As more members of Generations X and Y begin looking for financial advice, advisors are increasingly likely to encounter clients who require some level of student loan planning. Further, and with total national student loan debt recently surpassing $1.56 trillion (over $520 billion more than total U.S. credit card debt), this isn't a trend that is likely to go away anytime soon. The trouble is that most advisors are woefully unprepared to help clients navigate the painfully intricate complexities that student loans are subject to, particularly in an industry that has historically been focused on advising on assets as opposed to debt.
Recognizing an opportunity, several members of the financial technology industry are focused on creating solutions to help advisors navigate client student loan complexities and provide more value, with multiple advisor-focused student loan planning tools having launched in just the past few years. Yet while many of these tools have attractive user interfaces, and may even be able to create client-facing deliverables, most (perhaps surprisingly) seem to fall short of expectations with regard to their ability to actually solve complex student loan planning issues. Whether through a lack of flexibility, the inability to adequately account for total household student loan debt (where both spouses have loans), or data output that is just plain inaccurate, it’s difficult to find a solution advisors can use with confidence and feel comfortable buying.
Thankfully, there is a tool that is able to tackle most complex student loan issues with data output advisors can trust, and it happens to be free.
The VIN Foundation Student Loan Calculator The Veterinary Information Network Foundation is a nonprofit organization and online community dedicated to supporting the veterinary profession and providing veterinarians with resources to help them succeed in their careers. Their Student Debt Center was created to help veterinarians (who often graduate with student loans exceeding twice their salary) navigate student loan repayment complexities, and their Student Loan Calculator is free to anyone to use. (The VIN Foundation relies entirely on donations, and those who make use of their student debt tools are encouraged to donate if they can.)
The key input required for a thorough and accurate student loan analysis is the client’s MyStudentData.txt file. This file, which can be downloaded by the client via the National Student Loan Data System, is the “master record” for their federal loans and contains an enormous amount of loan data. Unfortunately for both clients and advisors, this data is presented in a highly user-unfriendly format, with the unformatted files often containing 1000-plus lines of text. With the VIN Foundation calculator, this text file can be directly imported into the tool, and a report detailing all of the client’s loan data is generated in a matter of seconds, in an easy-to-understand format. Starting with a “roll up” view of all loan balances, interest, monthly payments, and weighted average interest rate, advisors can then drill down into specific loan groups (direct, FFEL, and so on), and loan types (subsidized, unsubsidized, and so on), as well as which income-driven repayment plans certain loan balances are eligible for.
Advanced Planning Options Available Even if the tool went no further than providing this summary, the ability to quickly help clients make sense of their current loans would make it highly valuable. Yet the VIN calculator allows you to send the client's (now organized) loan data directly to its Repayment Simulator. Here, advisors can enter a client's graduation date, current repayment plan, income, and family information, as well as tax, inflation, and savings assumptions. Client income assumptions can even be customized in each future plan year for maximum control, which can be particularly helpful when assisting clients with more defined career paths (such as physicians).
After refining simulator inputs, the calculator produces multiple reports and graphs that can be presented to a client. The first and most meaningful is a side-by-side comparison of all repayment options. This makes it easy to understand the range of possible monthly payments, how many years a client can expect to remain in repayment, any forgiven loan balances, and the total amount paid over time. The simulator also takes spousal loan balances and income into account, making the monthly payment and total loan cost figures far more accurate than other tools on the market that do not have this feature. Advisors can also project the tax impact of potential loan forgiveness, as well as each future monthly payment for each repayment program, including discretionary income calculations to help verify the numbers. Lastly, results can be saved using unique URLs generated by the calculator to return to the results or share with a team member or client.
A Primary Model for Future Student Loan Analysis Tools For a free tool available to anyone with an Internet connection, the VIN Foundation Student Loan Calculator checks an impressive number of boxes for advisors looking to make sense of their clients' student loans. Features such as the ability to import NSLDS data files to cut down on data entry, analyze loan repayment options at the household level, carefully model long-term planning assumptions, and produce highly accurate data outputs make it a superior choice to many paid solutions on the market. However, like most other student loan planning tools available today, getting the best results is still dependent on the advisor's knowledge of the intricacies involved in student loan planning. Further, the VIN Foundation calculator can't directly integrate with an advisor's existing technology solutions, such as financial planning or customer relationship management software.
As advisors, it would be nice to have an advisor-focused student loan planning solution that does everything the VIN Foundation Calculator can; with the ability to output data we can actually trust; and packaged into well-designed, client-facing deliverables. Several paid software tools currently available are actively trying to be this solution, though most still can’t produce results that are truly actionable or present a clear, easy-to-understand path for clients. For most clients, the No. 1 demand they have of a student loan analysis or plan is simple: Just tell me what to do. Until advisors are able to provide the answer more efficiently and accurately with a paid solution, they’re likely to see the most value from the VIN Foundation’s Student Loan Calculator. Given ever-increasing demand, it may not be long before paid solutions can deliver the experience advisors and clients need.
Access Ben's article archive here. Ben Brown is a certified financial planner and an IRS-enrolled agent. He is the founder of Entelechy, a fee-only financial planning and investment management firm based in Bethesda, Maryland, serving clients in the Washington, D.C., area and nationally.
The author is a freelance contributor to Morningstar.com. The views expressed in this article may or may not reflect the views of Morningstar.