3 Steps to Maximize Financial Coaching Success

Megan Kursik, Assistant Director of Partnership Management, and Kristen McGuire, Development and Communications Associate | The Financial Clinic

“The only thing to do with good advice is to pass it on. It is never of any use to oneself.” -Oscar Wilde

We are so grateful to the Center for Financial Security (CFS) and Asset Funders Network (AFN) for passing on their advice to the financial coaching field: Last week, they released the results of the second annual Financial Coaching Census, disseminating recommendations for quality improvements based on our collective national experience. It’s thrilling that our field has grown to a point where we can meaningfully reflect on how to make it even more impactful. Luckily, it seems clear we all want the same things! Here are three strategies we can help you to implement, all identified as important areas for growth by the Financial Coaching Census:

  1. LEVERAGE TECHNOLOGY TO ENHANCE FINANCIAL COACHING

Financial coaching requires a lot of moving pieces, with a strong emphasis on “A LOT.” The amount of paperwork can feel overwhelming, between printed information for and from customers and written notes to track progress and outcomes. And if you work at multiple sites, you find yourself becoming the local bag-lady/gentleman. The Clinic created its web-based financial coaching platform, Change Machine, to lighten the figurative and literal load of coaching, transforming a filing cabinet of binders into a dynamic system of resources to learn the latest financial security strategies, print tools and worksheets for customers, manage cases and appointments, and connect with fellow practitioners across the country. Plus, managers and funders get the hard evidence they need that a program is effective through organic data collection and reporting.

  1.  EXPAND TRAINING AND ONGOING DEVELOPMENT OPPORTUNITIES

So many strategies, so little time! Many who work in social services struggle to find the time and resources to train staff, and this can be an even harder feat for the 48% who reported having integrated coaching models. Through years of experience building the capacity of over 360 organizations in 30 states, the Clinic’s team has designed concise, interactive trainings that support frontline staff to use financial security building strategies. We help financial coaches practice soft and hard skills to juggle strong customer engagement with data collection and provide organizational development sessions for program managers to fully integrate and oversee the coaching work. In-person trainings are supplemented with follow-up technical assistance calls and a monthly series of virtual trainings on Change Machine to continuously increase knowledge and skills. And an exciting new release – a brand new Train the Trainer curriculum provides all the tools you need to train new staff for years to come.

  1.  INVEST IN TARGETED RESEARCH AND EVALUATION

Just as the Financial Coaching Census builds the case for improving the field as a whole by collecting and analyzing the right data, we need to do the same for our individual programs to maintain relevance and impact. One of our priorities in creating Change Machine was robust data collection and reporting capabilities. Through an intake survey coaches use in the first meeting to get to know new customers (featuring questions from the Center for Financial Security’s Financial Capability Scale), data is collected to paint a picture of customer populations, including demographics and presenting issues. As the coaching process progresses, customer retention, engagement, and outcomes are consistently tracked. Managers can easily pull reports to review coaching performance, customer needs, and overall program success. This not only allows for program optimization and quantitative proof for funding, but also highlights systemic barriers facing customers and organizations and provides the data to make the case for lasting change (check out the Clinic’s Refund529 win for proof!). Best of all, reports can be customized to meet the specific needs of your program.

Conclusion

The results of the 2016 Financial Coaching Census offer proof that financial coaching is an inspiring and crucial field. Of course it is not without its challenges. Even when we know what we need to improve, actually implementing it is a whole new beast. But as we discovered in an Evaluation’s Endgame, the results are worth it. When you’re feeling a void in effectiveness — in technology, training, or evaluation — we’re here to help. Together, we can see our collective influence rise.

To learn how you can engage with the Clinic, contact our Assistant Director of Partnership Management, Megan Kursik.

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A Note on Congress’s New Budget

Defunding a Pathway to the American Dream

Mae Watson Grote | Founder and CEO | The Financial Clinic

united-states-capital

We learned on Monday that Congress has approved a crucial government program that gives struggling low-income families the opportunity to achieve the American dream. As somebody who has spent her entire career working for economic justice and a more inclusive economy, I am struggling to find a way to describe my reaction to this news: Discouraged, dismayed, or devastating hardly seems to cover it.

Every day we see customers who are working hard — multiple jobs, low wages, volatile hours — and yet they struggle to pay the rent or feed their family, much less invest in their future. The sobering reality of their immediate economic needs often stifles their larger dreams of owning a house or starting a business because of the financial chasm that lies menacingly in front of them, impeding that first step towards saving for anything more than next month’s rent.

For nearly two decades, AFI has forged that gulf through matched savings accounts: Individual Development Accounts (IDAs). IDAs are a critical tool for working poor Americans to build financial security by matching earned income deposits dollar-for-dollar to use towards life-changing assets: purchasing a first home, capitalizing a business, or funding post-secondary education or training. The matching funds are accompanied by support services, like financial education, credit repair and counseling, and guidance in obtaining tax credits. IDAs are particularly powerful because they recognize and address the stark reality that average incomes for so many American families leaves a gaping hole in their ability to afford a home or college education, crucial assets for building financial security for generations to come.

Simply put, we know that the absence of assets in low-to-moderate income families represents a fundamental barrier to economic mobility. The evidence also points to the fact that AFI does extraordinary work in helping Americans build their future. Without the latter, the former’s ability to achieve this on their own has just been become unnecessarily more difficult.

The Clinic stands with the principles of AFI; we will strive to not lose hope in these far-too-often trying times. Despite this devastating news, our work continues because the communities who need us most will continue to depend on our support and advocacy. Financial security, economic mobility, and the pursuit of a more inclusive economy are basic human rights that cannot be ignored, regardless of whether our current Congressional leadership rightfully recognizes them as priorities.

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Advancing Financial Security Inclusion Through FinTech

Amy Cao | Program Associate | The Financial Clinic

Financial technology, dubbed FinTech for short, continues to grow rapidly as an industry, revolutionizing the landscape of financial service delivery. We are witnessing the onset of a changing tide — powered by smarter technologies — to improve the way we manage money.

Indeed, leaders of America’s largest banks and disruptive tech entrepreneurs alike have found common ground in utilizing web-based communication technology as a low-cost delivery channel for quality products and services. But within the sweeping waves of innovative development, there also lies an enormous opportunity that is too-often missed — to broaden the traditional financial consumer demographic and extend services to America’s financially underserved.

VISIONARY PRODUCT DEVELOPMENT FOR LMI POPULATIONS

Low-to-moderate income (LMI) households that have long been precluded from formal banking institutions and service providers could stand to gain the most from widely accessible product designs that depart from the traditional banking products and services model. Yet, many creative and cutting-edge FinTech tools are not developed with these populations in mind.

IDENTIFYING THE GAPS

Until recently, available data on low-income consumers’ needs and preferences have been largely unreliable or difficult to capture. According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, the underserved population consists of 9 million unbanked and 24.5 million underbanked households — almost 35 millions Americans effectively rendered “invisible” from the financial system.

This stark reality is not surprising, especially for those of us working in the field of financial coaching. At The Financial Clinic, customers get by on a median income of $17,000, and nearly 48 percent live below the federal poverty line. Underserved households pay considerably more for essential banking services like check cashing, bill pay, money transfers, loans, and so on. Recent reports from Change Machine show customers’ monthly financial transaction fees racking up as high as $80 for maintenance fees, $40 on check cashing, and $50 on money orders.

Without bank visibility, and with additional barriers such as immigration status or identity theft, these households bear a hefty premium on alternative financial services. Also known as “fringe” financial services, businesses like check cashers and predatory payday lenders claim they are serving communities that banks do not; and they’re not wrong. Since the 1990s, banks have withdrawn from local communities, particularly from low-income areas and communities of color, where branches were less profitable compared to higher net worth regions. With far fewer banks and credit unions per capita in LMI neighborhoods than in prosperous ones, it is no wonder that the unmet needs in “banking deserts” have enabled fringe enterprise to plant their roots and thrive, expanding by 15 percent each year.

UTILIZING FINANCIAL COACHING INSIGHTS

As a direct service provider, The Financial Clinic sources safe and reputable banking products offered by other organizations in the financial security field, FinTech start-ups, and even brick-and-mortar financial institutions looking to make an impact on the underbanked communities they serve. The Products Team derives insights about our customers’ needs directly from the coaching process using a mixed methods research approach and careful vetting. Synthesizing Clinic data collected from our web-based financial coaching platform, Change Machine, with customer stories and sample surveys, we are able to better understand trending issues in our customer community and determine the most appropriate and accessible tools and services necessary to complement our service delivery model both locally and at scale.

Much like the Clinic’s best coaching practices for developing savings plans or debt management strategies, many coaching conversations now center around the effective use of products, and setting a good rhythm to introduce new products as they come. The coaching relationship involves a great deal of trust in order to delve into sensitive financial issues, which, over time, fosters mutual accountability and confidence. For our coaches, maintaining this bond means being able to offer accessible and affordable options to our customers — nearly 50 percent of our customers still live below the federal poverty line despite 70 percent being active labor force participants. These persistent and widespread financial disparities call for inclusivity by product design, which FinTech and its very nature of swift and revolutionary transformation is perfectly primed to meet.

INCLUSIONARY PRODUCTS AND SERVICES

The Clinic applauds those companies and organizations that are laying the groundwork to leverage FinTech toward our shared goal of financial inclusion, better integrating the needs of low-to-moderate income populations with the evolving financial sector. CFSI has published numerous articles on the issue, including a report published last November on opportunities to reach the $9.1 billion underserved market. IDEO, known for their human-centered design approach, launched their very own non-profit wing, Ideo.org, which has formed coalitions across the financial security field to inform product development for underserved consumers. As a field leader, the Clinic has members of its staff on Ideo.org’s advisory council, providing input into the design of a whole class of projects to serve the financially insecure directly.

At the Clinic, we’ve begun implementing our very own vetting criteria to identify products that enable more effective and innovative programming from the service delivery process through to our customers, by promoting stronger outcome achievement.

The Clinic’s evaluation framework focuses on six key areas:

  • Mission and outcomes achievement and acceleration
  • Range and scope of service(s) offered
  • Accessibility regarding cost, eligibility, and functionality
  • Innovation and specialty in design or programmatic structure
  • Reputation and reliable sourcing, management, and support
  • Data security and transparent partnership

As one of the main pillars in the Clinic’s vision for lasting change, product integration allows us to recognize opportunities for compatible collaboration within the field of financial security and thereby broaden the scope and strengthen the value of the Clinic’s impact on the working poor nationwide.

The Clinic is proud to partner with Earn, an organization that offers the Starter Savings Program that rewards its participants after successfully completing a six-month consistent savings challenge, simply by linking the program to their existing bank accounts. For tech-savvy customers receiving SNAP, we also recommend the FreshEBT app by Propel, which helps users more actively manage their benefits by providing fast access to account balances, detailed spending and transaction history analysis, and location functionality that finds nearby EBT-accepting stores. The Clinic is also piloting the Focus Card by Community Financial Resources, a low-fee prepaid debit card for customers to receive and store their direct deposits, public assistance, and tax refunds, and includes an optional linked savings account through US Bank.

It is imperative that initiatives like these continue to grow and expand across the financial sector so that we can develop stronger insights about the vast diversities and unique challenges that characterize impoverished communities and better promote access for consumers at every level. The role of financial coaching here should not be underestimated in its ability to identify the needs of LMI individuals and families and to act as a trusted resource to recommend these innovations.

Having served more than 40,000 customers, Change Machine partners now in 23 states, and the financial security ecosystem launching nationally this year, we know firsthand that technology can be a powerful channel for social enterprise that enables scalable organizational impact for lasting change. We are committed to expanding this growth, which for us, means continuing to support marketplace innovations, while ensuring that financial products and services remain accessible, safe and relevant.


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An Evaluation’s Endgame for Programs: Challenges to Implementation

Haidee Cabusora | Chief Program Officer | The Financial Clinic

Editor: Kristen McGuire | Development and Communications | The Financial Clinic

RCT Implementation

Evidence-based impact. Third-party evaluation. Rigorous evidence.

In the words of Billy Joel, the phrases fill you either with sadness or euphoria. Nonprofits sit on one side of the spectrum — all doing amazing and impactful work — but not always prepared for the data collection, staffing, resources, or logistics of research and evaluation. On the other side, the external stakeholders, like government and funders, increasingly demand impact evidence for continued investment to ensure that dollars are spent on quality programs.

In 2012, the Urban Institute selected The Financial Clinic and Branches in Miami to participate in a random control trial (RCT), commissioned by the Consumer Financial Protection Bureau, on the impact of financial education and coaching on household balance sheets and well-being.

When its results were released, we were thrilled to see that the data conclusively demonstrates our financial coaching model and programs make a measurable difference in the lives of low- to moderate-income individuals and families. If you have a few hours and love appendices, you can find the full report here. But in sum, financial coaching works across a broad range of financial (i.e. savings and debt levels, credit scores) and well-being (confidence, attitudes, stress levels) outcomes. There were surprisingly no heterogeneous differences in outcomes achievements based on baseline financial or demographic differences. Most importantly for our mission, even the 40 percent of our participants on fixed incomes showed statistically significant results in savings frequencies and amounts.

Studying the results of the RCT provided a unique opportunity to further the Clinic’s vision of a financially secure America — lifting the proverbial hood of our programming and demonstrating what worked, for which low-income populations, and why. We hoped that we could make a contribution to this evolving field through scientific evidence and expand the boundaries for the new generation of financial coaching programs.

However, we soon realized that it would be a whole new challenge to actually implement the results in not just our financial coaching program, but our technical assistance and training, and the Clinic’s social enterprise, Change Machine. While the end-goal is easy to understand — improving the capacity to deliver high-quality programs — how to actually read the RCT results and interpret its findings into actionable items can be complicated for any organization:

Lack of formal experience.

Nonprofit program managers may not have the education, know-how, or personal experience in concepts like intent to treatment vs. treatment on magnitudes and scales. Likewise, even organizations with dedicated staff members who focus on data analysis still may not have this specialized research knowledge. Without this base, the process of assigning weights to findings can be difficult. There is always the additional risk that organizations will focus on the findings that reinforce existing assumptions or desires.

The Solution: We institutionalized the implementation of the RCT results by quickly following up their public release with a prominent place in the annual organizational work plan. Within weeks, we began marshaling resources to ask ourselves which findings we would focus on, how it would impact our programs and capacity building, and where we should start. We developed a continuous quality improvement process, D3, named for John D. Rockefeller’s practice of keeping his accounting figures to the third decimal for an additional level of granular information. The D3 process focuses on identifying a problem, uses powerful questions to narrow down a set of hypothesis and creates a collaborative forum to discuss, test and collect data. Lather, rinse, repeat.

In this way, our team methodically worked through the 34 findings of the RCT to identify the next steps for our program. We asked:

  • Is this metric important for our work?
  • Should the result change the way we do services?
  • Is our financial coaching platform (Change Machine) set up to facilitate progress in this area?
  • Are there specific questions (or other data collection changes) that we should be asking individuals in subsequent meetings?

Staff expectations and fatigue.

Even if results can be immediately applied, there remains a lengthy process of having staff understand the results and prepare them for new changes. Programs are acutely aware of the dangers of “air dropping” new procedures and so even those that come from evaluations must compete for spots on a long line of improvements to meet contract deadlines, capacity issues, or the many factors that daily programming encounter. With attention towards minimizing staff turnover and burnout, it’s challenging to keep up morale in realizing the work isn’t over when RCT results are received — the real finish line is optimizing programs based on the results.

The Solution: First, the top of the organizational chart and down consistently clarified and reinforced the motivation for participation — within the context of organizational mission and vision — throughout the entire period of participation and implementation. The talking points were simple:

Financial insecurity is pervasive but resources are limited.

Mission: For those we serve directly, how can our model reach more customers in a better way?

Vision: For those we cannot serve but who we can impact (1,000,000 by 2020), how can leveraging our experiences be helpful to other programs and stakeholders?

Within this framework, it was easier to implement the results because the connection to our everyday was clear and consistent. It also allowed us to work collaboratively across departments on a single finding. For example, if the RCT showed coaching could improve debt repayment on 90-to-180 day balances, we could begin by ensuring that financial coaches highlighted or prioritized this step with customers, then expand that to refine our training on specialty debt topics and add new measures to track in our data collection so those beyond the Clinic’s own coaching customers could benefit from this finding.

Funding.

Resources can be scarce in supporting implementation of results. It is an exaggeration to say that once the lights flip on, the party is done. But the focus may continue to be on the static results and not what should happen next. For programs and fundraising, there is pressure for brand-new innovation, rather than implementation. While programs are typically refining their models as part of their day-to-day, the additional resources to incorporate a large study across different departments may not be planned for or preemptively funded.

The Solution: We emerged from our D3 process with a roadmap for improving our models, programs and resources with evidence from the RCT to keep the Clinic on the cutting-edge of innovation and outcomes, and relevant for funding:

  • Well-being metrics. Prior to the findings, the Clinic hadn’t formally incorporated any explicit outcomes on improved attitudes, feelings, or levels of confidence. There were concerns about their subjectivity, and we believed that the coaching process was already focused on empowering customers and therefore pure financial indicators would reflect this process. As a result of the RCT, we decided that not only would we permanently embed the Center for Financial Security’s Financial Capability Scale (which includes a question on confidence), we would also incorporate the Consumer Financial Protection Bureau’s Well-Being Scale.
  • Goals calculator. The Clinic’s most emphasized coaching mantra is that “goals are the driver.” One of the findings that we were especially pleased about were the positive impacts on confidence in achieving goals. The tech team created a significantly improved goals calculator on Change Machine that allows customers to play with date ranges and savings amounts to create an action plan that best meets both motivation and capacity.
  • Customer dashboards. Program managers need help synthesizing all the data that coaches input. The Clinic has come a long way in continuing to develop robust dashboards within Change Machine for tracking individual customer progress, a coach’s overall performance, and a new manager portal for access to easily customizable reports. We are now currently moving towards using the actual results as benchmarks for coaching performance by building it into the logic of the system.
  • Ecosystem. We also launched a financial security ecosystem last year, thanks to JPMorgan Chase, with New York City workforce development programs. Its theory of change is simple. Since financial insecurity is pervasive, a broad range of nonprofits and agencies who focus on low-income populations can better achieve their respective missions by incorporating financial coaching techniques. In workforce development, the job placement specialist knows that the jobseeker will get more employment offers if he or she has better credit and will stay on the job longer if he or she deals with wage garnishment before the first paycheck, so we are teaching those specialists the promising practices highlighted by the RCT. We reserve the most acute and persistent cases for an on-site financial coach who can provide the high impact, intensive coaching that the RCT proved is effective.

CONCLUSION

Conducting an RCT and implementing its results is extremely challenging, but possible — and worthwhile. After more than a year, we can see the extent to which the RCT has shaped our work by using the results to define improvements in all levels of the organization. We won’t stop there! With a new and improved model for our programs and partnerships, the Clinic continues to grow rapidly. As a practitioner-driven organization, we hope our experience can support other organizations to make research a part of their DNA.


Next up: Watch Clinic coaches discuss the human side of the RCT!

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The Pursuit of Lasting Change

WorkBOOST’s premise is very straightforward: By building financial security, we are going to amplify your programs’ workforce outcomes. And, that’s not just a theory of change. What we are trying to do is make a business case about it. As Mae [Watson Grote] referred to earlier, we are seeing early evidence of increased participation, completion rates, hourly wages going up, and fabulous work by our partners.

5 Easy Ways to Make the Most of Your Tax Refund

Karen Goodheart | Assistant Director of Financial Coaching | The Financial Clinic

You may hear the Imperial March in your head when you think of tax season, but fast forward — past the hassle of collecting your paperwork, struggling to keep your heart rate low as you triple check that everything is in order — to the moment when you receive that once-a-year reprieve from the government in the form of a tax refund. According to early 2016 numbers, an overwhelming majority of filers — nearly 80% — received a substantial refund averaging $3,053. Not a bad reward for your past year of hard work! This year, make it even more meaningful using these top strategies for maximizing your tax refund:

1. Faster is Better

Have your refund direct deposited into your bank account — when you go to your tax preparer, be sure to bring your banking information (that is, your bank account number and the bank’s routing number). Having your refund directly deposited is quicker and safer than getting a check in the mail. If you don’t have a bank account, you can have your refund directly deposited onto a prepaid card. (Speak with a financial coach to enroll in a new prepaid card offer which in most cases has no fees plus has a saving capability.)

2. Make it Last

Deposit your refund into a savings account, then set up monthly transfers to your checking account — you’ll have “extra” money each month! Imagine, for example, the average $3,000 refund broken into $250 each month. With this constant flow of money, paying bills has never been easier. You may also want to split the refund from the start to have a portion going into checking to pay down existing bills and the rest into savings to go towards your financial goals.

3. Reward Yourself

You’ve worked hard, and you deserve it! Stay mindful of your financial situation, but don’t be afraid to put some of your refund aside for yourself. Your future self can appreciate it even more — use your refund as the basis for saving for your most passionately held financial goal, like a fabulous vacation, your dream home, or starting your own business.

4. A Fresh Start

A tax refund is a great opportunity to clean up your financial house, paying off lingering debts or finally starting that emergency savings. It’s also the time to rethink your W-4: if your refund was large because you had a lot taken out of each paycheck, consider lowering your withholding so that you can be the one using that money throughout the year. Check out paycheckcity.com for help determining the perfect balance.

5. Double Down on Savings

There are several options to consider that will even help you with next year’s taxes!

  • Save for Retirement: Open up an IRA and have all or part of your refund put into the IRA. If you open the IRA or add funds to an existing IRA before April 15th, 2017, the amount you put in will count as a deduction on your 2016 taxes.
  • Save for College: Open a 529 account for your children’s or grandchildren’s college education. In New York State, a new law was just passed which allows your tax refund to go directly into a 529 college savings account. You’ll also be able to split your refund so part can go into the 529 and part into your checking or savings account.
  • Save year round: If you are struggling to pay your monthly bills or you want to find a little extra each paycheck for your savings, check with your employer’s human resource department to see if changing your federal and state exemptions could help in keeping up with your reality. Remember that your refund may be less come next year, but you will have greater control over your money to meet your expenses today rather than waiting until next year.
Be sure you are receiving the full refund you deserve — see the IRS’s credits and deductions page to determine what you are eligible for. Plus, depending on your total 2016 income, you may be eligible for VITA tax preparation program or free e-filing.

Share your favorite uses of tax refunds below!


College Savings for Millions of New Yorkers

Through November, like many of you, we were feeling wary about how the election will impact the communities we care about. Working poor families will be hit hard if the federal resources that help them make ends meet are weakened or destroyed.

The Burden of Student Loans

The Burden of Student Loans

The average 2016 college graduate has $37,172 in student loan debt.

A Fresh Look at Possible Solutions

Going back to school is always filled with anticipation, excitement AND stress. Now, more than ever, stressors about handling the costs of an education are on par with academic challenges. The average 2016 college graduate has $37,172 in student loan debt, creating a burden that lasts long past the college years and often sidetracks important life choices. Overall, student loan debt hit $1.26 trillion in the third quarter of 2016; more than double from 10 years ago.

With over 43 million Americans impacted by student loans, it is a chronic phenomenon which is fast becoming a crisis across all 50 states. The consumption of college debt not only envelopes students but their friends and relatives who co-signed the loans as well.

Print and broadcast media have spotlighted the problem and ways to initially avoid debt. Rightly so. For the majority of students, loans — at considerably large amounts — are an inevitable part of the college experience. However, there isn’t a significant amount of information available on what to do after the deep dive into debt, and more specifically, the identification of strategies to lessen the pay-back load once accrued. Based on The Financial Clinic’s financial coaching experience with 21% of customers burdened by an average of $27,776 in student loan debt, we have developed a few strategies to deal with just that. As a result, our customers have paid off a total of $392,000. It should be noted, however, that these strategies are not one-size-fits all but rather a look at a range of opportunities for ameliorating the student loan burden.

What are the different kinds of student loans?

Simply put, there are two kinds of loans: federal and private. Federal loans include Stafford (FFEL), Grad PLUS, Parent PLUS and Perkins Loans. The records of all existing federal loans are housed in the National Student Data System. They can be accessed by creating and logging in with a Federal Student ID.

It is also important to note that some federal loans are subsidized (the government pays the interest until repayment begins); others are not. Direct Subsidized Loans are available to undergraduate students with financial need, which is determined by taking the cost of attending a school minus one’s expected financial contribution. Perkins Loans are another type of need-based, subsidized loan, and these are available to graduate students as well as undergraduate students. Direct Unsubsidized Loans are available to both undergraduate and graduate students with no requirement to demonstrate financial need. Some agencies (like New Jersey Higher Education Student Assistance Authority or HESAA) present a misleading picture. Through various marketing tactics, such as a name that could easily be assumed to be associated with a government body, they lead students to believe they are offering federal loans, when in fact the loans HESSA offers are private loans. If you are considering taking out a student loan, a good rule of thumb to follow is this: If receiving the loan requires completing any paperwork outside of the FAFSA, forms on www.studentloans.gov, or authorizations through your school, it is most likely a private loan. If you’ve already borrowed loans, and are not sure whether it is federal or private, the best way to find out is to simply call the lender and ask.

Private loans are borrowed directly from a financial institution, rather than a government agency. Interest and loan amounts are market rate and based on credit, not financial need. They are typically offered at less favorable terms than federal loans and usually cover the gap between federal loans and other forms of financial aid, and total education expenses. Anybody who meets the credit and income requirements put forth by the lender is eligible for a private student loan.

Strategies for Holders of Federal (only) Student Loans

First and foremost, one must never miss a payment or default on a loan. Doing so will reduce the repayment options available to the borrower, cost the borrower more in the long run, and negatively affect the borrower’s credit history. If the borrower is unable to make a payment, they must call their lender to make arrangements as soon as possible, because as soon as a payment is missed, the loan becomes delinquent. In the case of short-term relief, the borrower may qualify for a loan deferment or loan forbearance. Deferment is a period of time when the borrower is not required to make payments on the principal or interest of the loan, and no additional interest will accrue on any Direct Subsidized, Subsidized Stafford, or Perkins Loans. Deferments are available for a variety of circumstances and can last up to three years. Forbearance is similar to deferment but with some marked differences, the first of which being the payments may only be reduced, not completely suspended. Additionally, interest will continue to accrue on all subsidized and unsubsidized loans. The factor of whether or not interest will accrue or not generally makes deferment a better option for most borrowers if they qualify for it.

Income-Driven Repayment Plans

Apart from winning the lottery, there are several ways to repay federal student loan debt. By far, the most popular are income-driven repayment (IDR) plans. These plans are available to borrowers who may be delinquent but are not in default. There are a variety of IDR plans: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR). With IDR plans, monthly payments are capped, can start as low as $0/month, and may fluctuate based on a reasonable percentage of income and family size. Debt forgiveness may be available after just 10 years of full, on-time payment for borrowers in the public and nonprofit sectors. For other borrowers, the repayment period may extend to 25 years. Be sure to note, however, that extending one’s repayment plan beyond 10 years will lower monthly payments but drive up the amount of interest paid over the life of the loan. Anyone with an interest in pursuing “public service forgiveness” should enroll with an IDR plan to maximize the amount of student loan forgiven. (studentaid.ed.gov/sa/sites/default/files/income-driven-repayment.pdf)

Direct Consolidation Loan Program (DOE)

All borrowers with federal loans are eligible for consolidating these loans under the US Department of Education’s (DOE) Direct Consolidation Loan program. On the one hand, this can move borrowers with multiple student loans into a single, and more simple, payment plan; lower monthly payments by extending the life of the loan to 30 years; and set a fixed interest rate, determined by the weighted average of interest rates on all previous loans. This particular program also makes the borrower eligible for all federal repayment programs including the IDR plans above.

On the other hand, if the borrower stretches the life of the loan to 30 years, they may end up paying out more loan installments and greater interest over the long term. One may also lose borrower benefits (e.g., discounted interest rates and discharge or forgiveness accommodations) from an existing relationship. Furthermore, if a borrower is interested in consolidation as a way to get loans out of default, it’s important to note that consolidation does not remove negative remarks or accounts of old loans from one’s credit report.

Loan Rehabilitation

Although defaulting on a federal student loan is by and far something a borrower wants to stay clear of for many reasons (e.g., it does significant harm to a credit score), there are a couple of options for addressing the issue if it occurs, besides the rare case that the borrower is able to repay the full amount outstanding. The most popular choice is to go through a loan rehabilitation program. The program enables the borrower to bring a loan current by making affordable payments over a specified period of time. This is a one shot deal. A borrower cannot rehabilitate a federal student loan more than once. Private loans cannot be rehabilitated.

Loan rehabilitation is for borrowers who need a more flexible, short-term monthly payment schedule and don’t have an immediate need for a “cleaner” credit report. The borrower must make 9 “reasonable and affordable” voluntary payments within 10 months. These payments can be as low as $5/month. As such, borrowers may find more flexibility in this option than with consolidation. The borrower will also become eligible for additional federal student aid after the 6th payment. Loans are not fully out of default, however, until after the 9th payment is made. At this point, all negative information regarding the loans is removed from the borrower’s credit report. In addition to an improvement in credit, after a loan is rehabilitated the borrower is now eligible for all federal repayment options, including the aforementioned income-driven repayment plans.

Additional Options for Federal and Private Loans

Along with the strategies mentioned above for federal student loans, both federal and private student loan borrowers may also refinance or consolidate loans through financial institutions or other lenders. Along with banks, many private companies have recently started refinancing federal and private student loans. However, a federal student loan borrower must be thoughtful about the advantages and disadvantages of doing so. By moving out of the federal loan system, these borrowers should be aware they will lose certain benefits like public service loan forgiveness and, most likely, will not have as many options to reduce payments in case of loss of income. With regards to income, and credit as well, a borrower must be in relatively good standing. Additionally, some lenders require that borrowers have already completed their degree.

For people who are contemplating this path and qualify accordingly, they can save themselves a significant amount of money by reducing existing interest rates. The bottom line is that going private with refinancing or loan consolidation can make good sense for borrowers with an anticipated secure income for the expected duration of student loan repayment and who are not interested in public service loan forgiveness.

Borrower Beware

In addition to legitimate companies offering refinancing of student loans, there are also many companies (such as Student Loan Assistance Center or Student Debt Relief) marketing “consolidation” services which do nothing more than enroll borrowers into an income-driven repayment plan — and charge the borrowers hundreds of dollars to do so. They advertise the best possible outcome ($0/monthly payments and debt forgiveness after 10 years) as though they are available to every borrower and are programs separate from what is already offered by the Department of Education. However, the reality is the most people will not qualify for $0/month payments or Public Service Loan Forgiveness. Borrowers should never pay to enroll in any type of repayment program and should know that if something sounds too good to be true, it is.

Some Final Thoughts

There are many different options for paying off student loan debt or moving a loan out of default. In evaluating these options, the borrower must keep in mind the following factors.

  • Are the loans private or federal?
  • What is the current status of loans: current, delinquent, or defaulted?
  • What is the borrower’s current income and do they anticipate changes to income or career?

The US Department of Education’s “student loan repayment calculator” is also quite helpful in determining the best course to take.

Finally, it is important to remember that is the goal of ALL lenders to be paid back. Most will work out options to help the borrower get back on track.

Why Being a Financial Expert Isn’t Enough

Brittany Curtis
Manager of Capacity Building

Being an expert in the field of finance, although crucial, is not enough to be an effective financial coach.

Financial coaching is a unique and complex endeavor. Today, financial coaches typically differ from financial educators and workshop facilitators because coaches cannot simply present financial security information to their customers and hope they take action. A workshop session on predatory lending and a summary handout isn’t enough in the eyes of a financial coach. Coaches don’t lecture on financial content, prescribe certain steps to take, or suggest “one size fits all” approaches.

So what is a financial coach for? What do they do?

Financial coaches support a one-on-one customer-led process that identifies the goals, motivations, and action plans that best keep a customer on track for building their financial security. It’s not just about someone giving you information and marching orders — it’s about developing your own skills and abilities to translate financial knowledge into improved everyday financial behaviors for meaningful and long-lasting change.

Coaches rely on their “soft skills” to make these lasting changes with customers possible. Soft skills include a wide array of interpersonal strategies that one may employ while interacting with other people, such as empathy, a positive attitude, and communication skills. Our coaches at The Financial Clinic embody the following coaching approaches and soft skills approaches with their customers every day:

  1. Building Trust and Engagement

Effective financial coaching relies on the customer feeling comfortable enough to share their personal information about a typically taboo subject. How do coaches build trust and solidify engagement? Create the perfect first meeting. A few things to keep in mind:

Learn from self-mastery: Self-mastery is the ability to modulate your internal thought processes to maintain a helpful and productive presence. When coaches understand their own assumptions and biases, they will be able to acknowledge their internal thought process and create a judgment-free zone for their customer. Accomplished financial coaches can take potentially surprising or charged statements in stride and incorporate their customer’s interests or preferences into goal-setting and action planning processes.

  • Best practice tip: Be conscientious of a customer’s personal priorities. If a customer says that being able to donate money to their church is a non-negotiable area of their spending plan, a coach will respectfully acknowledge the importance of this and help their customer find a way to include it. Even if the coach does or doesn’t think that the customer should be spending their money in that way, it’s imperative that the coach keep their own biases on the issue and remove them from the conversation.

Employ active listening and empathy: Coaches must listen to the thoughts and concerns of their customers, to allow thoughtful responses later on. It’s important to consider what isn’t being said by the customer too! Non-verbal cues can give more insight to how a customer really feels about a particular topic or idea.

  • Best practice tip: Be sensitive to aspects of active listening, including appropriate open body language, validating a customer’s concerns, and asking clarifying questions and reflecting main ideas back to the customer.

Create action-driven goals: Financial coaches take great care to find out what drives their customer. Creating action-driven goals provides immense guidance throughout the coaching relationship. At the Clinic, we encourage customers to create goals that are forward thinking, strengths-based, and passionately held. Coaches can work with a customer to move from a strategy like paying off credit card debt towards an asset-oriented goal likeincrease credit score to qualify for a car loan. Reducing debt can be a strategy that gets a customer closer to their goal, but we want the goal to be something they care deeply about (and when were you last excited to pay off your credit card?).

  • Best practice tip: Be aware of “default” goals like retiring comfortably that are important to the customer but are too general to be a source of daily motivation. Try tying in things that the customer can currently connect to.

2. Challenging Habits, Assumptions, and Thought Processes

Frequently, a customer is seeking out a financial coach because they have tried everything they could think of and are at their wit’s end for a solution. The customer might feel like they are in a crisis and may feel hopeless and dismayed when they come through the door.

“When it is obvious that the goals cannot be reached,
don’t adjust the goals — adjust the action steps.” — Confucius

The building of trust and rapport previously mentioned allows coaches to get a baseline of information about customers’ experiences, goals, and interests. The next important step with their customers is to challenge habits, assumptions, and thought processes to get them closer to their goals.

Use the goal as the driver: Financial coaches use the financial goal (or goals!) as the driver of the coaching relationship. Our simple but evocative framework of creating goals that are forward thinking, passionately held, and strengths-based can open a whole new world of possibility for a customer. These unique and personal goals, like saving up to start a jewelry-making business or securing a loan for a dream home, help customers take ownership of the coaching process, prioritize actions to take, and support them in overcoming obstacles.

  • Best practice tip: If a customer has trouble coming up with a meaningful goal, ask them to consider several different aspects of their life. What do they hope to provide for their family? What do they like to do for fun? Do they have any career or educational aspirations? What might they do to focus on their health? Goals don’t have to be traditional financial goals like saving for a home or retirement to be effective.

Ask powerful questions: Asking open-ended questions helps customers set and pursue action-driven goals. Coaches can use powerful questions with a customer to aid them in recognizing and confronting habits that may be holding them back. It’s important for customers to address their assumptions about what is and isn’t possible, and possibly reframe current thought processes to create a more supportive mental environment for effective action planning.

  • Best practice tip: Know what conversation model or questions you want to use in advance. Create a list for yourself of open-ended coaching questions. You’ll want to note questions that pull out information, create buy-in, identify significance, and more. Practice these with family, friends, or colleagues in advance so you have an idea of how someone will react.

Take a strengths-based approach: Some social service and case management programs have a tendency to focus on needs, weaknesses, and risks. In financial coaching, coaches can shift the conversation to encourage customers to take advantage of their personal strengths when problem solving. Together, the coach and customer can explore the customer’s underlying assets (ex. personal skills, resources, social network, community resources). With this approach, both coach and customer can maintain the attitude that customer has the strength and resources necessary to be successful.

  • Best practice tip: Financial coaches may recognize strengths before the customers do, so having a conversation around why that particular strength is relevant can be a helpful step in the customer coming to agreement that they identify it as a strength.

3. Mutual Accountability

At The Financial Clinic, mutual accountability is supporting customers in choosing the right path for themselves by having a broad understanding of personal finance actions and acting as a thought-partner in creating positive behavior change.

Share expertise: Strategically provide well-organized, accurate and understandable knowledge about relevant financial concepts and topics, with customer behavior change always in mind. Present all information with customer-focused language in a clear and confident manner.

  • Best practice tip: Whenever possible, provide supportive materials and information in formats that the customer can understand best. This may mean utilizing multilingual documents, finding or creating simplified charts or infographics for complex ideas, or even using videos in your session.

Hold the customer as the change agent: Understand that skill acquisition and behavior change that lead to independence are important aspects of the coaching relationship. Facilitate coaching sessions that allow the customer to test new skills and knowledge, and embrace the idea that the customer should “choose their own adventure”.

  • Best practice tip: Whenever you and your customer decide on an action for them to complete, make sure they understand the why behind each step.

Honor mutual accountability: Utilize empathy and active listening in the process to help the customer challenge their own assumptions. Hold the focus on the goal for the customer when necessary. Commit to appropriate coach action steps and uphold expectations for the customer to do their own research and take ownership of their process.

  • Best practice tip: Set the expectations of the coaching relationship from day one. Clearly define what your role is as the coach, and what their role is as the customer. Some coaches even utilize “coach contracts” to further solidify mutual accountability.

Of course, being a financial coach doesn’t end there. The most commonly overlooked aspect of financial coaching is the consistent practice of personal reflection. With customers representing different backgrounds, cultures, and personalities, coaches are challenged to meet the widely diverse nature of their work, keeping all personal biases and beliefs far from the session. Whether it’s debriefing with a supervisor, seeking the help of a fellow coach, or taking advantage of professional development opportunities, financial coaches must continuously improve their work — in equal parts financial expertise and soft skills — to ensure their customers find the path to achieve their goals. Then, you can watch the magic happen!

The Clinic’s Endgame: A Vision of a Financially Secure Nation

Mae Watson Grote | Founder and Chief Executive Officer

“If you work full time, you should not be poor” said President Bill Clinton in his 1993 State of the Union Address. But yet that is exactly where millions of Americans find themselves in 2016.

Building financial security by navigating the gap between low-wage work and making ends meet is the founding mission of the Clinic, and the demand for our work is growing at a staggering rate.

How can we possibly deliver our mission to all working poor Americans?

As an organization, this is a question we are constantly asking ourselves at the Clinic. Over the past year, we took a realistic look at how we could expand our reach and our impact with the most efficient use of structure and resources. We quickly came to the conclusion that more brick and mortar was not the answer.

Instead, we sought a strategic approach to scale. We developed Change Machine and recently launched the financial security ecosystem to help bring our tried and tested financial coaching model to more organizations.

A strategic approach to accomplishing mission in the face of overwhelming need is also the subject of “What’s Your Endgame?” an article which appeared in the Stanford Social Innovation Review last Winter. In this article, I was thrilled to find a particularly astute articulation of our current answer to that question: Growth.

Authors Alice Guglev and Andrew Stern encourage organizations such as ours to focus on the “endgame” rather than on “organizational growth.” They define endgame as “the specific role the nonprofit intends to play in the overall solution to a social problem.”

The Clinic’s Financial Security Ecosystem is strikingly similar to what Gugley and Stern call the “Replication Endgame.” We have taken our proven and highly effective Financial Coaching and capacity building models and are using technology as the key driver for expanding it to a wider range of partners nationwide. This approach brings to the table more partners who have strong relationships with their individual communities, and in many cases, substantial infrastructure. It also allows more nonprofits and government entities to scale the Clinic’s mission of financial security for America’s working poor, while simultaneously accelerating their own outcomes.

The Clinic’s strategies for replication would not have been possible without first looking at where we were and where we wanted to go. We needed to pinpoint how we had to change and grow internally, so we could grow our impact. As a result we examined our infrastructure to ensure that it supports our replication initiatives. As such, we will soon welcome three additions to our leadership team: a Chief Operating Officer, a Director of Marketing and Communications and a Director of Social Enterprise. They will have responsibility for areas we have determined to be crucial for expanding our impact.

One of the clichés we often quote in our field is the goal of “putting ourselves out of business.” Unfortunately, that goal is nowhere in sight as we look at the staggering number of America’s working poor. Until then, we at The Financial Clinic will continue to replicate proven strategies that bring added financial security to those struggling to get by.