Don’t Underestimate the Complexity: Why I Specialize in Student Loan Advice

Editor’s note: In this edition of What’s Working Now, an AdvisorRADIO feature in which Horsesmouth members tell us about recent success they have had running and growing their businesses, we hear from Ryan Frailich, who now specializes in student loan debt advice for young professionals.

The following article includes edited excerpts of this conversation, or you can listen to the full interview below.

My background is as a middle school math teacher for five years and an administrator for five years working on the HR and benefits side. You learn working in schools that you’re working with a lot of extremely highly educated, successful, talented people who don’t necessarily know a whole lot about their money. Which I don’t think is necessarily unique to teachers, but that was my experience.

At the same time I was realizing that, I was working with my own financial planner, and through a series of life events, ended up starting the CFP^® courses and transitioning into becoming a financial planner back in 2016. Then in 2017 I launched my own firm, Deliberate Finances.

I’ve had that open a little over three years now. I primarily work with young couples, people in their 30s and 40s, who are balancing their income and careers taking off, kind of hitting that stage where things start to go up for the professional track, while also maybe having kids, thinking about retirement, and for many of them also managing their student loans. I would say a typical client for me is a couple in their 30s who makes between $150,000–$300,000 a year, typically has some student loan debt, and children either on the horizon or already with them. They’re kind of trying to manage all those moving pieces at once.

Student loan debt is different

I had a vision that I would work with a traditionally underserved community. People who don’t have access to financial planning in most models. And the more people I sat down with, the more the student loan question kept coming up. I realized that it’s different than typical debt.

Normally when you’re looking at a debt, you’re thinking, “OK, how do I balance the total repayment costs and the monthly payment, and figure out what the right mix of those two things is, based on other parameters.” You look for refinancing opportunities, if there are some. And as you get further and further into student loans, you realize that this is not the sort of thinking that you’re doing, because there’s just so much complexity behind the federal student loan programs and the types of loans and the repayment plans, and who’s eligible for which ones, and what the different implications are. Then you think about how marriage impacts that and how careers impact that. I realized I need to take a more systematic approach.

I took an eight-hour course with Heather Jarvis, who’s a student loan attorney, which was really helpful. And it opened my eyes to just how complex student loans are. Then I eventually went on to get the Certified Student Loan Planner (CSLP^®) designation, which was very helpful in having a structured way of moving through all the complexity that there is. It helped me both work with my ideal target clients over an extended period of time and some one-off project plans.

Fees based on income and complexity

The bulk of my business is retainer clients. But I would say most months I have at least one to three student loan projects going on at any given time. Someone will say, “This is my situation with me and my student loans, what’s your advice?” It’s so hard to say what the best plan is for someone at 26, when they might be repaying these loans for the next 10 or 15 or 20 years.

I charge a monthly retainer fee. At this point my minimum fee is $1,800 a year, which is $150 a month. That’s typically for a relatively straightforward situation, usually a single person. The fees scale up to about $6,000, which is where I’ve capped it. There are people all throughout the range. It’s based on net worth and income, but also complexity.

For example, a high-earning doctor might have a negative net worth, but also have a lot more complexity with student loans and everything than someone who might be earning more than the doctor currently, but has a lot less complexity. A two-earner, no-debt is a very different situation. I roughly use the net-worth-income calculation to get to that between $1,800 and $6,000 a year. But it’s not a perfect algorithm. I would say the bulk of my clients are around the average fee of, last I looked at it, just a hair under $2,500.

I process payments through AdvicePay; it’s really easy. I set it up once, the client sets it up, they click approve, and then they get a monthly email that says, “Your account will be debited on this date for this much” and it happens. From a billing standpoint it’s remarkably easy. Takes 90 seconds to set it up the first time, and then at any point if a client were to decide, “I don’t want to do this anymore,” they can just go in and turn it off. I’ve luckily not had anybody do that without having a conversation with me, but it is pretty straightforward on their end and mine.

The system is always changing

One reason the student loan debt problem is so complex is that the system gets overhauled a lot. I think there’s fairly widespread agreement that the way we fund and finance higher education doesn’t make a lot of sense. But what has happened a lot of times in regards to student loans is that they will make a new rule or release a new program and try to grandfather in the people that already had access to a different program before, and not change things up for them. So then you just keep layering it up and layering it up. And you end up with a mess of things.

To give you an example, there’s a program called PAYE, Pay As You Earn, which is one of the income-driven repayment programs. Let’s just start right there—that the income-driven repayment plan is actually four or five different plans, depending on how you define it. One is income-based repayment. One is Pay As You Earn, and one is Revised Pay As You Earn.

There are people who, if they didn’t have any student loans prior to September 30, 2007, and took one out in 2011 or later, are eligible for Pay As You Earn. But if you had an outstanding student loan in 2006, or even August of 2007, you’re not eligible. I’ve seen that seemingly very, very small difference be the difference that adds $12,000, $15,000, $18,000 to someone’s repayment over their term. Or even more than that, depending on the size of the balance.

Everyone’s debt load is different

That’s one piece of it, there’s just so many new systems and rules being layered on top of one another. I think then the next one is that there are a lot of debt loads. If you look at the average numbers, I think there’s a big skew. It’s one thing when someone has $30,000 of debt. It’s another thing when someone has $100,000, $150,000 or $200,000.

Personally for me, my record is $546,000 of debt. But I know people that have worked with even more than that. This isn’t like looking at a car payment, something that might be in the three- to five-year range. You’re trying to give advice where you’re not talking about what their situation is now or in the immediate future. It’s actually a lot more like retirement planning, where you’re looking at their whole life.

So something like getting married might change the plan. I’ll give one example. Say you’re an attorney with $250,000 of student loan debt, which definitely happens. And you marry a teacher who doesn’t have any student loan debt. Well, that’s possibly going to change your repayment options, depending on what your repayment plan is, and depending on whether you’re trying to pay off that $250,000 or go for some sort of loan forgiveness. It actually changes whether you marry a teacher versus if you marry, say, a doctor who has a $350,000 income, because of course you might be looking at it differently if you’ve got a combined $500,000 income than a combined $200,000 income.

All these different life pieces come together and make it a lot more complicated than, “OK, how much interest do we want to pay over the course of the life of this loan? And how much can we afford to pay based on your mortgage and your credit cards and whatever else you have in terms of ongoing obligations?”

Pay off the loan or wait for forgiveness?

I’ll give you two examples of ongoing clients that I still work with. One is a single person who is self-employed in a service business, making $60,000–$75,000 and has over $100,000 of debt. On the one hand, there are ways to amortize that over 20 or 25 years, with a large payment but a doable one. But there are also the income-driven repayment plans. This person is eligible for REPAYE, which is the Revised Pay As You Earn plan, which essentially pegs her payment to 10% of discretionary income. That ends up being around $300 a month for her.

When we were looking at this for the first time, we figured that it would be roughly $700 a year for 20 or 25 years to fully repay the loan. Or, there’s this option for income-driven repayment, and you’re technically allowed to get the balance forgiven after making payments for 25 years. For someone in her situation, where that payment might be really hard to make on a regular basis just based on the amount of debt versus her income, it seems to make sense to do so. But there’s a couple more risks. One is that, she is paying less every month than the interest that accrues. Every month she makes a payment and balances negatively amortizing and growing.

When we started working together, I believe she had about $108,000 in debt, and now it’s probably around $115,000 and will keep going up every year. By the time she actually finishes, assuming life is like a spreadsheet, which of course it’s not, she’ll end up having $180–$190,000 forgiven in 2042. That’s taxable forgiveness. According to the law right now, and no one’s actually hit this point of long-term forgiveness, but according to the law right now, it’s taxable income.

So not only do we have to factor in monthly student loan payments, we also have to factor in the cost of saving for the tax bomb that’s going to hit far down the line. I think it’s just a really hard thing to weigh—Could she pay it down to zero? Yes. Could she pay it down to zero while also saving for retirement and being able to buy a house and do some of these other things? That’s a pretty tough thing on $70,000 a year. So there’s this program that makes it much more possible by providing several hundred dollars a month less in payments, but there’s a pretty significant downside to that risk, too.

The other weird variable is that if she were to get married, the REPAYE plan does not allow you to separate your income from a spouse’s income. If she were to get married to a doctor, for the sake of example, somebody who’s got a $300,000 income instead, her payment completely changes.

What if life plans change?

That transitions nicely to my next anecdote, which is a two-income couple, who both started in the public sector trying to go for Public Student Loan Forgiveness. PSLF is a really complicated program, but the gist is that if you follow these five parameters, you get your loan forgiven:

1. You are working in a public service job (government or nonprofit).
2. You make on-time payments for 10 years, 120 months.
3. You have the right type of loan (federal direct loans).
4. You are on the right type of repayment plan (generally speaking, one of those is the income-driven repayment plan).
5. You document it, have it signed-off on by your lawyer, and verify your work.

Each of the parameters has some nuances within in, but if you fulfill these, after 10 years your entire debt is forgiven tax-free. There are a lot of headlines about this which are scary and in my opinion a little bit inaccurate. They may be accurate in terms of the 99% rejection rate, it was just a pure math problem. But I don’t think that’s what we’ll see in the years to come. I think we’ll see a lot more forgiveness as the program’s kinks get figured out.

But circling back to this couple, they were both going for this program but they were both unhappy in their jobs. They planned to go to private practices instead of the jobs that they had. They had started with around $265,000 of debt. Due to the negative amortization that I talked about, plus changing repayment plans, interest capitalizes. So say you’ve got $165,000 of principal, and now you’ve got $50,000 of outstanding interest, and then you switch. Well you have $205,000 of principal, so now you’re paying interest on interest. Just a really negative kind of incentive there.

Like I said, they went into private practice and are no longer eligible for the PSLF program. But they were still in the income-driven plan, and so they were paying a combined $2,000 a month, and barely touching their principal. Imagine making $2,000-a-month loan payments and not seeing your balance go anywhere. When we first looked at it they were at about $210,000. They had to pay more aggressively for a while, just to chip down some of that principal. They put some lump sums on it to make it so their payments were not just covering interest, but actually reducing their principal. We refinanced a small amount of the loans, although some of them weren’t eligible. They’re now, three years later, down to a combined balance of around $100,000, if I remember correctly.

They did everything right from jump. They went into a public service job and what made sense when they went into the job, they did. Only then their lives changed, and now the plan that they were on no longer made sense. They were struggling to figure out what made sense from there.

These two examples stuck out to me. They illustrate the complexity that I was trying to wrap my brain around. You’re saying not just what is right for you today, but what is right for you over the next decade-plus.

There are no examples of forgiveness yet

What’s tricky about the income-driven plans is that they really started coming out between 2007 and 2014. If you’re putting a 20- or 25-year timeline on that, even for people who started on this path in 2008, we’re still eight years away from seeing them hit it. We’re basically a decade away from really seeing the effects of what this is going to look like. There are zero examples in the country of anyone who’s had their debt forgiven on the income-based repayment plan, either PAYE or REPAYE. We’re just planning based on what the rules state will happen.

My general advice to people is that I think it’s likely that something will change. Either the loan forgiveness won’t be taxable, or there will be another change to the system between now and then. But I also think you need to plan as though it will happen.

For the first client I mentioned, we’ve worked out, just on a time value of money, if we think the total forgiveness will be $180,000, and we think we have 18 years to save for it, how much per month do you need to be putting away at a 5% rate of return, to have enough to cover the tax bills? We’ll see what happens when we get there, but she’s got a taxable account set up for that day, in hopes of mitigating that tax bill. If we get there and she doesn’t need it for that, then she’s got a large taxable account for her other goals.

Frustration with the complexity

When it comes to people who are struggling under these debts, I think there’s a frustration in how challenging it is. It is extraordinarily complicated for me, a person who learns about this stuff and has taken coursework and has a designation in it and follows all of the issues politically, and talks to other planners about it. There are times where I’m sitting down saying, “I don’t know what you should do in this situation, because there’s so many unknowns.”

So if I, as someone who has expertise, is feeling that, someone who has expertise in being a therapist or teacher or doctor, it’s just frustrating. They feel like they did all the right things—they went to school, they got an education, they got the good job that they were investing in education for, but now the student loan system is so cumbersome and so frustrating.

You can make a small mistake that can cost you tens of thousands of dollars, and it just shouldn’t be set up that way. Personally, I believe the concept of negative amortization shouldn’t exist. The idea that someone can pay on their loans for a decade and owe more money at the end of that decade than when they started, just should not exist. That shouldn’t be part of the rules. And yet it is.

Frustration with being misunderstood

There’s a frustration with the system itself, but there’s also a frustration with the generation that came before. They say, “I worked off my loans, why can’t you?” Anyone who says that does not understand what has changed. Anytime I hear that sort of talk, I will throw a situation at them and say, “OK, what would you do?” They inevitably do the wrong thing because it’s complicated.

It’s gotten so complicated that you need—well, I wouldn’t say need, but for a lot of people it is well worth paying someone like me to help you walk through what your options are. That’s another piece. People are not just frustrated with the system, but the perception that they took out their debt and they should have to pay for it. That’s the initial reaction to federal plans for forgiveness, whether it’s Bernie Sanders, or Elizabeth Warren, or whatever. No one who understands anything about student loans feels that way, because that’s not what happened to a lot of these people.

Torn about what to do

The third thing is that they really feel torn about the right thing to do, because some of it is very counterintuitive. You want to try to pay off your debt, of course, and it’s weird to think that you will intentionally not pay off the debt.

Say you’re going for Public Service Loan Forgiveness. Your payment is going to be based on a percentage of your AGI. So the lower you can make your AGI, the lower your payment is going to be. Now, that’s a bad thing if you’re trying to pay off your loans. That’s a wonderful thing if you’re going for PSLF, you have no intention of ever paying off your loans, and your forgiveness is tax-free.

So I’ve advised a two-income couple to max out not only his 402(b) but also his 457. They should put all the family onto his insurance plan because the premiums will reduce his income. And use his FSA instead of her FSA, because that also reduces his income. Then they’re going to file their taxes separately, and taking the small penalty on the tax side and loss of credits for that. Through all these things, they end up reducing the payment by $2,000 or $3,000 a month.

But that means your balance is growing. There is a feeling, “Am I doing the right thing? What if life changes in a little while?” There’s also a tension, “How do I meet all of my goals at once, when it feels like doing the right thing for one of them right now is a big risk, I’m kind of locked in?” If this couple did all the things I just said, they’re committed to the Public Service Loan Forgiveness path, and they can’t go back.

Feeling trapped

People feel very much trapped, in a lot of cases. Even if they do have a path out, it oftentimes requires them to commit to something that maybe isn’t exactly what they want to do for a long period of time. I’ve talked to medical residents who would ideally work in x sort of field, but instead are going to do this public hospital work, this research work, whatever it is, to get PSLF.

I think we all make tradeoffs like that, and nothing’s perfect. But I do think people feel, “I followed the path I was supposed to, and now I am locked into something because of this system that has made it so counterintuitive. And made is so hard for me to make a change later down the line.” It’s easy to say “make a change”; it’s a lot harder if you’ve got $250,000 of student loans staring at you.

People say, “I had $30,000 of debt when I graduated from college, and I was making $29,000 a year.” But that’s not the same as having $200,000 or $300,000 of debt. It’s one thing if you’re a doctor and you have that debt, but there are people I see who have that debt and don’t have the commensurate income to go with it.

Changes date to 2010

Things changed in 2010, when the Obama administration really tried to centralize student loan lending. There used to be many different private lenders—banks and others. They were trying to simplify it and make it easier for a borrower. I think that, combined with a variety of other factors, led to a lot of institutions saying, “This is a great time for us to raise all our rates, because we know the federal government will give people student loans. We can charge more for tuition, because we know people are going to be able to take it out.” Leaving out the fact that eventually people would be saddled with that debt.

Pre-2010 there were a few different federal loan programs and many private loan providers. Condensing them solved some problems, but also led to a lot of others. The private lenders had onerous, really high interest rates. I’ve seen 11% on a student loan; that’s getting close to credit card territory. This has changed a lot recently, but it used to be that even if the borrower dies, the co-signer or spouse is still responsible, so no discharge on death. And no disability flexibility. I’ve seen a loan where essentially you miss one payment and you’re considered to have defaulted. There should be a two- or three-month period before someone gets to that point. There were what I would call aggressive terms in a lot of the private loan markets.

Around 2010, undergraduate student loan lending was centralized to be almost entirely through the federal government. There’s sort of an explosion of student loan debt from there. Was it the rising cost of college coming first, that’s why they centralized lending? Or did the lending cause the explosion in costs? I think you could see people arguing that either way.

CSLP^® course very helpful

As I mentioned before, I started learning with Heather Jarvis, whose website was a hub for me when I was first learning this piecemeal myself. I heard about the Certified Student Loan Planner designation through her. One of the reasons I chose to go ahead and get the designation is the structured format of the course. All of the information in the CSLP^® is out there, but the curriculum is structured, like the CFP^®. It’s not like someone couldn’t be a good financial advisor without having the CFP^®.

But particularly for a topic that is pretty new, that doesn’t have a whole lot of experts out there right now, having a really structured way of moving through the content was helpful. It was broken down into sections, so you’re not just going to the federal government’s website and looking up what the terms are every time you want to remember something about a repayment plan. I found that very helpful.

There’s a lot of case work too. Toward the end of the designation, they have eight or nine case studies that lay out, here’s a couple, they’re 29 and 27. His income is this, her income is this, their jobs are this, their other financial goals are this, this is their financial situation. Here’s a fake spreadsheet of their student loan debt. Work through what their payment would be on this plan. What do you advise? What is the total cost of going this route? What is the total cost of going that route? You really are just sitting there in Excel working through it.

I found that really helpful. They’ve clearly designed it to show you what sort of different things happen. It’s not just random cases, which I think is the big thing for me. It helped prepare me for all the different types of cases I would see.

The coursework is entirely self-study online. They have something like 40 modules, and you have up to a year to complete it. Then there’s a test at the end, a rigorous test. You don’t go into a testing center, like you would for the CFP^® or some others, but they have a camera on you during the test. It definitely feels like a testing environment. And you are at your computer for two hours or so. You have to score 70% or higher, so it’s a relatively high bar.

Then you have the designation, and there’s an annual fee. You retain access to the learning modules, so every now and again, I’ll be thinking about something and look up that detail again. It tends to be the first spot where I go to look up information. The United States Department of Education’s website has improved vastly in the last two to three years, but it’s still not always my go-to.

Then they have an annual recertification, which I appreciate. You take a shortened version of the test to recertify, basically saying, I still understand what’s going on.

Borrowers are relieved to find someone who can help

I’ve found that for borrowers, when they reach out, most of them have never shared how much debt they have with anyone, and so when they say, “I have $260,000 in debt” and I don’t flinch, there’s a sense of relief. I have talked to a lot of people who say, “I’ve tried looking for help before, but I can’t find anyone who can help me.” Now they find someone who’s actually done this several dozens of times, and is able to look at those numbers and not say, “Darn, you’re screwed.” People really appreciate that.

I don’t know if it’s the chicken or the egg, but I think it’s definitely tied into having the designation that people have come to me and asked me to take a look at their loans because they know I have some expertise in it, which then feeds into me being able to be a lot more confident when I see $546,000. I look at that and go, “OK, this is doable, we can solve it.”

Advisors need to be ready to deal with student loans

I think anyone who’s going to build a business working with anyone under the age of 40, you’re going to see student loans. Unless perhaps you’re someone who works with tech employees who all have really high compensation and tend to have not racked up big graduate school debts. Otherwise, anyone dealing with your professionals, you’re going to see it all the time. There are more than 40 million student loan borrowers in America. It’s an inevitability. If you’re not ready to handle those questions, you either need to have someone on your team who can be the student loan expert, or you need to be ready to hire it out to someone.

And that’s perfectly fine. If someone comes to me and says he was an early employee in a tech startup, they’re about to go public, and he’s looking at incentive stock options that could be worth over a million dollars, I’m not touching this. It’s not my area of expertise. I’m going to refer him to someone in my network who specializes in that sort of thing. I think advisors need to do the same regarding student loans.

Generates referrals

I have a largely word-of-mouth referral-base business. If you meet with a young doctor with $200,000 of student loans, you know who they hang out with? Other doctors who have $200,000 of student loans. I think it’s been helpful when someone can say, “I talked to this person and he helped me make sense of it,” whether on a short-term project basis or as his financial planner.

I’ve been building it more and more into my business over the past year or so. I think it’s become part of my expertise and niche, and so I’m seeing naturally that the people I’m talking to, 80% of the time have at least some student loan debt that they’re dealing with. Sometimes the answer is as simple as, “Pay this off at a decent interest rate, no reason to refinance. Just keep doing what you’re doing.” And there are other times it’s more complicated. I’ve found if you’re working with relatively affluent young people, you’re going to see student loans almost all the time.

Individualized situations make public presentations difficult

I do a fair amount of speaking at schools to teachers. But I have a three-year-old and a six-week-old, so my ability to do nights and traveling is pretty restricted these days. I’ve done some webinars, but it’s hard to adequately go into the amount of detail you need to do in an hour with student loans. Sometimes a little bit of information can be dangerous. I’m up front with people that if they are feeling overwhelmed by student loans, it’s self-serving for me to say they should be paying me $400–$800 dollars to look at their situation.

There are others who provide a similar student loan plan service from anywhere from a few hundred dollars to over $1,000. I’ve run numbers where the right plan could be a six-figure decision. Spending $800 bucks to get someone to look at it is worth it.

In an hour-long seminar, someone is inevitably going to say, “My situation’s like that one, I’m going to follow that example.” And they miss a detail. I’m not saying you couldn’t figure it out on your own, certainly there are plenty of people who have. So webinars and speaking gigs can be helpful for relatively simple cases. But once you start getting into the more complex case, it tends to be individualized, and there isn’t a clear path.

There is a large demand out there

There’s a large demand for student loan knowledge out there. Proving yourself, speaking, blogging, anything where you can help people understand that you are a person who knows their situation, will help you build a business.

To other advisors, I would give three pieces of advice. First, don’t underestimate the complexity of student loans. It is very frustrating to me that I still hear advisors who theoretically would never underestimate the complexity of retirement planning or Social Security strategies saying, “Look for a refinance opportunity and try to find the right payment.” You can finance someone’s loans and cost them hundreds of thousands of dollars, so don’t do that. Don’t think that this is just like any other debt repayment. That’s a big mistake, and it will cost your clients money if you have that viewpoint.

Two, I would say have someone internally who is a student loan expert, if you’re building a big firm, or have people on call that you can refer out. That doesn’t mean you need to refer the client out altogether. I’ve done white labeled plans, where I’ve given the advisor the plan and he does all the client communication. I’ve also worked on a project basis for other advisors’ clients. You give them their plan and cc the advisor on it, and they go on their way. There are plenty of people in this area who have expertise who can help you provide that service to your client. Anyone who has a CSLP^® designation is a great start.

Third, I would say understand that any student loan advice you give is going to be tied into other pieces of finances. Tax advice you give might impact student loans, retirement advice you give might impacts student loans, and vice versa. It’s not really in a vacuum. You need to be cognizant of pre-tax/post-tax decision of which account to use, depending on if they’re going for loan forgiveness or not. Be ready to talk about the tradeoffs of student loan advice versus other pieces of the financial plan.