How Your Clients' Children are Lured into Oppressive Student Debt
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If you were told that someone would offer you $750 for indebting each of your clients’ children, you would think they had lost their mind. But this is how student lenders operate.
Student lenders have set their sights on the next round of borrowers. They’re paying very hefty commissions to reel in the children of upper-income families. The offers are being made through lead-generator services that consolidate disparate groups of borrowers into bulk buys for insurance, loans products, mortgages, and so forth. Credit card issuers operate the same way, paying commissions ranging from $100 to 50,000 airline miles to get a new piece of plastic into someone’s wallet. It’s a big industry, generating billions in revenue annually.
The lead generators that consolidate customers for the credit industry have taken an interest in working with financial advisors. We were blown away by their latest offer. These lead generators told us they will pay you, the financial advisor, $750 for each of your clients’ children that takes out a student loan through their network of lenders – $750 for putting an 18-year old in debt.
Once we recovered from our initial shock, we processed the ramifications. Can they really make money with that high a fee? Would a financial advisor do that to their clients? Is this even legal? What about the fiduciary obligation to the client? We quickly had a change of focus and thought, “If the student lenders put a $750 valuation on putting a kid into debt, what is it worth to the family, to keep the kid out of debt?”
Let’s look at the other side of this “trade” and assess the value that you can provide to your clients by keeping their kids out of debt.
Where is the value in college?
It is in the improvement in future earnings. Good students who study the right major make a lot more than students who don’t optimize the value of college. Starting salaries for graduates in engineering, finance, health care, and the like are two and a half times higher than the kid who gets a “soft degree.” And the wage disparity increases over the course of a career – by about 1 to 2% annually. We are very strong proponents for kids going to college and getting a degree linked to earning potential, because we know empirically the value it delivers to the individual and to society as a whole.
Does it make sense to get students into a four-year college and on a degree track at all costs, including debt?
No, absolutely not.