Should you use a financial advisor for your student loans?
When you’re struggling with debt, a financial advisor can often help. Debt often seems much more overwhelming than it should be. For example, you may have options you don’t realize or be too overwhelmed to make a good financial plan. It’s normal and very human. This is just as true when it comes to student loans as it is for anything else. If you have a mountain of student debt, it’s completely normal to worry, stress, and struggle to control the payments.
However, you may still need help getting your finances under control and that’s where a financial advisor can help.
Why Seek Financial Aid With Student Debt?
Student debt can eat up a huge chunk of a young person’s budget. Student loans have become a constant crisis in the United States, mainly due to the skyrocketing cost of college education. Since the early 1980s, a cycle of tax and budget cuts at the state and federal level has resulted in higher tuition fees at American universities.
Attending a four-year school in 1982, for example, cost an average of $3,951 per year, including tuition, tuition, room, and board. By the end of 2021, that number had grown to over $29,000, almost three times what inflation would be.
Professional degrees, such as medicine and law, grew even faster. In the early 1980s, professional tuition alone cost about $7,500 a year. Today, that same tuition will cost you $50,000 a year or more.
For Millennials and Generation Z, the reality is stark. Modern students need loans the size of a small mortgage to get the same degree their parents got with part-time jobs, with interest rates to match. The average borrower has monthly payments between $450 and $1,600 and income has not kept up with this type of debt. Managing these payments is increasingly difficult for cash-strapped graduates.
How can a financial advisor help you?
Think of a financial advisor like a doctor. You go to the doctor if you are sick, yes, but regular checkups can ensure you stay that way. A financial advisor works the same way. If you are having difficulty, they can help you. Hopefully, they can keep your finances on track. When it comes to student loans, a financial advisor can help you in three main ways, which we highlight below.
1. Manage your loans during your studies
For most students, especially undergraduates, financial advice is the last thing on your mind. It shouldn’t be. The best time to seek financial advice may be when you are in debt to begin with. At this point, a financial advisor can help you make the best possible decisions. Their advice may include:
Find good interest rates;
Set better loan terms;
Understanding good debt versus bad debt;
Start a prepayment plan.
For example, many students use loans as a source of expenses. It’s not totally irrational. For someone who has already had to borrow tens of thousands of dollars, borrowing a few extra thousand dollars just to be able to go out to eat or buy something nice seems insignificant. A financial advisor can help you put that borrowing into context and balance short-term financial stress with long-term debt.
Other students may not fully realize their options for interest rates and loan terms. This is especially true for graduate students, who often struggle with rates of 7% or more. A good financial advisor can help you find the best loans available so you can minimize your payments now and in the future.
2. Manage your loans after graduation
Once you graduate, a financial advisor can help you manage these loans. For many graduates, this can help make debt manageable. Their advice may include:
Find the right repayment plan
Find Federal Programs to Manage Loans
Find state programs to manage loans
Identify loan forgiveness options
Create a financial plan, including prepayment options
Discussion on refinancing and interest rate management
These are just some of the options a financial advisor can discuss with borrowers.
Ultimately, student loans can get incredibly complicated. Over the years, this turned into a byzantine series of programs as the government layered on different forgiveness options and programs to help manage the growing crisis. Whether it’s income-based payments, utility rebates, or even occasional tax deductions, there are many more options than you might think.
Even managing your interest rate can get complicated. Refinancing your student loans is often a great way to get a better rate, which can save you a lot of money in the long run. But student loans also come with a range of protections such as hardship deferrals and forbearance. Perversely, refinancing might be a good idea for graduates who can afford to lower their payments, while borrowers who aren’t in a strong financial position might want to keep those protections in exchange for higher interest rates.
3. Struggling with your outstanding loans
Finally, struggling graduates should definitely seek financial advice. A financial advisor isn’t just someone who helps you manage your money. They can also help you manage your debts and get out of trouble. They are exactly the ones you want in your corner when things go wrong.
For graduates who are struggling to make their payments or have defaulted on their loans, advice may include:
Comprehensive debt management
Understand the defect and how to get out of it
Negotiate default with private lenders
Make a payment plan
Find state and federal programs to help you
Find loan forgiveness programs
The first thing is to remember the difference between a financial advisor and the many companies that advertise debt relief. A financial advisor helps you manage your money and build a plan around it. Debt relief companies, however, are usually a form of scam. They usually charge you a lot of money for giving basic advice that doesn’t help anyone.
Hire a financial advisor, not a debt relief company. While student loans are complicated when you’re over them, they become positively overwhelming when you can’t pay. A financial advisor can help you with this, starting with the emotional toll of this debt. They can look at the numbers and make it feel manageable.
Beyond that, a financial adviser can help you develop a plan for the future. If you have defaulted on your loan, getting out of that default is a process. Your advisor can explain this process to you and help you find options to speed it up. If you have private lenders, a good financial advisor can even negotiate with those lenders on your behalf.
As with managing your loans, a financial advisor can explain the many programs and options available to you as a borrower. They can help you find programs that will help you, and can even help you research alternatives such as temporarily changing careers or moving to take advantage of these programs. You won’t know what’s out there until you ask, and your financial advisor can help answer those questions.
Student loans are a complicated system, but it is important to understand them well. A good financial advisor can help you manage this debt, during and after school. More than that, they can help prepare your finances for success now and over the long term to help you achieve your larger financial goals. They can also help you plan ahead so you can start saving for your kids’ college in tax-efficient accounts so they don’t have to take out loans in the future.
Tips for borrowing
If you’re considering using a financial advisor, you should find one that specializes in your particular needs, such as managing debt or investing in college savings. Finding the right one for you doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
When we say it’s a big part of personal finance, we really mean it and aim to help you through the process where we can. In fact, we’ve put together a comprehensive guide to the subject of student loans, from calculators to explanations, to help you navigate this difficult subject.
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