The statistics don’t lie. Nearly 90% of the people who enter the financial services industry fail out within the first few years. Why? My observation is that it’s almost always because they aren’t seeing enough quality prospects. Industry icon Tom Hegna frequently says, “There’s riches in niches.” What if you had a niche that provided you a turnkey way to get in front of motivated prospects on a regular and consistent basis? Wouldn’t you love a way to add tremendous value for your clients by helping them solve the top financial challenge in our country today?
One of the greatest threats to American financial well-being has been intensifying for decades. This risk is so closely attached to the American dream that it deserves our attention. The threat? Student loan debt. There are currently 43.2 million student borrowers who hold an average debt of $39,551 — a total of $1.73 trillion — and EducationData.org reports that debt is growing at 23.6% annually, six times the rate of the U.S. economy!
As financial advisors, one of the most valuable solutions we can provide for families is helping them save and pay for college. According to Gallup, 73% of parents of children younger than 18 say that paying for college is their top concern, making it the No. 1 financial fear of most American families.
Although it would be ideal to start saving for college from the time a child is born, that’s just not realistic. Good financial planning balances wealth management and risk management. Too often, we allow our clients to do a great job of saving for retirement and, in doing so, allow them to sacrifice their children’s college savings. This ultimately may jeopardize retirement savings if it means that the parents are taking on the student loan debt.
If the students take on the debt, the downward spiral of debt also can be exacerbated. Let’s say, for example, that a student decides to attend an out-of-state public school rather than the in-state option. According to The College Board, the price differential is $16,460 ($43,280 versus $26,820) per year. If the student graduates in four years (the average is closer to six), and if the cost of attendance doesn’t increase (it usually does, by about 5% per year), that’s $65,840 borrowed. Regardless of who pays the bill, if the loan has an interest rate of 4% and is repaid over 10 years, that’s $667 per month — a significant amount for a recent college graduate or a parent who hopes to retire soon.
The demand for a college education is higher than ever. Students who attend college hope to earn a degree that will dramatically increase their lifetime earning power. And the colleges feast on this demand. Over the past 20 years, as the cost of borrowing — student loan interest rates — has decreased, the price of college has slowly increased. In fact, since 2000, college tuition and fees have increased by nearly 170% — almost three times the rate of the Consumer Price Index.
Because families have not saved enough, they turn to student loans to make up the difference.
In 2002, I set out to solve this problem and developed my niche in the college funding space. Our team’s goal is to help eradicate student loan debt and its impact on so many American families. We do this by helping parents develop comprehensive financial planning strategies for saving and paying for college. Unfortunately, for so many financial advisors, when asked about the best way to pay for college, the solution is product-centric: a Section 529 plan. Although Section 529 plans are a tremendous financial instrument — and one we use frequently with our clients — they are surely not the only solution, and there are advantages and disadvantages to these complicated instruments.
For nearly 20 years, our team of advisors has worked with families to help solve this complex challenge. Knowing that saving for college funding is the top financial fear facing Americans and that advisors are challenged to find great clients who are motivated to work with them, we have found that college funding is a great door opener for a more comprehensive planning discussion.
Although many advisors focus on retirement planning or insurance strategies, college funding is a pillar of financial planning that often is overlooked. By understanding the multifaceted process of saving and paying for college how financial aid works; and methods for appealing for aid, qualifying for scholarships, navigating the student loan process and creating strategies to address these concerns, an advisor can add tremendous value and minimize the amount of student loans a family must assume. While working with business owners or near-retirees may be ideal, in my experience, families of college-bound children are motivated, have lots of questions and make excellent clients for life. And once you’ve solved this top challenge, it opens the door to add value in many other areas of financial concern.