Tips on paying back your student loan faster

 If, like many Kiwis, you are carrying around some student loan debt, have a look at Canstar’s tips on student loan repayments. 

Are you still suffering from the hangover of your student days? No, not the type you get from impromptu “study” sessions at the university bar. We’re talking student loan debt hangovers, another headache-causing activity of student life.

Student loan payments are a fact of life for anyone who borrowed the funds to get their qualification. So, regardless of whether you hit the books – or the beers – hard, you have to find a way to pay that cash back. There is light at the end of the tunnel, though. So, settle in for a study session of the financial kind, so you can reap the rewards of wiping clean that student loan debt.

Read Canstar’s budgeting tips

Make a plan to take on student debt

helping youth with money matters

Always remember, while it might feel like an uphill battle now, countless lecture halls full of students before you have racked up student loan debt, but have found a way out.

The pros and cons to making extra student loan repayments

Instead of assuming the nagging parent in this student loan debt scenario, consider this your guide to making a student loan debt strategy a little more manageable. First off, when you are employed and earning more than $367 per week, employers will generally deduct 12 cents in each dollar you earn towards loan repayments, unless you have a student loan repayment deduction exemption. For example, you may be eligible for a deduction if you are studying full time in the same year you are working full time, are a New Zealand borrower and think you’ll earn less than the annual repayment threshold of $19,084. Any money deducted for student loan payments is paid back to the Inland Revenue Department.

Some people choose to make voluntary additional student loan payments. This has both upsides and downsides, so you need to think of what works best for you. If you don’t make extra payments, the amount you owe will actually be eaten away by inflation. On the other hand, if you want to borrow money in the future, such as to buy a house or business, your student loan debt will be taken into account.

If you move overseas, you’ll find yourself paying interest on your loan. So that could be an incentive to knock it on the head before starting an OE.

See other Kiwis’ views on paying off student loan debt:

 

Put student loan payments on hold if you have other debts

You should probably pay off high interest, credit card, personal loan and overdraft debt before you look at student loan repayments. The interest on these bank products compounds quickly if you don’t, and the amount owed can spiral upwards. Student debt is interest free if you live in New Zealand. Create a payment plan, or get help from the local budget advice centre. While you’re at it, check that you’re getting the best value from your credit card and personal loan products, and not paying any unnecessary fees.

Have a look at low-interest rate credit cards, currently on Canstar NZ’s database, based on a spend of $3000 per month:

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Student loan debt and some tips to wipe it

The Government is investigating the use of debt-to-income ratios in New Zealand

People do pay their student loans off.

Don’t believe people who say it’s impossible to pay your student loan back. More than 490,000 loans have been fully repaid, as at 30 June 2016, according to the latest Student Loan Scheme Annual Report. Since the loan scheme began in 1992, students have borrowed a total $231.146 million and the Government has collected $11.480 million of that back in repayments. And, in the 2015/16 year alone, the Government received $1208.8 million in loan repayments, $95.1 million more than the previous year.

It will be quicker than you think. 

The median repayment time for people who left study in 2014, and remained living in New Zealand,  is forecast at 6.5 years, according to the 2016 Student Loan Scheme Annual Report. Overall, the median repayment time for borrowers is 8.4 years. Even if it takes you longer, this debt won’t be around forever.

Little by little.

The way to look at debt is that paying off a little means a lot in the long run, start with baby steps. As the saying goes, you eat the elephant one bite at a time. The same goes for debt; paying off $10 here and there is will add up to a lot over a year. And you can free up some extra cash to put towards the debt simply by reassessing your spending.

Knocking unnecessary spending on the head.

We all have those days where we are hungry, go to the fridge, look for an easy option but can’t see it – so close the fridge. And repeat. Often, there is a meal in there; it’s just not right in front of your face. It’s kind of like that with budgeting sometimes – the money might not be sitting in your hands, so to speak. But, if you reassess your spending and cut back on some unnecessary purchases, you can free up some cash to help pay back your student loan debt. Do you really need that new handbag/Xbox/insert “want not need” purchase, here? A budget and a bit of honesty will help you make some headway with student loan payments. Don’t worry, though, you can still have some treats in your budgeting plan, just don’t go overboard.

Work a second job.

Even babysitting a couple of nights a week brings in some extra cash that you can put straight towards paying off your student loan debt.

If you want to figure out how long it will take you to pay your loan off, check out this calculator from the IRD.

Read Canstar’s budgeting tips

 

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