When you’re struggling with debt, a financial advisor can often help. Debt often looks far more overwhelming than it has to be. For example, you may have options you don’t realize, or might be too overwhelmed to make a good financial plan. That’s normal and very human. That’s just as true when it comes to student loans as anything else. If you have a mountain of student debt, it’s perfectly fair to worry, stress and struggle to get the payments under control. However, you still might need help to get your finances under control and that is where a financial advisor can come in to help.
Why Look For Financial Help With Student Debt?
Student debt can consume an enormous part of a young person’s budget. Student loans have grown into a steady crisis in the United States, driven mainly by the soaring costs of attending college. Since the early 1980’s a cycle of tax and budget cuts at the state and federal level have led to a surge in tuition at American universities.
Attending a four-year school in 1982, for example, cost an average of $3,951 per year, including tuition, fees, room and board. By the end of 2021, that number had jumped to more than $29,000, almost three times what inflation would account for.
Professional degrees, such as in medicine and law, have gone up even faster. In the early 1980s professional tuition alone cost around $7,500 per year. Today, that same tuition will cost you $50,000 per 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 that their parents earned with part-time jobs, with interest rates to match. The average borrower has monthly payments between $450 and $1,600 and incomes have not kept up with this kind of debt. Managing those payments is increasingly difficult for cash-strapped graduates.
How Can a Financial Advisor Help?
Think about a financial advisor like a doctor. You go to the doctor if you’re sick, yes, but regular checkups can make sure you stay that way. A financial advisor works the same way. If you’re struggling, they can help. If things are going well, they can keep your finances on track. When it comes to student loans, then, a financial advisor can help you in three main ways, which we highlight below.
1. Managing Your Borrowing While in School
For most students, especially undergraduates, financial counseling is the last thing on your mind. It shouldn’t be though. Perhaps the absolute best time to get financial advice is when you take out debt to begin with. At this stage, a financial advisor can help make sure that you make the best decisions possible. Their advice can include:
- Finding good interest rates;
- Setting better terms on the loan;
- Understanding good debt vs. bad debt;
- Beginning an early payment plan.
For example, many students use loans as a source of spending money. This isn’t entirely irrational. For someone who has already been forced to borrow tens of thousands of dollars, it seems negligible to borrow another few thousand so they can go out to eat or buy something nice. A financial advisor can help put that borrowing in context and balance short-term financial stress against long-term debt.
Other students may not fully realize their options when it comes to interest rates and lending terms. This is especially true for graduate students, who often get saddled with rates of 7% or more. A good financial advisor can help you find the best loans available so that you can minimize your payments now and in the future.
2. Managing Your Loans After Graduation
Once you graduate, a financial advisor can help you manage these loans. For many graduates, this can help make the debt manageable. Their advice can include:
These are just some of the options that a financial advisor can discuss with borrowers.
The bottom line is that student loans can get incredibly complicated. Over the years this has grown into a byzantine series of programs as the government layered different options and forgiveness programs on top of each other to help manage the growing crisis. Ranging from income-based payments to public service forgiveness and even the occasional tax deduction, there are many more options out there than someone might realize.
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 series of protections such as hardship deferrals and forbearances. Perversely, refinancing might be a good idea for graduates who can afford to reduce 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 Loans in Repayment
Finally, struggling graduates should absolutely seek out financial counsel. A financial advisor isn’t just someone who helps you manage money. They can also help you manage debt and get out of trouble. They’re exactly who you want in your corner when things go bad.
For graduates struggling to make their payments or who have defaulted on their loans, advice can include:
- Managing your debt overall
- Understanding default and how to get out of it
- Negotiating default with private lenders
- Making a payment plan
- Finding state and federal programs to help you
- Finding 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 some form of scam. They usually charge you a lot of money to give basic advice that helps no one.
Hire a financial advisor, not a debt relief company. If student loans are complicated when you’re on top of them, they get positively overwhelming when you can’t pay. A financial advisor can help with that, starting with the emotional toll that this debt takes. They can look at the numbers and make it feel manageable.
Beyond that, a financial advisor can help you build a plan going forward. If you have defaulted on your loan, getting out of that default is a process. Your advisor can explain that process and help you find options for accelerating it. If you have private lenders, a good financial advisor may 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 look for alternatives such as temporarily changing careers or relocating to take advantage of these programs. You won’t know what’s out there until you ask, and your financial advisor can help you answer those questions.
The Bottom Line
Student loans are a complicated system, but it’s important to get them right. A good financial advisor can help you manage this debt, both during and after school. More than that, they can help you set your finances up for success now and for the long term to help you achieve your larger financial goals. They can also help plan ahead so that you can start saving for your kids’ college in tax-advantaged accounts so that they don’t have to take out loans in the future.
Tips for Borrowing
- If you’re considering a financial advisor then you should find one that specializes in your unique 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 matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When we say this is 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 written an entire guide on the subject of student loans, from calculators to explainers, to help you navigate this difficult subject.
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