Some of us are old enough to remember the days of free university education but many FORTIfi clients are living with student loans to repay.
The issue of student loans has been talked about in the news lately because of a study by a Christchurch PhD student that showed New Zealanders are facing huge debt on graduating from university because of debt incurred while studying.
The report concluded that, “It's treated as being socially acceptable to be in debt and to not be concerned with that. It's a way of life." This is now being referred to by the coined phrase, “generation debt,” and some financiers are suggesting that many New Zealanders will never be in control of their finances because of debt incurred as students.
There are a few points to be made here. For some these will be too late as they battle to rid themselves of student loans. Hopefully for others, particularly parents, these may be of some help for the future;
• No debt is good. Debt and the interest component of it robs us of the ability to gain control of our finances and, therefore, certain aspects of our lives.
• Student loan debt is at least somewhat acceptable when it results in the gaining of a qualification that can be used to create income in later life.
• Student loan debt on a qualification that is incomplete or not used is, usually, wasted money.
• The best way to buy anything, including an education, is still cash (it seems our grandparents were right!).
• Once debt has been incurred the best way to pay it off is ASAP.
A couple of other things about Student Loans:
1] One of the most common questions we get asked is, “Should I pay off my student loan or not?” Some people think that, because there is no interest attached to it, the repayment of the loan is unimportant. No so!
Many students, pretty soon after leaving tertiary education, want to purchase a home. One of the first questions banks will ask is, “What debt do you have?” Whether the loan is debt free or not does not matter in this case – a debt is a debt. And some student loan debts are very high. These will count against getting a mortgage.
2] Maybe there needs to be a slight adjustment in thinking here as regards tertiary education. There is no doubt that education is valuable, however, maybe the accepted practice of leaving school and going straight to university or poly-tech needs to be rethought. A year or two working so as to save the bulk of the fees for the proposed course of study could save years of debt repayments later on.
