Student Loan Debt Represents Opportunity for Advisors

Chances are if advisors have consumed only a small amount of mainstream news in recent months, they’ve heard something about President Biden’s attempt to cancel up to $20,000 in student loan obligations for select borrowers – the legality of which is currently be challenged.

Leveraging the coronavirus pandemic, the White House is undoubtedly presenting borrowers with a tempting one-off while not getting to the heart of the matter: College costs are far too high. Consider the following: Over the 10 years ending 2022, costs at the University of California-Los Angeles (UCLA) – one of the most coveted public universities in the country – increased 20.51%, according to

“Compared to colleges in California, UCLA's tuition increase rate is higher than the California's average increase rate of 13.76%. Compare to all US colleges, its increase rate is higher than the average increase rate of 19.95%,” notes the research firm.

In other words, it’d make more sense for politicians to tackle costs rather than forgiving loans because the former strategy would have longer-lasting benefits, but that’s not how politics in America work. There is, however, silver lining for advisors.

Big Opportunity to Connect with Clients

There’s plenty of political conjecture to go around regarding student loan forgiveness.

“The Biden-Harris Administration’s one-time student debt relief plan is necessary to address the financial harms of the pandemic, provide borrowers with a smooth transition back to repayment, and help borrowers at highest risk of delinquency or default once payments resume. While litigation is preventing us from providing the relief needed to avoid these harms, we don’t think it’s right to ask you to pay on loans you wouldn’t have to pay were it not for the lawsuits challenging the program,” according to

That’s all fine and dandy, but a significant percentage of borrowers are already in default – defined as six months to a year behind on payments – and many acknowledge experiencing negative hits to their credit scores as a result.

“More than 80% of borrowers who experienced default stated that they’d faced at least one additional consequence as a result. The most common impact was a drop in their credit score (62%) followed by being subject to collection fees (47%) and losing eligibility for future federal financial aid (37%),” reports CNBC.

Compounding that ominous scenario is the fact that many borrowers that are nearing or in default don’t realize the harm coming to their credit reports until it’s too late. Worse yet, these borrowers don’t realize some of the other forms of student loan default punishment, which include wage garnishment and loss tax refunds.

Advisors, particularly those with expertise in tax planning, can help clients navigate the thorny issues that come along with federal student loan default.

Fresh Start Could Help

Advisors don’t have to be student loan experts nor do they have to devote a significant amount of time to homework to help clients get back on the right track.

Last April, the Department of Education (ED) announced the Fresh Start program, which is easy for advisors to convey to clients.

“This initiative will increase the long-term repayment success of borrowers with eligible loans. Fresh Start restores eligibility for federal student aid to almost 7.5 million borrowers (as of May 31, 2022) to help them complete their credential or degree; borrowers who do not complete their program of study are at a higher risk of default,” notes Federal Student Aid.

Government programs are never perfect, but Fresh Start is a tool advisors can use to help clients.

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