Student loan debt tests borrowers. Here are some expert tips to make a difference.

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For decades, financial advisors have taken a simple approach to helping clients manage their student loan debt. Sticking to a repayment schedule with a mix of careful planning and disciplined saving put young professionals on the right track.

Today, all bets are off. As of March 2020, borrowers have been given a break for federal student loan repayments. The CARES Act didn’t just suspend reimbursements; it also ended collection efforts on many defaulting federal student loans and temporarily set interest rates on most such loans to zero.

Initially set at six months, the relief continues to build as the pandemic drags on. It is supposed to expire on May 1, 2022, but it is quite possible that President Joe Biden will extend it.

“There’s so much uncertainty,” said Jay Karamourtopoulos, a Boston-based certified financial planner. “Some people don’t want to pay if they don’t have to. They are convinced that there will be some sort of reduction in their student loan or that their debt will be cancelled. Others want to pay it back anyway,” regardless of the government’s continued actions.

For advisors, the challenge is to strategize with borrowers in the face of an unpredictable future. The government could completely cancel certain types of student loans. Some politicians favor changing the student loan system and introducing a new income-based repayment plan while freeing some people from default.

Whatever happens next, advisors focus on what clients are able to control. They urge borrowers, especially young professionals who have recently moved, to confirm that their loan officer has their correct contact details.

Depending on the client’s preferred response to managing their student loan, Karamourtopoulos can model a few repayment plan options. He will review the pros and cons of each option and let the client choose how to proceed.

All of the swirling unknowns put advisors in a position to predict outcomes that can vary widely. “I’ve seen proposals for student loan forgiveness at $10,000 or maybe $50,000,” said LJ Jones, a counselor in Pacifica, Calif. “Even with the higher number, borrowers will still owe a lot of money. They may have total student loan debt of $150,000.

Young lawyers, doctors, and other professionals sometimes struggle with debt from both their undergraduate and graduate tuition. Even though they are hoping for a new loan system that will bring them permanent relief, they cannot count on it.

“They end up with a sense of restriction and inflexibility,” Jones said. “They feel they cannot leave their business because of the loans they are facing. This can represent a very significant financial burden.

He cites the example of lawyers earning $200,000 a year in a law firm. With rising housing costs (whether renting or buying) as well as owning a car and covering other inflation-related expenses, tracking loan repayments can sting.

“There’s a tension to make those payments and have the lifestyle you want to have,” he said. “Once the Covid freeze is over and any grace period ends” it is difficult to know the long-term implications for borrowers.

For clients with high incomes and high credit scores, Jones might consider privately refinancing their student loans. The downside: Opting out of the federal student loan program can mean losing future opportunities for loan relief and forgiveness.

To play both sides, Jones might suggest keeping $10,000 in the federal loan system while refinancing the remaining debt privately. But it depends on many variables and the client’s attitude towards debt management.

“It’s very complex,” he said. “There are so many types of reimbursement programs, including income-based plans. An important factor is the amount of other debt they have, such as a home loan or a car loan.

Another consideration is the volume of loans an individual can amass – and keep them organized. Some people may have more than a dozen separate loans, representing each semester of schooling. Each can have their own layouts and quirks, some being government subsidized while others are not. “The number of loans can be overwhelming,” Jones said.

Administrative hassles alone can cause problems. For example, borrowers who were making automatic payments on their federal student loans from a checking account may need to set up automatic debit again with their bank at the end of the suspension period.

Of course, advisors can’t do much if clients don’t have the capacity to repay their loans. Even if the government announces a more affordable, income-oriented program, it is unlikely to address many borrowers’ concerns about resuming at least some repayments.

This is why advisors tend to focus on clients’ cash flow and their saving and spending habits. Struggling with too much debt that is difficult to repay or renegotiate can lead to personal bankruptcy. And even bankruptcy may not release borrowers from their obligations.

Continued: Have you received student loan debt relief? Know the tax consequences.

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