Planning

Planning - Student Loans

This is what we advise when it comes to New Zealand student loans:

Try not to get one at all. Yes, it is possible to obtain a tertiary education without getting into debt. Dave Ramsey provides some useful advice about this from an American perspective. We realise that for most people, avoiding a student loan debt isn't possible, but it's worth thinking about.

Because borrowers don't pay up front for their studies, it's easy to slide into study without thinking about whether study is the best decision for you right now or whether the course and tertiary provider are actually worth the money. Many students do not finish their courses or they jump into study because they don't know what else to do with their lives. Because studying is so expensive, we encourage you to be sure before you sign up. Don't spend tens of thousands of borrowed dollars drinking at Shadows and not finishing anything. If you need time out from the regimentation of school, or to find yourself, why not work or travel for a year or two, and then consider studying? But if you are sure, and you have checked that the course and the tertiary provider are worth it, and you know that you can finish the course, and that there is a job market for you at the end of it all (or you love the subject so much that you are willing to take the financial risk), go for it.

Take a really hard look at your student loan debt as soon as you've finished studying. This is a time when your student loan debt is likely to be at its lowest (if you are going overseas) and your assets are also likely to be low. Ask yourself the hard questions: What is your plan to pay your student loan debt off in full? How long will it take? Is your plan realistic? Before you acquire significant financial responsibilities like mortgages and children, wouldn't it be good to prioritise getting this debt paid off ASAP? If it's hard to pay now, it will probably be even harder in the future. If you don't see a way forward, ask if bankruptcy is the most realistic option - before you start building up assets and getting your life fully underway. If you build up assets, and then later find that you have no choice but to go bankrupt, those assets may be at risk (even if you live overseas). The least stressful option is to deal with this debt as soon as possible. These are hard issues, but it's even harder if you go through life without any direction. If you have a loan, now is the best time to get it sorted.

Take a really hard look at your student loan situation right now, wherever you are in the world and wherever you are in life. Yes it might have been better to have dealt with your loan before now, but that didn't happen. The next best option is to deal with it right now rather than to let it drift further. Get the facts of your loan, and your personal situation, and then find the best way forward for you. We provide no-nonsense advice about your situation and the options.

Try hard to repay your loan in full before you move out of New Zealand. If you don't live in New Zealand, high rates of interest and penalties will easily make your loan grow out of control.

People will tell you not to bother repaying any more than the minimum if you live in New Zealand. It's interest free, they say, so why not just leave it. But, did you know that the IRD will soon be able to report your student loan debt to credit reporting agencies so having one may mean no mortgage. Did you also know that, at any time, the interest free arrangement could be removed, something that could change your financial life overnight. You will protect yourself from these risks by paying your loan back ASAP.

Don't buy expensive assets until your student loan debt is sorted. We see many cases where people have bought houses but they have loan debt of more than $100,000. Getting your loan sorted first is best.

In rare cases, none of the options seem great (for example: your debt has grown so large that there is no hope of keeping up with your obligations, let alone repaying the full debt, but you are in a situation where you may lose assets if you become bankrupt). The temptation is to put the debt problem back into the too hard basket and to forget about it. This is not a good decision. You got into this situation because, for whatever reason, the debt was not dealt with. Continuing with this will make things worse not better. We have seen a continuous escalation in aggression in how the IRD chases and deals with debtors, and we are seeing increasing pressure put on bankrupt student loan debtors (in most cases to no effect). In most cases, not dealing with the problem is like making a decision to let things get worse.

The IRD acts in its own best interests - not yours. If they have made you an offer, check that the offer is fair, and that you have been given the right advice and all of the options. Sometimes we tell our clients that the IRD's advice is spot on, but in most cases we find that any pre-existing IRD offer can be improved upon. If you decide to pay your debt off it is very important that you get the IRD's written confirmation of the amount before you pay. We have seen many cases where the person simply paid the amount stated in MyIR and were then contacted a few months later and asked to pay thousands more. Had they known the correct amount before making payment they may have been able to get a better deal, or they may have changed their mind on the viability of a lump sum payment resolution.

No matter where you are at with your student loan debt issues, we can help. Many of our clients are stressed, and in financial difficulties, because their student loan debts are out of control. We're not here to judge. We're here to help you regain control and to provide stress relief.