Certified Public Accountants and Enrolled Agents are among the most trusted professionals in America when it comes to financial advice. These two professions have higher ratings in large part because many choose to be fee-based.This means they are only charging for their expertise and advise instead of selling commissionable products. CPAs, Enrolled Agents, and tax preparation companies are also paid for their advice and expertise when preparing your tax returns.
What consumers and professionals may not realize is that there is a substantial risk for these advisors to minor to serious mistakes that could have serious impacts on a consumer's present and future finances.
Student Debt: A massive, negative financial impact
Student debt has become a fixture in the news for good reason. Over 1.3 trillion dollars of student debt is impacting the economy and limiting the financial capabilities of consumers. Student loan debt affects multiple areas of the economy. Consumers can't buy homes, postpone starting families, and they have become hopeless about ever getting out of debt. Many are going into default and perpetuating the problem. These potential clients have all levels of income and are your potential clients if you are properly positioned. Are you effectively prepared?
I don't have clients with student loans. They aren't good prospects.
While financial advisors may believe this market doesn't contain good prospective clients, this may be quite the opposite. About half of the six figure debt is held by those who have completed graduate and doctoral degrees in law, medicine, and other healthcare. These are all six figure income clients who will seek knowledgable financial advisors and planners. They represent a significant niche market that is ideal for those who are willing to invest the time and resources. For early career planners, these are your peers who are primarily focused on how to address their student debt in the best possible way.
Consumers with Student Debt Should Seek Financial Advice
The student debt burden can be eased for many consumers if they receive quality financial guidance on how to restructure payments based on their complete financial picture and future goals. All too often, student debt is viewed in isolation, and as another consumer debt that must be paid as quickly as possible.
Consumers need individualized advice
Student debt management is best addressed by a financial advisor who has competency in how these loans function. Advisors need to take into consideration multiple factors such as the type of loan, terms, origination date, balance, and all of the personal financial factors in order to effectively advise on changes that may be advantageous to the borrower. Advisors should never quickly assume a private refinance or consolidation is the answer before understanding how these choices affect the future of the client. One size does not necessarily fit all.
The Advisor's Role in Easing The Student Debt Problem
Is there a role for advisors in solving some of the problems of student debt? We think so. We believe it's part of the financial advisor's responsibility to provide comprehensive advice in the best interest of the client. If advisors consider student loan repayment planning to be outside of their realm of their full understanding, it is incumbent upon them to disclose this to clients and seek additional resources.
What Advisors Need To Know About Student Loan Hardships
There is a strong likelihood that advisors will find some clients facing challenges with their student loan payments. Many advisors do not know the difference between federal or private loans as both are only identified by the same 1098E and may even come from identical services. There are numerous repayment options and provisions for financial hardship that can defer or reduce payments in cases such as job loss. Private loans are more difficult to obtain assistance in challenging financial situations. Clients should be advised about these options to avoid going into default.
Filing status for married borrowers can impact student loan repayment
Too often tax advisors fail to review a client's student loan situation and could miss opportunities to improve their overall financial picture. It's very common for advisors to automatically assume: Married/Joint when filing.
Tax advisors need to be aware of the effect of student loan repayment on married couples. Many married borrowers may realize substantial benefits such as lower payments, interest subsidies, and even potentially discharged debt by filing taxes separate instead of joint. While the clients may pay more in taxes, this may be offset through the lower student loan payments. The advisor should conduct careful analysis and evaluation weighing the implications and potential benefits of filing separate when student loans are involved.
To summarize, all financial and tax advisors should increase their understanding of student loan repayment and its effect on the client's entire financial picture. Continuing education programs such as the CSLP can help advisors stay on top of important information about how student debt affects the ability of their clients to invest and plan for the future. The advisor who thinks long-term for their client will seek to gain all the knowledge available to provide comprehensive guidance.
The growing subset of clients with student loans requires unique care and attention as only a professional can provide. Consumers need advisors, not call center agents. Advisors choosing to skip a thorough evaluation a client with student loans risk causing harm and also create the potential for advisor liability.