Guest post by Ryan Lane, Senior Editor, American Student Assistance
“Should I consolidate my student loans?”
It seemed like a simple question to me. However, my father’s answer was surprising: “I don’t know,” he said.
How could he not know? This was my CPA father—a man who made financial decisions for a major hospital in Boston. Surely, if anyone had sound advice about student loans, it’d be him. And yet, he was as clueless as I was.
It’s not surprising that I would ask a parent for help. According to a 2014 survey, 56 percent of millennials reach out to parents or other family members for financial advice. But where can those family members turn when they lack the necessary answers, as my dad did? Ideally, financial advisors like you.
The challenge is that student loans have intricate borrowing and repayment rules. Borrowers can turn to organizations like the one I work for, the national nonprofit American Student Assistance, for neutral advice. However, parents with children struggling with student loans—or dealing with this debt themselves—may expect more personal insight from their advisers than a website to visit.
That might especially be the case this month. The grace period for many recent graduates expires in November, and that will likely have them asking their parents, “What do I do with my student loans?” Set them up for a productive conversation by sharing the following information.
Federal student loans come with flexible repayment options that can help borrowers find a payment amount that fits their lives and budget. Most notable are a number of income-driven repayment plans, which share an application and base borrowers’ monthly payments on factors like their family size and salaries. Payments under these plans can be as little as $0—and these lowered amounts could prove especially useful to those just entering the workforce.
In addition to lower payments, federal student loans also let borrowers pause repayment temporarily via deferment and forbearance. Unemployed or cash-strapped new graduates often opt for these options, particularly forbearance—which can be enacted with a simple phone call.
Forbearance always increases the amount a borrower owes, though, and deferment time is limited. As a result, borrowers should use these options only when truly necessary. Income-driven repayment is often the smarter bet.
These unique options can play an important role in repaying federal student loans. However, at the end of the day, they’re a debt like any other that borrowers must manage. For financial advisers, that means helping parents and their children figure out how to align these payments with other financial goals.
If a borrower opts to pay less now (via an income-driven plan or postponement option), it could mean paying more overall. Both options can let more interest build up on a loan. If the borrower prefers to get out from this debt faster, you can prioritize that.
In the end, understanding student loans is important, but planning how to repay them is too—and you’re uniquely qualified to help borrowers do so.
What student loan problems have your clients brought to you? Do you feel comfortable offering them solutions?
Ryan Lane is the Senior Editor, at the national nonprofit American Student Assistance. In his role, he oversees the development of articles, infographics, and course materials for the organization’s free education finance support program: Salt. Working with internal and external subject matter experts, Ryan creates content that simplifies the world of college financing and helps families successfully plan for, pay for, and repay higher education expenses. Over the past three years, he has written about student loans as a co-author of the U.S. News & World Report Blog “The Student Loan Ranger.” For more information about Ryan and the ASA, visit http://www.asa.org/