NOTICE: Going into debt for an education is the second most important financial decision most people will make.
Only buying a home means borrowing more, and yet many people go into debt by the age of 18, with little real-world experience of managing it.
There has been a grim-faced, smiling determination not to view student debt as a big thing for young people, but research and hard facts suggest otherwise.
Not only do large debts frighten young people the same way they frighten older people, a study from the University of Lincoln suggested that many repress this fear because they don’t want to worry about their friends and relatives.
And one large number of former students are not on top of their loans.
At the end of September, there were barely fewer people with missed payments on their student debt than there were people living in Dunedin.
That’s a lot of debt dysfunction, and in about three-quarters of cases it’s the result of people going to work overseas and forgetting about their debts, which as the interest goes up to $ 7. , 5% is piling up in a mountain of debt that they will have to face, should they ever go home.
At the end of June 2019, 4% of foreign-based borrowers had balances greater than $ 100,000 and 19% had balances greater than $ 50,000, which resulted from the attractive penalty faced by borrowers with apathy, ignorance and intransigence.
Young people who are considering taking out student loans should ask themselves three questions.
Is it worth having debt?
Borrowing for anything robs you of money in the future, so it must be worth it.
For my money, that means a course that leads to a richer, more fulfilled future.
This does not necessarily mean a professional qualification, but it does mean ensuring good value for money.
In fact, this is a cost-benefit analysis that anyone considering studying should do.
Universities and other higher education institutions are all ready to take money from young people. Sometimes people had better not offer it.
Looking at the median repayment times released by the government each year, some people go into debt to pay for courses that qualify them for such a low-paying job, it’s hard to think it was worth it.
A quarter of people who borrowed to pay for Level 1-4 certificates expected repayment terms of more than 18 years.
What is the smallest achievable debt you can incur?
Just because the loan is there doesn’t mean you have to take it or accept the full amount offered.
About 38% of those eligible for a student loan do not take it. There will be various reasons for this, including the fact that many part-time (and some full-time) students are working.
This is good as long as it doesn’t cause you to fail your course or get bad grades. Balance is everything here.
I think back to my college days and wonder why I didn’t work (and study more). I was very immature and I think I would have enjoyed a few years in the job market before studying.
Taking a year or two of work can be a way to build wealth and maturity before studying, but it can also have its drawbacks.
Some of these non-borrowers will also come from wealthy families, or their parents will have saved money for them as children.
Choices of where and how to study are also levers that people can pull to get more or less into debt.
Nothing is excluded here in terms of strategy.
A former president of the Union of Student Associations realized that the cost of living was the biggest part of his loan, so he graduated in two years, going to summer schools to save himself. go out. I thought he was a man who would go a long way in life. I didn’t have half of his independence and critical thinking when I was his age.
The most important element of the loan is the cost of living. Home students avoid much of this, but the University of Lincoln study found that some regretted it and felt like they had “missed” college life.
About 21% of people in 2019 used student loans to pay for tuition fees only.
These would include many people living at home.
There is a second, lesser-known form of student debt that can quickly add up: overdrafts, personal loans, and credit card debt with banks and finance companies.
It is no less a form of serious debt, and learning to live in overdraft is a lesson in life that young people better not learn.
What’s your plan to pay it off?
This last element of a student loan is clearly one that many borrowers pay very little attention to.
The most critical group of student loan debtors are those who go abroad after graduation.
They have to stay on top of their repayments (and the grim statistics make it clear that their parents need to support them in this area), or they face heavy debt if they come back every time.
People who are considering going abroad should aim to minimize their debt while studying.
For those who stay and work in New Zealand, their loans are repaid through payroll deductions.
This will hamper their ability to save, and if they ever want to own a home, they should save in KiwiSaver from the day they receive their first salary, to ensure they get the maximum contributions from employers and government.
As the range of repayment terms for degrees indicates, some people struggle to repay their loans, making additional voluntary repayments, while others slow down.
The fastest repayers receive loans that have paid off bachelor’s degrees in 3.9 years or less, according to the 2019 Student Loan Annual Report. The slowest take 11.8 years or more.