student loan idea (not mine)

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Forums › Finance and wealth management › student loan idea (not mine)

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#456242 7-Apr-2011 09:23

Lizard1977: Apologies if someone has already mentioned this, but my understanding was that if you borrow to pay your fees, the fees portion goes straight to the university. You can borrow $1000 for course related costs, and you can borrow living costs, but this is only to a maximum of $150 per week, and it's not paid up front. At least, this is my understanding though it's been 8 years since I was in the system.

If this is still the case, then the maximum you can borrow to invest in one lump sum is $1150, with $150 a week to add in to your investment. If you have the money to pay your fees, and choose instead to take a loan for your fees, and invest your own money, then that would be different, but it's more of substitute than a direct investment of a loan. In my opinion, an investment of $1150 with a top up of $150 a week isn't more attractive than the alternative, which is borrowing that money and using it for such extravagances as rent, food, text books, etc. At least, that's what I did when I studied, supplemented by the minimum-wage income from 20 hours part time work on top of 8-10 hours of study a day, every day...

To be perfectly frank, I think the potential to rort the system is grossly overstated.

I agree, this is what has happened to me, I get $1000 loan for course related costs (Can claim the entire sum or just part of it) My $6000 course fees were paid directly to vic uni, I never had the money. I also get student loan living costs of $169 a week, paid out weekly. Im not entirely sure how you could get a lump sum of $5000? So yes, the maximum I could get straight up would be $1000 plus $169 a week, unless there is a way of cheating the academic payment of $6000? Even then I believe it would most likely go against the contract that you sign for your student loan.

jonherries

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#456246 7-Apr-2011 09:35

I have a couple of things to add:

* having a student loan may make it harder to borrow for other reasons (car, house etc)
* it would seem you are merely substituting your own spending for government assistance
* the interest on the 1000 + (150 * 30 weeks) = using a estimated net interest rate at the end of this period (including tax on interest) = about $232 at the end of the period. Hardly a fortune.
* Presumably you could invest in something with a higher return but of course you aonly have about $6000, and higher return means higher risk as the finance company investors are finding...

I supppose the act of taking out a student loan when you don't need one is probably less than ideally ethical, but I know myself, that gathering the capital to pay thousands in fees for a semester isn't fun, just as most people love the subsidy on phone contracts and laybuys(sp?) or HP.

So in effect you are getting an interest free HP for being a student.

Also thought it interesting that people think we should be worrying about the government deficit and bringing back student interest to reduce this. If your brain space allows (it is pretty dense) I would suggest you do some reading of Paul Krugman from the NYT. He has a blog, and talks (very US/Euro centric) about the fact that we can't save ourselves out of the world recession, or export our way out of it either. He seems pretty smart to me, and the nobel people seem to think so to.

Hope this helps.

Jon

mattRSK

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#456247 7-Apr-2011 09:36

Is it not the money you would have paid for fees up front set aside for investment?

Lizard1977

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#456253 7-Apr-2011 09:53

Thanks to those who have verified that things haven't changed much in the last 8 years (though I'm glad the living costs has increased. I don't think it increased since the introduction of the scheme in the early nineties, meaning the buying power was substantially lower when I studied).

I started studying in 1997 and paid my fees with the cash I saved from full time work the previous year. The next year I did the same, but then I got my licence and needed a car, but didn't have any money left. The system back then, however, let you borrow your fees even if you had paid them, and you got the cash paid direct to you in a lump sum. That allowed me to buy my first car, effectively taking back the cash I had used to pay my fees. Of course, there was interest, but the application process was so easy, it was convenient. I then took the next year off studying and worked full tIme to pay the loan back. From a numbers point of view, it looks like I rorted the system (borrowed when I had the cash) but in reality I was maximizing the system to enable me to be a productive member of the community. I went back to study the year after that, and borrowed to the hilt, while working to pay for rent, food, etc. After another four years, I had a loan of about $35,000, which I finished paying back after 4 years. If it wasnt for interest free loans while studying, and then no interest at all, I would still be paying it back, and wouldn't be in a position to buy a home for several more years, or be looking to start a family soon.

networkn

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#456256 7-Apr-2011 09:57

Lizard, what you did seems reasonable (though generally for most people a car isn't essential). I think it's about the intent. The OP's friend is looking to take advantage of the system.

acetone

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#456261 7-Apr-2011 10:12

You also have to keep in mind that the government could at any point change the rules so it is not interest free.

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networkn

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#456264 7-Apr-2011 10:13

As well they should. It was a horrible idea in the first place.

trig42

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#456273 7-Apr-2011 10:27

IMHO Student loans should attract interest, albeit at maybe a lower rate - say equivalent to a banks deposit rate.

networkn

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#456283 7-Apr-2011 10:45

I think it needs to be at the rate the govt actually is charged to provide it.

mattRSK

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#456287 7-Apr-2011 10:47

Adding interest will send more people overseas looking for higher paying jobs.

amford

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#456290 7-Apr-2011 10:55

Then make it illegal for them to leave for more than 6 months at a time.

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mattRSK

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#456292 7-Apr-2011 10:58

amford: Then make it illegal for them to leave for more than 6 months at a time.

So you have to stay in NZ until your loan is payed off. That will never work.

networkn

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#456293 7-Apr-2011 10:59

I guess I am in a miniority, I don't care if people move overseas. If they pay for an education here and want to go to some other place, that's their right, but they should not be able to do this AND get a cheap education AND interest free loans. If they want an education subsidy and interest free loans they must agree to work in NZ for 5 years or an early termination fee.

mattRSK

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#456294 7-Apr-2011 11:01

networkn: I guess I am in a miniority, I don't care if people move overseas. If they pay for an education here and want to go to some other place, that's their right, but they should not be able to do this AND get a cheap education AND interest free loans. If they want an education subsidy and interest free loans they must agree to work in NZ for 5 years or an early termination fee.

This is what I think would work.

b0untypure1

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#456297 7-Apr-2011 11:09

extremely interesting and good point about the - no lump sum option
it would be such a hassle for my friend (wont disclose name for privacy issues) to increase his investment weekly.
he was looking at a fixed term investment, therefore, by uninvesting (if this is a word) he will have to forfeit any interest earned (if thats still the rule) and reinvest the new amount (for a fixed term).
i think in our debate he was clouded by the figure at the end of the study year (yay $5000) and even though i explained its a certain amount per week, i forgot to push that point.
it was like...
me: "but its a weekly"
friend "duude!!! five grand!!"
continues debate around $5000 figure , forgetting i said weekly :s

so would i be correct to say (if the rule is still the same) investing into a bank, will be pointless due to the fact that term investments are for (x months - y months) and interest is not paid if the term investment is stopped, then reinvested? or can you add to your current investment? also, he would have to wait a year before he has anything near the minimum (5,000 dollars) required to invest?

thanks again

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