, graduate, and private school loans total $78,000 at a total cost of $780 per month. After taxes, Paula is paying over 15% of her net income in student loan payments. And Paula’s scenario isn’t unique. Many borrowers have student debt obligations under different repayment options, resulting in high loan costs each month.

By moving her loans into an Income-Based Repayment (IBR) plan, her maximum monthly payments will be 15 percent of her discretionary income (or the difference between adjusted gross income and 150 percent of the poverty guideline for the family size and state of residence). Here’s the calculation:

$60,000 - Gross income 

$5,000 - 401(k) contribution

$55,000 - Adjusted gross income

$26,130 - 150 percent of the poverty guideline for the family size of 1

$28,870 x .15

$4,330 / 12

$360/month - new loan payment

$780 /month - old loan payment

$420/month - additional cash flow

There are also other opportunities you need to consider. Paula may:

• Refer other nurses, doctors, and administrators with student loans
• Get married in the future (another nurse, doctor, administrator)
• Get promoted and increase her income dramatically
• All the above

EXAMPLE 2:

Jeff is a 40-year-old attorney and earns $120,000 a year. He graduated from a top-notch law school and has a J.D. Like many law school graduates, Jeff borrowed the cost of his entire education. He figured that he could pay off his school loans quickly when he took a position with a good law firm. However, Jeff did not get a job for a year and postponed his loans until 2009. Once he accepted a job, he immediately consolidated all his $242,000 loan balance at a rate of 8.25% over 30 years. His total monthly cost is $1,818 per month. But 12 years later (2021), Jeff is now married and has two children, and the $1,818 monthly loan cost is restricting his cash flow. 

Income-driven repayment plans were not available yet when Jeff consolidated his student loans. Especially the Revised Pay As You Earn (REPAYE) payment plan that began in December 2015. By moving Jeff’s loans into the REPAYE plan, his maximum monthly payments will be 10 percent of his discretionary income. Here’s the calculation:

$120,000 - Gross income

$12,000 - 401(k) contribution

$108,000 - Adjusted gross income

$39,750 - 150 percent of the poverty guideline for the family size of 4

$68,250 x .10

$6,825 / 12

$570/month - new loan payment

$1,880 /month - old loan payment

$1,310/month - additional cash flow

INCOME-DRIVEN REPAYMENT PLANS, NEGATIVE AMORTIZATION, AND TAXES

As you can see in the above two examples, financial advisors that understand the differences between various loan options (such as which repayment plan is best for a particular borrower) can impact a client’s entire financial plan! 

However, all income-driven repayment plans have backend costs: negative amortization and taxes. Negative amortization means that even when you make monthly payments, the debt you owe will continue to go up (accrue) because your monthly payment is not high enough to cover the interest. Any outstanding loan balance is forgiven after the 20-25 year loan period, and that forgiveness is then considered taxable income.

Negative amortization isn’t necessarily a deterrent to your student loan strategy, but you must consider your client’s future income when deciding on a particular income-driven repayment plan. 

In Example 1, Paula’s income will not likely increase enough by the time the loan period ends. Thus, her taxes due on her loan forgiveness total will be worth the extra cash flow she’ll receive over 25 years using the IBR repayment plan.

However, in Example 2, Jeff’s future income should rise considerably, and the extra cash flow he earns by switching to the REPAYE payment plan will cost him dearly in 20-25 years. When he’s ready to retire, he will incur a sizable tax bill when the loans are forgiven.  It may be a better strategy to use the cash flow savings of the REPAYE plan for ten years while his income rises and then switch to a 15-year private loan at a low-interest rate at age 50 when he can afford the higher monthly payments.

ADVERTISING, REFERRALS, AND LEAD GENERATION IN A NICHE MARKET

Younger financial advisors can add a six-figure income to their existing financial practice using college planning and student loan planning as a niche service. This unique service allows you to completely separate yourself from a crowded market of older, more established financial professionals fighting over the same prospects the same old ways. You can generate new leads year-after-year, and even receive referrals from clients that would typically never refer their financial advisor to their friends and acquaintances.

Every single day there are headlines and articles in the news regarding student loans. Whether it involves students and families buried in student loan debt or Congress pushing the latest student loan forgiveness program, the plight of the student loan industry provides financial advisors with free, constant, in-your-face advertising in a niche market.

Advisors who specialize in student loan planning can also get referrals from other professionals, in particular CPAs. Younger high-income clients, in particular, have never talked about their finances with any financial professional other than their CPA, so having the CPA primed to give your name when the topic comes up is another potential source of referrals. 

Most CPAs know very little about student loans, and it’s incredibly eye-opening when they find out that filing taxes as ‘Married-Separate’ may save their client more money in repayment than it costs in taxes. Check this out:

There are four income-driven plans:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan), 
• Pay As You Earn Repayment Plan (PAYE Plan), 
• Income-Based Repayment Plan (IBR Plan), and 
• Income-Contingent Repayment Plan (ICR Plan)

The borrower's tax return filing status (married filing jointly (MFJ) or married filing separately (MFS)) affects the yearly loan payment amount under THREE of the plans (PAYE, IBR, and ICR). These three plans determine the annual loan payment based on joint income if the couple filed jointly and based on individual income if the spouses file separately. Depending on the couple's income and loan balance, the yearly loan payment may be significantly lower when the payment amount is calculated using only the individual borrower's income. Very few CPAs understand the details of these income repayment plans.

MAKING MONEY USING STUDENT LOAN PLANNING

Younger financial advisors who specialize in student loan planning can add a six-figure income to their existing financial practice using college planning and student loan planning. You may begin with a standalone student loan plan but ultimately become the borrower’s asset-based planner, entirely due to your student loan knowledge. These benefits become even more valuable as younger borrowers enter their prime earning years and need asset-based planning in the future.

Many clients between the ages of 30-50 earn more than $150,000 a year but continue to carry a significant student loan balance. Student loans are a serious financial issue for young doctors, dentists, nurses, lawyers, engineers, pharmacists, pilots, etc. It’s a great niche for young advisors because no advisor should advise young, high-end professionals without understanding the complex student loan system.

Typical fees for a standalone student loan plan range from $400 – $1,000. Some financial advisors offer this as a flat-fee service because clients aren’t ready for that commitment (they already have an investment advisor) and only want advice on their loans. However, most only include student loan planning as part of their comprehensive financial plan.

BUILDING A STUDENT LOAN PLANNING SYSTEM 

When a client reaches out by advertising or referral, you should always have them book a free introductory call to discuss your initial questions and decide if they’re a good fit for student loan planning. After they schedule a call, you should send an automated email with information about your firm and a short 5 question survey regarding their loan. 

Always charge 50% of the project fee upfront for clients who decide to move forward on a student loan plan. Getting money in advance ensures the client is fully committed to the project and is ready to proceed. Then have the client book a 45-minute preliminary call and email you a detailed student loan questionnaire at least two days before the call. 

New clients must first download a copy of their Federal student loan record from the National Student Loan Data System. The file from the NSLDS contains far more information than a statement from a loan servicer and is essential to the student loan planning process. To download the client’s file, they must:  

1. Go to https://studentaid.gov
2. Create an account (it may take a day to get verified). Once your account is verified, 
3. Log in and click on your first name (top right corner), then drop down to ‘My Aid’ and click on the ‘Download My Aid Data’ button.

Once the client provides you with this text (.txt) file, advisors will need to upload it to a student loan software analysis tool. Currently, the best (and cheapest) software on the market is the VIN Foundation Student Loan Repayment Simulator. Once loaded, you can see the client’s loan balance, the number of loans, the current monthly payment, the repayment plan they are on now, and their loan history. This will help you target your questions on your 45-minute preliminary call.

During the 45-minute call, you will go over their loan information and data, including:

• What is the client trying to accomplish?
• What is the client’s current income and asset to debt ratio?
• What is the client’s expected income in the future?
• How many dependents in the household?
• What is the client’s tax filing status (MFJ, MFS, HoH, S)?
• What is the client’s expected income in the future?
• What is the client’s tax AGI  a critical component of student loan planning)? 
• What is the client’s current level of retirement contributions (additional pre-tax saving would lower AGI and the required student loan payment)? 
• Does the client have current healthcare costs (adding an HSA or FSA could lower AGI)?
• Does the client have the opportunity to become a Public Student Loan Forgiveness (PSLF) candidate (10 years of qualifying payments, instead of 20 or 25 years)?

Once you decide what the client is hoping to accomplish, you can begin to develop your Student Loan Plan. The VIN Foundation Student Loan Repayment Simulator’s projection tools to develop strategies and an Excel sheet will allow you to do side-by-side projection analysis. This will enable you to gather any additional questions that you can email to the client to get answers. 

Once you get their answers, you can complete and send the plan results to the client; you should send a 2 page summary of their options 2-3 days before you schedule a 1-hour plan delivery meeting so they can insert any comments that need to be clarified before the meeting. During the 1-hour delivery meeting, you discuss the analysis and results with the client and any questions they may have. After the meeting, you can invoice them for the second 50% payment.

ACQUIRING STUDENT LOAN EXPERTISE THROUGH THE CERTIFIED COLLEGE FUNDING SPECIALIST (CCFS®) DESIGNATION

Student loan advice is similar to any other specialized area of planning. Advisors need to learn the subject material first, build a process for giving recommendations, and then scale up their planning process to develop their brand as an expert in the area.

To build student loan planning into your business, you need to understand the student loan system’s details. The Association Of Certified College Funding Specialists offers a thorough knowledge of student loans to help financial advisors avoid giving advice that could cost clients thousands of dollars compared to other options available to them.

The Certified College Funding Specialist (CCFS®) Designation is a FINRA-recognized training program that specifically addresses all aspects of college funding, including student loan planning issues. Our CCFS® program is also approved for CE credits for both CFPs and CPAs. The program includes a particular training course called the Education Loan Analyst (ELA™) for CCFS® designees who want to achieve a more in-depth knowledge of the student loan system and how it works.

The  CCFS® certification and designation program consists of a self-paced online study curriculum, with 15 video modules covering all aspects of college planning. After completing each study module, advisors must pass a 10-question test and score 70% or higher. The ELA™ certificate program is focused on specific student loan planning topics, such as Student Loan Repayment Plans, Student Loan Consolidations, Public Service Loan Forgiveness, Student Loan Defaults, and more. Over 1,300 financial advisors have earned the CCFS® designation.

Very few financial advisors offer student loan advice, yet the demand will continue to increase. Younger advisors can use this unique niche to attract young professionals with high earnings and long-term client potential. Whether you provide a standalone student loan plan or integrate your student loan analysis into a comprehensive financial plan, there are real opportunities to use college funding and student loan advice to grow your financial planning client base.