You Can Avoid Student Debt — The Happy Saver

Nov 27

Nov 27 You Can Avoid Student Debt

Bank Account, Investment, KiwiSaver, Saving, Money Education

Nov 27, 2016

If you would prefer to listen to me read this blog post, please click on the play button.

The school year is drawing to a close and final year high school kids are sitting their exams. And I’m worrying about them. I don’t even know ‘them’ but I’m worried nonetheless. Many will be headed off to tertiary study next year and I just hope they are prepared for the cost of it. I strongly suspect they are not, but they may not need to be, because they can just get a student loan and pay it back later. Easy. This week I heard of a teacher who told his students he had a loan, he pays the minimum amount off it and will take it to his grave as he just does not care. Cracking attitude. Maybe I’m so worried about these students I don’t even know because I once had a student loan and it hung like a millstone around my neck. I wish I had been better prepared.

Once I finished school I had a job lined up working in a dog grooming salon. That job fell through on the very day I was due to start it; the owners of the business had a massive fight and that was the end of that, they shut up shop. It was VERY dramatic (think two women screaming at each other and threatening violence kind of dramatic) and not the best start to my working life. I floundered around for a bit. Trying to get work at age 18 with no qualifications was tough and in the second half of my first year of being a grownup I decided to head to Polytech to study… Truck Driving. Yep. Then I studied Vet Nursing. Then I got a job as a Forklift Operator AND studied Vet Nursing. And I partied a lot if I recall correctly. I’m kind of amazed I learned anything really. I recall spending what I earned and saving what I could and THEN I decided to head off overseas, which is the right of passage for all Kiwi kids. I made it as far as Australia where I picked up work here and there while I travelled around with a friend. It was fun but in a moment of clarity I looked to the future and thought “I need a bit more education than what I already have”. I came home to New Zealand, threw a dart at the list of subjects I could take and started on a Psychology degree at University.

I had zero debt when I began but also had zero savings having spent every penny in Australia having an excellent time. I received a weekly student allowance which was just enough to cover my rent and food. I got a weekend job which paid me a small amount but pretty quickly it was obvious that I was broke and needed more cash. Beer was expensive (but cheaper than wine)!

My Dad gave me some excellent advice, “get a student loan, YOU WILL NEVER HAVE TO PAY IT BACK”! Brilliant.

User pays had come in before I began university but Student Loans were brand new and as I type this I can’t for the life of me understand why Dad and I thought I would never have to pay it back. So, I signed up for a loan and did what all of my friends were doing: Bought a new bike, new bed, paid the rent, bought a few text books and paid my course fees.

Two years went by, I experimented and paid for (by loan of course) lots of different papers and discovered Anthropology and Chemistry were definitely NOT for me. But I stuck at Psychology and mostly enjoyed my study. But as my learning grew, semester by semester, so did my student debt. I had a dawning awareness of where this was headed and I decided to act. I had a weekend job working as a vet nurse, being paid minimum wage, but I had an epiphany that if I’m going to work eight hours a day I needed to do it for MAXIMUM money. There was a large gold mine a few hours away and I knew they paid BIGGER than anything I had earned previously. For the first five weeks of my Christmas holidays I drove there every Thursday asking for a job driving a dump truck. On the fifth Thursday they relented and gave me a job. I worked 12 hours a day, 72 hours a week. The university year started, but I didn’t. I now had a plan of sorts and I kept working earning $45K that year. Then Australia lured me back as by then I had learned that there was MORE money over there AND they paid for all of your living expenses. And the trucks were bigger! So, off I went and earned $72K a year. Not bad for being in my early 20’s. After two full years off university I went back to New Zealand with my pockets full of money.

Me and my 150 tonne dump truck in Australia.

I went into the IRD and proudly announced I wanted to pay my student loan. I paid thousands and thousands and thousands of dollars in cash because as I recall the bank was going to charge me $25 for a bank cheque! I was not going to pay any more than was strictly necessary and handing over all of that extremely hard earned cash was a symbolic moment for me. THAT was the end of my debt. My remaining money lasted me for exactly the length of my study, three more years of University (I tacked on a Graduate Diploma in Management). I was flat broke again when I finished but now I was qualified to head out and earn more. And I did.

I, and those I spoke with while writing this, were all extremely grateful for having the loan system available to receive our education and would not have secured the jobs we have over the years without it. But two years into my study I was also painfully aware of the significance of borrowing money to earn a degree. And like most things in life, the costs have only continued to increase for those in the system now.

If my daughter was headed to the University of Otago next year to do a Health Sciences first year course she would need to study seven papers at a cost of $7,126. Accommodation in your first year is often in a hall of residence because being away from home for the first time it is a great place to make lifelong friends, stay warm and be fed well. She might save a bit by flatting of course but otherwise it will set her back about $15,000 for the 38 week year. Living at home is not an option, we are too far away.

Then she STILL needs to buy textbooks, items specific to the course, a laptop, a bike/car... On it goes...

Realistically you are looking at $25,000 for a 38 week year. And I have not included clothes and entertainment.

A degree takes three years. Chances are she will want to do some post grad study too.

You do the math.

And not many fourteen week summer jobs are paying enough to pay for the year ahead are they? It is hard enough being a student today without also having to take on a job throughout the study year but that is what many must do. So, to avoid student debt our children HAVE to start planning early. Very early. And we have to help them do it.

For my daughter her saving started very shortly after she was born. Currently she has about $11,000 saved up. Granted this is not bad for a nine year old with no job or income. Any pocket money or birthday money from family she receives is saved and her loving parents invest weekly on her behalf. Now that there is a reasonable amount there I have diversified how she is invested. Her KiwiSaver which is a Balanced Growth fund has the bulk of it but this will be hard to get out down the track (indeed I don’t want her to get it out as it is a retirement fund). So she also has a ANZ OneAnswer Multi Asset Class Balanced Growth Managed Fund and this is what I am going to direct her/my money into and let grow over the next ten years. Then, when its is required it will be available to her. When she gets an after school job one day she will be investing into this fund as well. No excuses. I fully expect her to take over payments into this fund one day. I also have a bank account for her and this is used if she wants to buy something (which is rare) and if she needs something for school.

Does this sound too extreme to you? A nine year old with an investment portfolio so she can plan for something that may happen in her 20’s. Personally I would much rather see it done this way than watch my daughter struggle under a mountain of debt as she tries to make her way in the world later on.

I want borrowing money to be her last resort, not her first option.

My friend who I have been emailing this week offers another insight. Due to her and her husband paying down both their student loan debts AND working on their mortgage they are now putting any spare cash towards setting up their own superannuation schemes. Although they will be willing to help their three boys if they can with paying for living costs their kids are on their own as far as paying for their study. They simply can’t afford to save for them as they are working killing their own debt. However, like me they began educating their children from a young age that they themselves really need to shoulder the responsibility and start preparing for it by way of working, saving and getting a loan if necessary. My friend is also a secondary school teacher and a role model to the children at school. She is not only talking to her own children but also to all those she teaches. For kids who may receive no financial information at home, hearing it first hand from someone who knows may do the trick. She relates her 19 year journey with paying off a loan to them so at least they are going into it with their eyes open. Her eldest son is already talking about going to university and he still has three more years of school to go, it sounds like he is really thinking it all through which is excellent.

This week I was interested to have a chat with an awesome young woman who will be heading off to study next year. She sounded woefully unprepared for the financial implications of what she was heading into. Although the information is out there on websites and at the end of the phone she pointed out that tertiary study is a new thing for her family so they relied a lot on information presented at school and some visits to Universities. Loans were very much talked about as an option. Unfortunately although she has worked jobs for the last four years of school on quite good wages she saved NOTHING (against her parents advice I should add). She thought she would just need to save some spending money, not being aware of actual costs. Now that the realities are beginning to sink in she regrets this and will be trying to save with her summer job. It will be a drop in the bucket compared to what her costs will be over the next couple of years. On the bright side, as the oldest child she will pave the way for her siblings and be able to educate them about studying when their time comes.

I know of several former students who didn’t find the opportunities that I found and had little choice or knowledge but to keep borrowing to get a tertiary education. Some of those people I hear about now that we are in our early forties have the following issues:

Having left to work overseas they have deliberately NEVER paid a cent off their loan. Their loan attracts interest and builds and builds. The New Zealand Government is now actively going after these people when they return home for a holiday or for good. If they are in Australia they are tracking them down there. Those in Europe have resigned themselves on NEVER come home to NZ, not even for a family visit.
Former students were stung by large interest payments before the government decided to offer interest free loans to those residing in NZ.
Some who have received an education paid for by a student loan now decide to never pay a cent off and it just sits there NOT earning interest. “Why bother to pay it off”? is a comment I have heard a few times. Why indeed. To get a student loan and never pay it back is spitting in the face of every taxpayer who has footed the bill for your education. You didn’t borrow the money off the Australian owned bank down the street, you borrowed it off every person in this country who pays tax.
Individuals with student debt marry others with student debt and collectively they either can’t, or really struggle, to get a mortgage. A friend felt like he had received a pay rise when he finally paid off his loan. He was paying $1,200 per month. However, his good wife (whom I have been emailing this week) still has about two more years of payments to rid herself of her student loan which she has been paying off since 1997.
I knew of so many people who just didn’t turn up to lectures. My sister who is a university lecturer herself used the analogy of going to a restaurant and ordering a $25 meal. When it arrives, you walk out. But you still have to pay. She likens a lecture to that, every time you miss one you have wasted $25.
Women take longer to pay loans back. We tend to have children and this keeps us out of the work force and when we are in it we tend to earn less (which irks me!)

Put simply all of these people are still paying off something in their 40’s that they did way back in their 20’s.

It took my immature brain many many years to work out a better way of doing things and if my parents had mapped out a “how to afford your education” plan when I got my first small job as a kid would I have listened? You know what, I probably would have. Because I talk about our finances with my nine year old she already has a better grasp on it than I did at 16. Already when she earns $1, she saves it. What does a nine year old need to buy anyway?

And keep in mind that young workers, by law, are paid a decent wage these days. It is not like they are getting paid only $5 for a day’s work picking cherries. It is good money when they pay no board and to spend the lot is just buying into societal pressures to buy buy buy. Yes as my daughter gets older she will want to buy some things and that will be fine but the day she gets her first part time job she will be saving the majority of it into the scheme above. She will get sick of me telling her she is saving up for something we don’t even know about yet: a business, an education, travel or a house.

And of course there are other options other than going to university. But if you do choose to go there are grants on offer that you can apply for. The application may be a bit of work but very much worth it if you can receive money towards your yearly costs. A friend who is Ngāi Tahu was very fortunate to receive grants all through her years at Uni. Plus another way is to work in the business you want to train in. I know of a school leaver who went down to Invercargill and got a entry level job in an accounting firm. He then studied at SIT which has a Zero Fees Scheme. After three years he was qualified AND fully employed. Tertiary education is not for everyone. There is an incredible range of trades you can do these days where you can learn by way of an apprenticeship. It costs time and not as much money.

So, for those sitting their final school exams this year my advice may come too late but for all others PLEASE take a moment to think about your options today and how they may influence your future in the coming 20 to 30 years. From the people I have caught up with this week the big gap I see is education to get people planning for the future. My Dad gave me terrible advice because he knew no better and I was too young and naive to realise I should seek it out in other places. Seek out people who have studied themselves and ask them about what it cost them, how they paid for it and the long standing implications of doing so.

Failure to plan = Plan to fail