Repaying your student loan as SLOW as possible

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Forums › Finance and wealth management › Repaying your student loan as SLOW as possible

Aaroona

3193 posts

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#126816 20-Jul-2013 21:25

this editor has changed quite a bit.... anyway, back on topic.

I was having a read of this article here. Can someone please explain to me how this logic works? I'm trying to determine whether I should bother focusing on paying my student loan off asap, forgoing a relatively nice vehicle in the process, or buy a nice vehicle and just keep up with minimum repayments on my loan, dragging it out as long as possible.

Can someone explain, in layman terms how this theory works?

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#862777 20-Jul-2013 21:45

They're interest free. That's it. If you had $1000 your options might be:

1) Pay it towards your student loan - $1000 gone and some of your loan paid off

OR

2) Put it in for example a term deposit - earn interest on it. At the end of the term deposit your student loan is still the same because it's interest free, so you then pay $1000 off your student loan. You're now in the same position as you would have been in (1) BUT you get to keep the interest you earned on your term deposit.

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Dunnersfella

4086 posts

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#862780 20-Jul-2013 21:47

There's no loner a financial incentive to pay your loan off quicker than you need to...
So, unless you're like me and doubt the government will keep the current policy of interest write-offs, then I can't see why you'd increase your minimum repayments / make lump sum payments. Well, other than the psychological effects of getting out of debt as quickly as possible.

mattwnz

20141 posts

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#862804 20-Jul-2013 22:45

Why pay it of early when it is interest free. Paying it off earlier just gives the government the money you would have made on the interest. What I would do is setup a savings account, and keep the money to pay it off in there to pay it off. Then when they deduct the amount at each payday, pay yourself out of your savings account that same amount. At the end you will have money left in your savings account,which is what you have made by not paying it off early. Maybe close to $1000 or more depending on your loan and job.

networkn

Networkn
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#862823 20-Jul-2013 23:23

mattwnz: Why pay it of early when it is interest free. Paying it off earlier just gives the government the money you would have made on the interest. What I would do is setup a savings account, and keep the money to pay it off in there to pay it off. Then when they deduct the amount at each payday, pay yourself out of your savings account that same amount. At the end you will have money left in your savings account,which is what you have made by not paying it off early. Maybe close to $1000 or more depending on your loan and job.

Hah, wow what a terrible view. The Government could use that money to better the rest of New Zealand. They are offering interest free student loans (worst idea ever) to help you stay on your feet whilst you get an education. If you have the means to pay it back sooner, you should so that the funds can be made available to others who likely need it more than you.

They should be interest free whilst you are studying and then accrue interest at the rate equal to the cost to the government of providing the loan (with no profit added), once you finish studying, or perhaps after 1 year to give you time to get gainfully employed.

richms

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#862827 20-Jul-2013 23:27

Sure, you go campaign on that and see how many votes you get.

Its up to you to make the most of a situation provided, Interest free loans allow for people to do that.

Richard rich.ms

insane

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#862829 20-Jul-2013 23:31

I don't think a few people paying their loans off early will stop this government from taking on projects which are 'nice to haves' which will leave us in debt for years and years to come, maybe they should lead by example.

Part of me says stuff it, take what you can as we're getting screwed in so many other areas. The other part of me says pay it off early and don't let it hang over your head.

For the record I paid mine off very quickly, my wife on the other hand still has a sizable loan left.

mattwnz

20141 posts

Uber Geek

#862846 21-Jul-2013 00:10

networkn:
mattwnz: Why pay it of early when it is interest free. Paying it off earlier just gives the government the money you would have made on the interest. What I would do is setup a savings account, and keep the money to pay it off in there to pay it off. Then when they deduct the amount at each payday, pay yourself out of your savings account that same amount. At the end you will have money left in your savings account,which is what you have made by not paying it off early. Maybe close to $1000 or more depending on your loan and job.

Hah, wow what a terrible view. The Government could use that money to better the rest of New Zealand. They are offering interest free student loans (worst idea ever) to help you stay on your feet whilst you get an education. If you have the means to pay it back sooner, you should so that the funds can be made available to others who likely need it more than you.

They should be interest free whilst you are studying and then accrue interest at the rate equal to the cost to the government of providing the loan (with no profit added), once you finish studying, or perhaps after 1 year to give you time to get gainfully employed.

There is nothing stopping people donating money to the government you know, if they want to give the government money. It is the same thing. If the government really wanted that money, they would create an incentive for people to pay it back earlier. But from what I have seen they have just removed that incentive, so maybe they don't need people to pay it off early anymore.

I also don't agree with interest free student loans. But the fact is that the interest free thing is to keep people in NZ, rather than working overseas. There is no point in paying it off sooner, if you are going to be worse off doing so, rather than drip feeding it. I thought the 10% thing was a good idea just to get people paying it back, so the government could then make on that interest by having it in the bank. But most people don't want to pay more than they have to, which is essentially what is happening by paying it back earlier, because you lose the interest.

The government is borrowing so much from overseas that the interest they gain from early payments, is small fry. The government will end up with it at the end of the day anyway in taxes.
However this isn't the real problem. The real problem is those who have gone overseas, and have no intention of ever returning or paying that money back. They should be the ones who should feel guilty about it.

You also need to remember that some students who have their parents paying their fees or living costs, borrow their maximum amount, due to it being interest free, and that money then goes into the bank to earn interest.

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P1n3apqlExpr3ss

853 posts

Ultimate Geek

#862853 21-Jul-2013 00:15

mattwnz:

You also need to remember that some students who have their parents paying their fees or living costs, borrow their maximum amount, due to it being interest free, and that money then goes into the bank to earn interest.

You just described every onto-it student. If the government allows it you can be assured that we'll take advantage of it.

What should annoy you more are those students who have parents that are retired and are obviously loaded claiming $173/week in student allowances. I'll have to pay mine back eventually, these guys won't

mattwnz

20141 posts

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#862855 21-Jul-2013 00:23

P1n3apqlExpr3ss:
mattwnz:

You also need to remember that some students who have their parents paying their fees or living costs, borrow their maximum amount, due to it being interest free, and that money then goes into the bank to earn interest.

You just described every onto-it student. If the government allows it you can be assured that we'll take advantage of it.

What should annoy you more are those students who have parents that are retired and are obviously loaded claiming $173/week in student allowances. I'll have to pay mine back eventually, these guys won't

I know of several farm families, who because they had structured their finances and were effectively earning almost nothing, their children qualified for full allowances, and didn't have to take out as large a loans. But as soon as they sold the farm, they were multi millionaires. So many people 'work' the system. So I don't think these people who are drip feeding payments, and benefiting from a bit of interest should feel bad about it. It won't likely be much of a benefit anyway, due to the very poor interest rates for depositors.

I know of someone else who got married at the beginning of their study, so they could get those benefits, and divorced at the end. They are one of those that are living overseas and won't return.

friendlymonkey

180 posts

Master Geek

#862867 21-Jul-2013 01:06

Due to inflation pay it off as slow as you can. There is no interest to counteract inflation therefore the it will be worth less in real terms in the future.

Ie. $5 in 2020 won't be worth as much as $5 today. The buying power of that 5 would have decreased.

riahon

946 posts

Ultimate Geek

#862873 21-Jul-2013 04:34

mattwnz:
P1n3apqlExpr3ss:
mattwnz:

You also need to remember that some students who have their parents paying their fees or living costs, borrow their maximum amount, due to it being interest free, and that money then goes into the bank to earn interest.

You just described every onto-it student. If the government allows it you can be assured that we'll take advantage of it.

What should annoy you more are those students who have parents that are retired and are obviously loaded claiming $173/week in student allowances. I'll have to pay mine back eventually, these guys won't

I know of several farm families, who because they had structured their finances and were effectively earning almost nothing, their children qualified for full allowances, and didn't have to take out as large a loans. But as soon as they sold the farm, they were multi millionaires. So many people 'work' the system. So I don't think these people who are drip feeding payments, and benefiting from a bit of interest should feel bad about it. It won't likely be much of a benefit anyway, due to the very poor interest rates for depositors.

I know of someone else who got married at the beginning of their study, so they could get those benefits, and divorced at the end. They are one of those that are living overseas and won't return.

Two wrongs don't make a right. Pay it back, die knowing you came into this world owning nothing and you left owing nothing.

Klipspringer

2385 posts

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#862881 21-Jul-2013 07:46

Pay it off as soon as you can. The less debt you have the better.

It does not matter that its interest free.

When it comes time to buy a house or car, or applying for any credit. Your student loan will count against you.

DaveDog

336 posts

Ultimate Geek

#862886 21-Jul-2013 08:17

Gee. What great attitudes some people have... If you were happy to borrow the money, then you should be happy to pay it back.

Goosey

2829 posts

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#862887 21-Jul-2013 08:18

Klipspringer: Pay it off as soon as you can. The less debt you have the better.

It does not matter that its interest free.

When it comes time to buy a house or car, or applying for any credit. Your student loan will count against you.

I dont believe a student loan counts against you when getting a home loan.... It didnt for me (even though I thought it would)...the bank wasnt interested in this. They were more interested in how I was going to pay it off !

jeffnz

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#862888 21-Jul-2013 08:24

when you guys use the word "government"maybe use the word 'taxpayer' to put in into another perspective. I realise it makes you feel better about reneging on your loans when its the government.

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