How to use Student Loan Analysis

Student loan analysis overview (video)

Increasingly, clients are carrying heavy student debt. Modeling these debts accurately, and providing clear visuals to efficient pay off these debts has been elusive until RightCapital produced this ground-breaking tool. The student loan analysis tools enables advisors to model different income-driven repayment plans, refinancing options, loan consolidation and working towards public service loan forgiveness (PSLF).

Article Objectives

This article aims to help you, the advisor

  • Add student loans to a client's Profile
  • Use advanced tools in RightCapital to determine the most efficient repayment plan for the client
  • Present your hard work to your client in a beautiful and accessible way

Student loans tool overview

To access the Student Loans tool, navigate to the client and select Dashboard > Student Loan.

For clients with Student Loan debt, the Student Loan screen provides the ability to illustrate those loans and possible strategies for dealing with those loans. This includes income-driven repayment plans, Public Service Loan Forgiveness (PSLF), consolidation, refinancing, and more.

There are four sub-tabs in the Student Loan tool: Summary, Loans, Strategy, and Details. Each covers an important piece of the overall picture. Here's the big picture of how it all fits together:

Summary Tab: Shows the end result of an applied strategy compared to the "current" scenario. Though it is the first tab, it is often most useful to view after having completed the loans and strategy tabs. The Summary tab is fantastic to begin a client conversation as it gives a big-picture summation of all your hard work.

Loans Tab: Shows the list of student loans included in the client's Profile as well indicating what (if any) repayment strategy the loan may be qualified to receive. This is often a good place to begin thinking about a strategy - it helps you, the advisor, get your head around the multiple loans involved with a particular client and potential repayment strategies available to each.

Strategy Tab: Shows a visual path to advanced repayment or loan forgiveness. This is a great place to begin exploring the Action Items, and the impact that various adjustments may make to the overall student loan repayment plan. From the Strategy tab, toggle over to the Summary tab to see how big of a difference various Action Item adjustments make on the repayment horizon for the client.

Details Tab: Shows the annual (or monthly) loan details including repayment amount, amount forgiven, etc. The Details tab displays one loan at a time, and loans can be selected from a drop-down list. This is most helpful for clients who are concerned with specific cash flow, or who may have time-sensitive goals which may be impacted by the repayment schedule.

Understanding the summary tab

To see the current student loan payments or the impact of the proposed payment plan on the client's situation, visit the Summary tab.

This shows the total differences between the current (blue) and proposed (green) payment structure for all of the client's loans. The difference in total payments is indicated under Total savings of on the right. The impact of loan forgiveness and the interest benefit derived in the first three years of income-driven repayment plans is listed under the savings.

Use the drop-down box to show charts indicating how the combined loan balances project over time, as well as illustrating the total payments each year.

Understanding the loans tab

The Loans tab is the best place to start to see an overview of the client's current student loans. Loan eligibility for an income-driven repayment plan or for PSLF will also be displayed.

Make sure to indicate the client's net borrower timing in the Action Items. This reflects the time period during which the client first took out a student loan (exception: if the client took out and paid off a loan, and then took out another loan, indicate the later date). This timing influences eligibility for and calculation of certain income-driven repayment plans.

The column labeled Income-driven Repayment Plan Eligibility will list the plans for which each loan is eligible, based on the type of loan and net borrower timing:

If nothing is listed, the loans are not eligible for an income-driven repayment plan.

The column labeled PSLF Eligibility indicates if the loans would be eligible for Public Service Loan Forgiveness if the client were to work for a qualified public service organization. Private loans are ineligible, most other loans are eligible but may require consolidation into a single loan. For more details on eligibility for PSLF, visit the government's Student Loan site here.

Understanding the strategy tab

If desired, follow the flowchart in the Strategy tab to see what type of approach may work best for the client(s) given their situation.

If they plan on a public service job, the top flowchart can show the best options based on their priorities. If they plan on a private sector job, do the same using the bottom chart.

If a proposed payment plan is selected in the Action Items, the path for the client will be highlighted in the Strategy chart.

Understanding the details tab

To see the full details behind the projected loans, click on the Details tab.

See the details of each loan individually using the drop-down box. If loan consolidation is indicated, select the option to display the client's consolidated subsidized or unsubsidized loans. Use the radio button to view annual or monthly payments. Annual amounts reflect rolling 12-month periods starting from today, like all projections.

Beginning Balance: Loan balance at the beginning of the 12-month year.

Interest: Total interest calculated for that year

Payment: Total payments made for that year

Interest Benefit: For income-driven payment plans, any net interest (Total interest minus payment amount) is forgiven in the first three years of the plan. That is reflected under 'Interest Benefit'

Interest Accrued: Interest accrued under an income-driven payment plan in that year but not added to the loan balance.

Interest Capitalized: Interest generated and added to the loan balance.

Accrued Interest Balance: Total interest accrued through that year. This amount would be capitalized and added to the loan balance were the client to leave the income-driven payment plan.

Loan Forgiveness: The amount of the loan that is ultimately forgiven.

Ending Balance: Loan balance at the end of the 12-month year.

Illustrating different payment plans - Action Items

In the Action Items section, illustrate the impact of different payment plans.

Make sure to complete the additional information in the Action Items, including the client's career plans (public or private) and tax filing status (can impact payments under IBR and PAYE options). If the client is already working in a public service job, specify the total number of months they have been working at that job while making student loan payments.

Under the Proposed payment plan drop-down menu, select a proposed plan for all of the client's student loans. Make sure to refer to the Loans tab to see the eligible plans.

The options are:

None: Student loans will reflect whatever payment plan is entered for the loans on Profile > Net Worth.

Standard: Will reflect the standard 10-year payment plan that will pay off loans in 10 years.

IBR / PAYE / REPAYE: These three income-driven repayment plans calculate the payment amount based off of the client's income, and offer loan forgiveness after 20/25 years.  RightCapital will calculate payments under income-driven payment plans using the client's projected Adjusted Gross Income (AGI), which is based on the information input under the Profile. To arrive at a client's discretionary income,150% of the state poverty guideline amount is subtracted from the client's AGI.

If an income-driven repayment plan is chosen, loan consolidation becomes an available option in a drop-down menu underneath the repayment plan. This will consolidate all loans to one loan at a weighted average interest rate.

If loans are consolidated and the client will be working in a public service job, the system will illustrate loan forgiveness after 120 total months (including any months specified that they have already worked). Public Service Loan Forgiveness will occur 120 months after the last loan consolidation.

Refinance: Set an interest rate and duration to show the impact of refinancing all loans.

The payment plan selected will be applied to all loans.

In a nutshell...

The Student Loan tool is a powerful way to make your client's financial future stronger. The repayment strategies mentioned above are the meat and potatoes -- they take incredibly complex calculations and present them in a simple and comprehensive format. Essentially, the options to reduce a client's student loan repayment are:

  • Work in the public sector for 120 months to receive loan forgiveness (PSLF)
  • Refinance and/or consolidation
  • Lower payments by linking the repayment amount to the client's income

The nuances of each option are captured in the Action Items, and the overall impact is shown on the Summary tab.

Incorporating into a client's plan

Once a proposed student loan strategy is created, illustrate the impact on the client's proposed retirement plans and cash flow on the Retirement > Analysis screen.

Under the Action Items, set the Proposed Student loan strategy to Student loan proposal to incorporate the proposed payment plan from the Student Loan screen.

Tax on student loan forgiveness

Income-driven repayment plan forgiveness: If a student loan has an income driven repayment plan, such as IBR, PAYE, REPAY, then the loan balance is forgiven at the end of the term, usually 20 years. The loan balance forgiven is taxable. You can see it as Other Taxable Income (Box 21) on the Tax > Tax Estimate > Details > Sample 1040 form.

Public Service Loan Forgiveness: If a student loan's balance is forgiven under PSLF, the balance forgiven is not taxable. PSLF balance is forgiven after 10 years of qualifying payments.

Interaction with the Debt screen

Student loans will display on the Debt screen. If the payment plan is Standard in the Loan Card, the loan will fully participate in the Debt tool. However, if they are set up under an income-driven repayment plan (IBR, PAYE, REPAYE), they will not be included in the strategies available under the Debt tool (but will still display on the Debt screen).

In addition, no changes on the Student Loan screen will impact what is reflected on the Debt screen, or vice versa.