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Pink Floyd may not need no education, but most of the rest of us probably do.
Now, changes to student loan regulations are forcing potential students and their parents to deal with lower loan limits and fewer repayment options, offering advisors a fresh way to add value by helping clients navigate the altered landscape.
“In some ways, it’s simplified things,” said Travis Poodiack, an advisor and cofounder of Birch Financial Group. But especially for those considering education beyond a four-year degree, limited federal funding means future doctors, lawyers and dentists will need to look elsewhere to pay for school. “They have to make up that gap one way or another, so whether that’s savings, 529s, gifts from parents, investments, retirement accounts, or they’re having to go look at private student loans.”
Rethinking the Math
Advisors suggest a few shifts in strategy. First, parents should frontload 529 contributions so the money has more time to grow, as well as allocate more savings toward graduate school since higher education degrees generally cost more and come with fewer scholarships. Another avenue would be to ask grandparents to put planned inheritances toward education costs now, rather than waiting until they pass away.
Under the changes, which went into effect on July 1:
- Borrowers in professional programs will only be able to borrow $50,000 per year, or $200,000 total for their program. Borrowers for other types of graduate school will only be allowed to take out $20,500 a year, or $100,000 total. All borrowers have a lifetime limit of $257,500 (excluding those taking parent PLUS loans).
- Parents are only allowed to borrow $20,000 per student per year, with a $65,000 lifetime limit per child.
- New borrowers only have access to two repayment plans, one that is income-driven and one that offers fixed payments over 10 to 25 years based on loan balance.
Time for the Talk. Cindy Wilson, an advisor at HB Wealth, has begun encouraging clients with kids in high school to start conversations about college expenses sooner rather than later. Maybe this means that parents will only pay for in-state schools, or encourage their children to do the first few years of school at community college. “In the past, the advice had been: ‘You can borrow money for college, you can’t borrow money for retirement,’” she said. “You still borrow money for college, it’s just less.”
