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 has borrowed money to fund their education. So, regardless of whether you hit the books – or the beers – hard, you have to find a way to pay back the money. However, there is light at the end of the tunnel. So, settle in for a study session of the financial kind, so you can reap the rewards of wiping clean your 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 of making extra student loan repayments

Rather than treating our advice like a nagging parent in this student loan debt scenario, consider it your guide to making a student loan debt strategy a little more manageable. First off, when you’re employed and earning more than $380 per week, employers will generally deduct 12 cents in every dollar you earn towards loan repayments, unless you have a student loan repayment deduction exemption. You can apply for an exemption if you are studying full time, are about to start full-time study again, or think that you’ll earn less than the annual repayment threshold of $19,760. Any money deducted for student loan payments is paid back to the Inland Revenue Department (IRD).

Below are the payment thresholds for paying back a student loan, depending on whether you get paid weekly, fortnightly, four-weekly or monthly. If you earn over these thresholds, 12 cents of every dollar will go towards paying off your debt.

If you’re paid… Your repayment threshold is…
Weekly $380
Fortnightly $760
Four-weekly $1520
Monthly $1647

Some student loan borrowers also 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 you’ll save money in the short term, and by stretching out your debt repayment longer the amount you owe will diminish in real terms due to inflation. On the other hand, if you want to borrow money sometime in the future, for example to buy a house or business, your student loan debt will be taken into account.

It’s also important to remember that if you move overseas you’ll begin to pay interest on your loan. After 184 days out of the country, you’ll start paying 4% annual interest on your loan backdated to the day after you left New Zealand. You will also need to start making minimum repayments to avoid penalty fees. If you are planning to live overseas it’s important to check out the implications for your loan. It’s easy to do at the IRD website, and will help you prevent the possibility of your debt spiralling out of control.

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

Put student loan payments on hold if you have other debts

Because student debt is interest free if you live in New Zealand, it’s a good idea to concentrate on paying off any other high-interest debt first, such as credit card, personal loan and overdraft debt. The interest on these bank products compounds quickly if you don’t, and the amount owed can spiral upwards, so create a payment plan, or get help from a 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:

Compare credit cards

Compare personal loans

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 off their student loans

Don’t believe people who say it’s impossible to pay back a student loan. As of June 30, 2019, over 615,ooo people have fully repaid their loans according to the latest Student Loan Scheme Annual ReportSince the loan scheme began in 1992, about 1.33 million students have taken out a student loan, to a combined total of $27.4 billion. In the 2018/19 year alone, the government received $1.37 billion in repayments.

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

Little by little

The way to look at debt is that paying off a little means a lot in the long run, so 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 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 when 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 a 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.

Read Canstar’s budgeting tips

 

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