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Life after university: paying off student debt

Paying off student debt. Image: Getty
Is your student loan debt a noose around your neck or a temporary setback? Your answer depends on whether your cup is half empty or half full.

Sure it's a nightmare to start working life with student debts — which amount on average to $16,000. But don't con yourself into thinking you can't ditch the debt. Life's not a fairytale, but plenty of graduates do pay back their loans and get on in life.

You only have to start paying back the loan once you're earning at least $19,084 per annum before tax. That's not to say you can't make payments voluntarily if you can afford to.

There are smart ways to attack paying back your loan. Everyone is different, but these are strategies that have worked for others:

Live cheaply
Continue living like you did — or at least should have — when you were a student. I saw a single father on TV who had taken his disabled children to South America, Asia and even the Vatican over a period of 20 years — all paid for from his savings on a benefit. It shows virtually everyone can spend less.

Become a boomerang kid
That's the young adult who moves back home. Frankly it's much cheaper to live at home and you can knock some of that debt on the head pretty quickly. It could be the difference between paying back a couple of hundred dollars a month or more than $1000.

Kill high-interest debt first
If you have other higher-interest debts such as car debt, personal loans or credit card debt, then pay those off first.

Get a high-interest account
Save your repayments into a high-interest account and then transfer them on the last day of the year you can.

Bank your tax rebate
If you get an annual tax rebate, put it towards your loan repayments.

Earn more by working overseas to pay off the debt faster
Given exchange rates and earnings power in other countries such as Australia and the UK (if you can get a job there), it may be easier to pay off the loan from overseas and bring back a nice nest egg.

Take advantage of the 10 percent bonus
This is on voluntary payments of $500 or more annually above what you are obliged to pay in a year.

Consider buying a property
Buy a property where you can live and let rooms to others. If this can bring in a cash surplus, then you can use that to pay back your student loan faster.

What you shouldn't do:

Don't fall in love with spending
This leads to a slippery slope down the abyss to debt disaster.

Don't let your debt ruin your credit record
This could blight your financial future. Say you want to start a business in five year's time. You may not be able to borrow the money you need.

Don't go bankrupt
Sadly you can't ditch your student loan using the No Asset Procedure (bankruptcy). This can't be used for student loans, court fines, or child support.

Don't stick your head in the sand
At the very least, sign up for the IRD's Notify Me e-mail service, which keeps you up to date with changes to the student loan policy, reminders of due dates for payments and more. You can also check online any time (once you're registered) to see how much you owe.

Skipping the country doesn't work
If you do, you'll be charged 6.8 percent interest per annum on your debt after six months away, which soon adds up.

Have your say: Are you coping with student loan repayments?

More information

User comments
I lived in NZ with my family for 6 years, student loan 34 thousand including living cost because i did not qualify for allowances. More importantly, my wife and me paid taxes more than one hundered dollers to the government. I never qualify for tax credit, allowances, benefits, etc. even when we were broke so much many times. on the other hand seasonal workers, single mums, and permanent beneficiaries were better living in new zealand i.e. beter cars, homes, etc. finally we moved oversease which is beter than nz but unfortunately i lost job and we are hand to mouth. how i can pay 34 grands now.
I do not believe 16k is average. I have many friends over varied disciplines (arts,commerce,science) and all of our loans are above 16k. I think ours range from around 26-40k. And that is with financial family support, minimising borrowing etc. Also, why does the author encourage graduates to go overseas to work and then note not to skip the country?
Those figures are from the IRD, which administers student loans.
I am a fourth year uni student living away from home, studying for a commerce degree. I have a part time job to help pay for my expenses as well as the student loan living costs (because I do not qualify for the student allowance) and my loan will be around the $40k mark by the end. Where did this $16k average come from? Someone who get a Student Allowance and only pays fees? Diana you need some facts to back up your arguments!
The average student loan debt of $16,000 is peanuts in today's money. Graduates will soon be earning much more than the average NZ salary and will easily cope with debt repayment. Graduates should be congratulated for obtaining their degrees, but they don't need sympathy for the small amount of money their investment has cost them - after all, it cost the taxpayers at least 4 times as much.
i am depressed now ...my loan is much higher than the average
Here's another "smart way to attack paying back your loan". So long as your student loan is interest free (look on the IRD website) then you are financially better off to not pay it off. This is not to say it isn't "smart" to pay it off as Diana has explained. It's also smart to pay high interest debt. However, (somewhat ironically?) I suggest it is only "smart" to pay your loan off if you are not "smart" enough to save up your money without spending it! By virtue of the fact that you are reading this you are indeed proper smart! Save money to "pay off your loan" but put it in the bank and earn interest on it! If you ever have to start paying interest on your loan, transfer the money across. Until then, watch inflation depreciate your loan, and your savings continue to grow! Do not take advantage of the 10% "bonus" unless you can't make more than 10% on your money in the bank account. Remember, your loan is interest free and you've got until they start charging interest to make the 10%
the easiest way to avoid a big student debt is to have a job (whilst a student) and pay it off as you go!
bloody student loans

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