Repayment Complexity

Student loan repayment should be simple. Right? You have the debt, they give you a monthly payment, and you do your best to repay. Unfortunately for borrowers AND financial professionals, it’s far more complex and the approach you take can have far reaching implications with potentially disastrous financial consequences.

The Federal Government has introduced no less than 5 programs designed to reduce the financial burden on borrowers by basing repayment on income and family size. But these are complex and each has its own risks and potential rewards. Choosing the right one is not as simple as one might think. Loans are serviced by one of a handful of companies who administer payments and collections. They have their own calculators and recommender systems as does your loan servicer.  Therein lies part of the confusion.

Borrowers need help and so do advisors

Bob Shireman is a former Department of Education official who wanted to help his niece choose a repayment plan for her student loans. Bob was involved with the Obama administration in developing efforts to improve the way student loans were administered back in 2010. Based on this, it is reasonable to assume he would have no problem helping his niece.

What he found was a morass of confusion. Not only is completing the forms a somewhat challenging process, understanding the terminology can be confusing as well.

Choosing the most appropriate program requires specialized help

Why? Because, this debt is potentially the largest a borrower may have outside of a mortgage. In some cases, it’s greater than a mortgage if you went to medical or law school.  Because many borrowers struggle with repayment in the early stages of their career, low payments are needed. But as income grows, it’s prudent to raise the payments or the principle will continue to grow.

Borrowers need financial advisors who fully understand personal finance, investments, planning, insurance, tax, AND, the complexity of student loan repayment planning. Student debt is not a one size fits all proposition. Don’t think that if you choose a repayment program today that it’s good for you in a couple of years. It’s most likely not. Failing to make a change could be a financial disaster.

The Role of the Financial Advisor(s)

We mentioned several categories of professionals because each may play a role in the strategy you take with student loan repayment. Depending on the repayment plan you choose, there could be tax consequences down the road if your loan is forgiven. You may NOT want to pursue forgiveness even if you qualify. It just depends … on multiple factors. That’s where the advisor can help by evaluating your current and future projections for income, family plans, business plans, and other factors that affect your financial life.

Options For Help

The CSLA Board of Standards has developed a specialized designation similar to what CPAs, CFPs, and other financial professionals obtain to indicate they have a level of knowledge capable of advising clients in their respective areas.

Use our site to find an advisor who can help you make decisions about your student loans. These are financial professionals who have specific training in some or all of areas mentioned above. By completing the form, you’ll also receive tips on how to evaluate the person you are considering. Be forewarned, there are many companies who are fighting for business portraying their business as a savior or expert in student loan help. Don’t be fooled into paying for unprofessional, call-center styled help. Get our guide on how to choose a financial advisor to help with your student loans. It could save you money and future headaches.


Written by csla_contributor

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