Increasingly, clients are carrying heavy student debt. Modeling these debts accurately and providing clear visuals to pay off these debts efficiently was elusive until RightCapital produced this groundbreaking tool. The student loan analysis tools enable advisors to model different income-driven repayment plans, refinancing options, loan consolidation, and working toward 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
To access the Student Loans tool, navigate to the client and select "..." More Menu > 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 essential piece of the overall picture. Here's the big picture of how it all fits together:
Summary Tab: Shows the result of an applied strategy compared to the "current" scenario. Though it is the first tab, it is often most helpful to view after having completed the loans and strategy tabs. The Summary tab is fantastic for beginning a client conversation as it summarizes 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 an excellent 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 the 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, which can be selected from a drop-down list. This is helpful for clients concerned with specific cash flow or time-sensitive goals that may impact the repayment schedule.
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 structures for all the client's loans. Total savings on the right indicates the difference in total payments. 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 and illustrating the total payments each year.
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 PSLF will also be displayed.
Make sure to indicate the client's net borrower timing in the Action Items. This reflects the 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 specific 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:
The loans are not eligible for an income-driven repayment plan if nothing is listed.
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.
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, use 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.
Click on the Details tab to see the full details behind the projected loans.
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: Any net interest (Total interest minus payment amount) is forgiven in the plan's first three years for income-driven payment plans. 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 if the client left 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.
In the Action Items section, demonstrate the impact of other payment plans.
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 months they have worked there 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: This will reflect the 10-year payment plan to pay off loans in 10 years.
IBR / PAYE / SAVE: These three income-driven repayment plans calculate the payment amount based on 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) 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 available in a drop-down menu underneath the repayment plan. This will consolidate all loans into one at a weighted average interest rate.
Suppose loans are consolidated, and the client will work in a public service job. In that case, the system will illustrate loan forgiveness after 120 months (including any specified months 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.
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 the Student loan proposal to incorporate the proposed payment plan from the Student Loan screen.
Income-driven repayment plan forgiveness: If a student loan has an income-driven repayment plan, such as IBR, PAYE, or SAVE, 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 ten years of qualifying payments.
Student loans will be displayed on the Debt screen. The loan will fully participate in the Debt tool if the payment plan is Standard in the loan card. However, if they are set up under an income-driven repayment plan (IBR, PAYE, SAVE), they will not be included in the strategies available under the debt tool (but will still be displayed 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.
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