There are a lot of debt relief agencies that are willing to help you consolidate your student loan debt – among other debts. For a fee, of course. And many of these companies have come under regulatory scrutiny for unsuitable fee structures, and misleading advertising and marketing. (In some cases, state regulators have filed suit against them.)
But there’s another side to the student loan industry – the fee-only or fee-based side. These consultants generally charge a flat consultant rate or retainer fee, or an hourly rate that’s not related directly to any transactions. That’s the business model that Jan Miller, a consultant and planner who focuses specifically on student loan debt planning and management, has adopted for his practice in Ashland, Oregon. Clients pay one of several fees, depending on the effort and planning required, but from there, Jan is on the debtor’s side of the table, acting as an advocate and counselor for the debtor. While most debt management counselors in the debt consolidation world continue to work for the financial services company they represent (if they don’t do a consolidation, they don’t get paid), Jan and those with a similar fee-only business model work entirely for you.
Eliminating Conflicts of Interest
In theory, that could help eliminate the conflicts of interests that are part and parcel of the debt consolidation-for-a-fee business model – a conflict that sometimes leads recommendations that could be unsuitable for many borrowers. After all, when all you’ve got is a hammer, as they say, everything starts to look like a nail.
“I was reading an article in the Wall Street Journal about all these debt relief agencies,” says Miller, describing how he got into the student loan consultant business. “The solution was consolidation, no matter what the situation was.” Miller was by that time a veteran of the credit services industry in a variety of contexts. He saw the niche, and aimed to fill it, starting his own independent firm, Miller Student Loan Consulting, LLC.
Today, Miller helps student loan borrowers with lowering their payments to manageable levels, save thousands of dollars in interest, and build a repayment strategy that pays off both federal and private student loans that fits within the clients’ budget and life goals.
Sometimes that involves consolidation and refinancing – other times not. The difference is that since Miller and other consultants with fee-only structures aren’t compensated when you do a consolidation, they have no reason to push the idea when there are other strategies that would be more effective for the borrower.
What differentiates you from the debt management industry as a whole?
Actual, real expertise. I’m an expert in student loans. I’ve worked in the credit industry, working with student lending and other aspects of consumer lending, and I know how these applications and plans are processed internally. I worked at Citi, for example, seeing the whole spectrum of student loans. So my background is in student loans, specifically. All these ‘debt relief agencies,’ I kept seeing, none of them actually had student loan experience. How do you actually know what you’re doing? If you haven’t gone through the manuals, and how these loans are actually processed, you don’t even know what’s possible!”
Well, when you’ve gone through the manuals, you know all the administrative clauses. So when I call someone who works on the inside for a client, I already have an idea of what they can do, internally. For example, many times, the rules state that you can only consolidate twice. Or so people think. But when it makes sense, we’ve had people actually consolidate or refinance three or four times!
When someone who is struggling with student loans calls you, what’s the usual conversation?
When people call around, looking for student debt advice, they usually get a sales pitch. They’re really pushed toward consolidation, no matter whether it makes sense for them.
I help a lot of people for free. The free consultation I give is a lot of education. For example, if all they need is to do an income sensitive plan that they can do all by themselves, I’m not going to charge for that. I charge up front, and the higher income, higher net worth people are able to see the value in what I do.
Can you walk us through a typical client scenario?
Sure. My niche is mostly professionals who have six figures in student debt, but have high incomes – six-figure incomes – as well. So these are relatively affluent to high income people. The majority of my clients are high earners, high net worth people. So when they come on board, my job is to make sure they are enrolled in the right programs for their particular situation. That means I have to understand enrollment in these repayment or forbearance programs – know the criteria, as well as ensure they are actually enrolled.
For the most part, my clients fall into five different categories: First, the client who has all federal loans. He’s going to benefit the most from income-sensitive repayment plans.
Then, you have the client who has a split – say, half federal and half private student loans. In this case, he may be able to qualify for an income-based repayment plan, but that might not be his best option. Say, you have two loans, a federal loan at 3 percent and a private loan at 6 percent. In this case, it’s likely in his best interest to keep the federal loan in forbearance as long as possible, allowing him to focus on paying down the higher-interest debt, first.
The physicians, going into hospitals and clinics, they definitely qualify for public service loans.
Then you have the doctors, and professional-level people. For these, we have a lot of options. We often refinance both federal and private loans for them. There are, like, 20 different loan programs for them. But they have to have great credit and an outstanding debt-to-income ratio.
And then you have people in unorthodox situations, which are very common. These are people who have attended several schools, and have several lenders. Maybe they haven’t finished school, but they’re running a business now. So I help them develop a plan that’s manageable for them and accounts for their lives and financial situation.
The bottom line: There are a lot of options. Between forbearance programs, refinancing, consolidation programs, there is a lot we can do for these people.
Suppose a client was sitting on some cash and wanted to settle a debt for less than the full amount. Are lenders willing to deal?
Great question. Usually, with federal loans, they won’t discount a dime, if your account is current.
Well, we can fix that!!!
[laughter] Yes, indeed, if you are willing to trash your credit, you might get a little bit of a better deal! You’d have to be willing to let your credit go to Hell. But most of my clients are not willing to do that. Now, with federal loans, if you’ve actually defaulted – if they’re in genuine, honest-to-goodness default status, and they’ve been assigned to collectors, maybe the lender will discount about 10 percent in a settlement. If it’s a direct loan, a lot of times they’ll remove the collections fees. (I know to ask for that!).
If it’s not a direct loan, it has to be negotiated. But it’s still going to be around 90 percent. That’s what you’ll have to come up with. See, with federal loans, they know they have you! Did you know that the federal government eventually recovers about 80 percent of every dollar of federal loans that goes into default? There’s a lot they can do. They can garnish without a judgment, they have your tax refunds, so unless you’re willing to leave the country for good, they’re going to get their money!
Now, with private lenders, it’s a different story. If you owe $100,000, it’s not unusual to settle for $30,000 or $40,000. If that’s the strategy, you usually get the best deal if you wait until they file a judgment.
I had another case where Sallie Mae offered them 35 to settle right out of the gate. I was surprised. Then there’s the strategy where you wait until it goes past the statute of limitations. Then you don’t owe them anything.
Can they jurisdiction shop? Or do they have to operate under the statute of limitations where you are? How does that work?
It’ll go to the state listed on the contract. I’m not a lawyer, though.
Can you talk a bit about using secured vs. non-secured debt to refinance?
You mean like a HELOC? [Home equity line of credit] [ed. Note: Unlike interest on personal loans, home equity loan interest, when secured against the principle resident of the owner, is deductible for up to $100,000 in principal. However, if you can’t pay (job loss, disability, etc.), lenders could potentially foreclose on your home. The nice thing about an education is that nobody can foreclose on your brain!]
A home equity line. Some people do that. Private loans are very difficult to get approved for. I had a client with $300,000 in income and a 750 credit score who got declined. You have to be perfect. Great credit, fantastic income-to-debt ratio.
In some cases, though, they have a relationship with their bank, or whatever, they can get approved, and get a good rate. It’s something to consider: Where you have a home equity loan that you can get approved at 2-3 percent, and a debt at 8 percent, let’s say, and you can afford to make the payments!
Can you speak about some of the mistakes people make before coming to you?
Consolidating too soon. That’s a big one. If you come and you haven’t consolidated yet, we have a lot of options. Forbearance on lower interest debt so you can pay down high interest debt, settlement, creating an income-sensitive payment plan, If you consolidate too soon, you lose a lot of those options. You lose your eligibility for certain deferments when you do that. There’s a time to consolidate. We’ll consolidate for you. But consolidate at the proper time. If they have consolidated there are still options. But it’s a lot narrower.
The most dreaded are spousal consolidations. Those reduce your options to almost nothing. You have to have two people, two incomes qualifying, for everything. You can’t even do those anymore.