Student loan debt is more than just a financial burden; it comes with an emotional toll that can leave clients feeling powerless and alone, with the advisor expected to come up with a magic solution to alleviate the pressure.

“Student loans are a very emotional subject for a lot of borrowers. Often, being saddled in debt makes a lot of clients feel helpless and full of regret, thinking they made a bad decision along the way,” says advisor Doug Boneparth, president of Bone Fide Wealth in New York. “It can be downright debilitating.”

Student loan debt puts the borrower in an ironic situation, says Dr. Chloe Carmichael of Carmichael Psychology in New York. She treats a variety of patients, some of whom are graduates dealing with the stress of student loans.

“Education is meant to provide clients with opportunities, but all of that debt can make a person reluctant to put themselves out there and take a chance,” Carmichael says. “It can hurt their ability to take on long-term financial planning because they are concerned with reaching a zero point.”

Indeed, advisor Christine Abbott — a senior vice president of wealth management at UBS — talked about one of her clients that was laser-focused on paying down her student debt. The woman’s approach was to first pay as much as she could into the loan and then focus on saving for retirement.

It fell to Abbott to point out the pitfalls of that plan. Had the client taken that path she may have paid down her student loans in less than 10 years, but that would have been a significant amount of time she wouldn’t have been building up her retirement savings.

Clients should consider taking advantage of various tax credits to reduce the burden of college tuition.
Bloomberg News


Time, Abbott says, is the most powerful part of retirement savings. She was able to come up with a plan for this client that allowed her to pay down her loans quickly while also building up her retirement funds. Once that new plan was hashed out, the client enrolled in her company’s 401(k) plan the next day.

It can be a hard thing for someone feeling crippled by student loans to see a positive future, Carmichael adds. One tactic she takes with her clients is to normalize the situation in their eyes. By reminding clients that many people are struggling with this issue, she is able to get patients to focus on what the debt means — that they have earned an education and developed the critical skills that go along with it.

Abbott takes a similar approach. She agrees that recent grads can have a hard time visualizing a future when they are so consumed by a monthly loan payment.

“If you can show a future of having no student loans and having savings, it’s such a better feeling for clients because they feel like there’s a possibility to accumulate wealth for themselves even though they’re paying down these student loans,” Abbott says.

She had one client come in with $190,000 of student loan debt and after four years of working together, the client was able to knock it down to $50,000.

Americans are more encumbered by student loans than ever before, according to Student Loan Hero, an organization that looks to provide borrowers with solutions for overcoming debt. Indeed, the average student loan debt for graduates in the class of 2017 was $39,400, a 6% rise from the year before.

This problem isn’t going away. In fact, student loan debt in the U.S. just hit $1.5 trillion for the first quarter of 2018, according to the Fed, skyrocketing from about $620 billion a decade ago.

The total national debt for education costs grows every year for two simple reasons, says Boneparth, whose firm specializes in millennial clients. First, there is strong demand for college education, so new issues of debt are still being taken out. Meanwhile, the cost of college goes up annually. Second, a “good portion” of this debt is in forbearance and as the interest accrues, a borrower’s overall balance grows higher.

“There are rarely silver bullets or magic tricks when it comes to repayment of student loan debt,” Boneparth says. He advises that there are two key factors for getting any client ready to take on repayment of student debt: education and organization.

“When it comes to their debt, a lot of people have their heads buried in the sand about it. It's emotional,” he says. “From education, we take action. That could mean consolidation with a private lender or it could be understanding what repayment strategies are available and which make the most sense for the client given their other financial goals.”

Amanda Schiavo

Amanda Schiavo is an associate editor for Financial Planning. Follow her on Twitter at @SchiavoAmanda.