There is no denying that America suffers from a student loan debt crisis, as even young accountants can find themselves saddled with debt which is not easily forgiven. The statistics at this point are well known: 44 million young Americans owe $1.48 trillion, with private loans hitting $7.8 billion in 2014-15. While private loans may make up a small portion of total student loan debt, they are much more dangerous for borrowers than government loans. Private loans lack flexible repayment options, basic consumer protections, and generally charge higher interest rates.
But with crisis comes opportunity, and accountants have an opportunity to make a real difference with their clients. By knowing what private student loans are like, the problems surrounding them, and the best way to pay them off, accountants can help clients and their children with an incredible burden and make them more productive members of society.
Reaching out to the Young
Before discussing how to help private student loan borrowers, we have to understand who they are. As noted above, private loans are a small portion of total student loan debt. The College Board states that in 2011-12, just 6 percent of undergraduate students and 4 percent of graduate students took out loans. Students in four-year colleges were more likely to take out a private loan than those in two-year colleges, and students in for-profit colleges were more likely than four-year students.
Furthermore, people with student loan debt are disproportionately young and wage earners instead of entrepreneurs. The problem with this is that those sorts of people are unlikely to be your clients to begin with. Some millennials may come to you once a year in order to have their taxes done, but many of your current clients will not have much private student loan debt.
But while your clients may not, their children probably will. Ask if their relatives are suffering from student loan debt, and explain how you can help them. Furthermore, discuss how you can help young clients in other ways, such as by teaching them financial literacy or an entrepreneurial spirit. Offering private student loan debt help should be part of a general strategy to reach out to millennials and unlock an entirely new market. Thomson Reuters has some other suggestions on how to attract interest from this increasingly important demographic.
Every student has a different student loan story, even if they use debt factoring, and accountants need information about each specific situation in order to offer a personalized solution. So what information is most important?
Students with federal student loans can provide all the necessary information by giving you their National Student Loan Data System file, but the situation becomes more difficult with private loans. I have experienced some students who barely know who or what they are paying beyond their monthly payment.
Sometimes, the best option is to deal directly with the lender. Find out who the lender is from the student, and then speak to the lender to access details about the loan’s condition. Also talk with your client about their employment history, credit history, and how much they are spending. You can only offer real help if you totally understand your client’s total financial situation.
Offering a Solution
The big problem with private student loans is that private lenders are generally disinclined to modify the terms of the loan for a client in financial distress. But it is in these difficult times when you can show your value by negotiating a fairer solution with the lender.
If you cannot do that, there are a few other options. You can refinance the loan with a new lender, which is a particularly good option since you are there to ensure that the new loan is fair from the beginning instead of trying to change the terms of an old loan. However, this option is only viable if your client has a solid employment and credit history. You can also talk to your clients about which loans to prioritize or how they can cut expenses in other avenues of their life.
But in the absolute worst case scenario, you may have to advise your clients to declare bankruptcy. Your clients will likely tell you the oft-repeated statement that private student loan bankruptcy is not possible, but that is not really true. In fact, declaring bankruptcy is easier compared to a few years ago, though your clients will have to prove that they are in a hardship situation and outright cannot make the loan payments.
It can be a terrible burden to suffer from private student loan debt, but it is also a chance for you to help a new client in a meaningful way and gain their trust. Many clients will expect you to be able to help them or their children out of student loan debt, and it is important to learn as much about the process as possible for their benefit and yours.