Many Kiwis have a student loan – for many of us, it’s the only way we’ve been able to pay for higher education.
Statistics show 719,187 Kiwis have student loan balances of NZ$15.8 billion, an average student loan balance of NZ$22,065.
With an average four years of university education costing upwards of NZ$24,000 (based on a University of Auckland Bachelor of Arts yearly fee of NZ$6,000), many of us pay a hefty price for pursuing higher education.
And that cost can continue into our 30s and 40s – maybe longer if we live overseas and start accruing interest on our student debt.
Should you pay off your student loan faster?
When you start earning over NZ$19,448 a year before tax, repayments start being deducted.
When you’re living in New Zealand, your student loan is interest-free. It might not make sense for you to pay anything else over and above the minimum, at the expense of other life essentials.
If you have high-interest debt, like a credit card, it’s best to pay this off first. You might want to clear your debt quickly and fast, just so it’s not hanging over your head.
Weigh up what’s best for your situation, and speak to an expert if you’re stuck.
How to reduce your student debt
The first way, (but the least helpful!), is to not borrow a lot in the first place. This ship might have already sailed for you, but if you study more in the future use this approach if you borrow.
Spread the word! If you have a friend or family member considering university, let them know that how freely they borrow now could still be affecting them in years to come. Encourage them to apply for education scholarships.
But, back to you
So, you’ve already studied and there’s not much you can do about your student loan balance, which could easily be into the tens of thousands by now.
If it suits your situation, consider making extra repayments. Inland Revenue has a handy calculator where you can see how rapidly you’ll drop that balance by repaying more.
It could cut years off the time you’ll spend paying it back. You could set these up via automatic payment.
Trim the fat on your expenses
Think of areas you could make sacrifices. Track your spending for a few pay cycles so you know where your money’s going. Then look at ways to cut your spending.
Cut down on brunch with friends. Only buy coffee as a treat. Take a break from overseas holidays.
Work out lifestyle changes you can make to reduce your student loan.
Work out a budget
Budgeting is the best way to plan your repayments. You can track your progress against short and long-term targets for how much of your loan you want to pay off.
Even if you can’t afford any extra repayments, planning out your regular repayments can be great motivation for reducing that debt.
Put any extra money you get onto your student loan
This is a good approach if you can afford it. When you get a pay rise, an unexpected Christmas gift or bonus, or a tax return, put it onto your student loan.
You can easily make one-off payments to Inland Revenue through internet banking. Every little bit adds up!
Start a side hustle
Use your hefty student loan balance as encouragement to start a side business. First, maybe look at selling items you have around the house that you don’t need.
Put them on Trade Me, or look at selling clothes on Designer Wardrobe or Recycle Boutique. Put all profits either directly onto your student loan, or into an account you can’t touch and watch it accumulate.
Published November 2018
All content is correct at time of publication date. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. Before relying on it, we recommend you speak with a financial adviser.