Hot Topic #4
Student Loans
Contents
Student Loans... 3
Cost of taking out a student loan ... 4
Activity ... 4
Key Facts ... 5
Paying the loan back ... 5
Activity ... 6
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Student Loans
A Student loan is usually considered to be an example of good debt as it is likely to increase an individual’s income potential.
Student loans are ‘unsecured’ loans, meaning you don’t have to provide an asset such as a house or car as security. They aren’t ‘means tested’, so what you or your parents earn or own doesn’t affect your ability to get a loan. Student loans are binding. Only your death or bankruptcy writes off the loan. If you’re under 18, you need your parents’ consent to take out the loan but that doesn't mean they're guaranteeing your loan. You are still fully responsible for paying it back.
To obtain a Student Loan you need to:
· be enrolled in a Tertiary Education Commission approved course.
· sign a contract with the Government,
· be a New Zealand citizen
· obtain parental consent if you are under 18
· pass at least half the course in order to keep the student loan
There are three parts to a student loan
You don't have to borrow all three parts.
· Compulsory fees – These pay all of your tuition fees. Fees are paid directly to your institution by StudyLink.
· Course-related costs – A lump sum for things like stationery, textbooks, childcare, travel or computer equipment. This is paid directly to your bank account. As from 2013 up to $1,000 per Student Loan account.
· Living costs – You can borrow up to a set amount each week for living expenses, which is then direct credited to your bank account. You can borrow up to $173.56 (from 1 April 2013) a week for living costs while you're studying, or on a study break of three
weeks or less, like mid-semester breaks
Cost of taking out a student loan
· An establishment fee is charged every time you apply for a student loan from StudyLink, which is added to your loan.
· An annual administration fee will be charged on your loan if you have a balance
Activity
Read the following article and prepare an Advice Sheet for Student Loan Borrowers outlining pitfalls of Student Loans.
I am 32 years old. I live in Australia. I have a degree, a small child and a student loan debt of over $100,000. When I finished university it was about $58,000 and with compounding interest it has ballooned to the horrific and unmanageable figure you see above.
I want to pay it off, but with the compounded interest it is impossible. I have no income and don't expect to work for another five years, by which time my debt will be about $150,000. It is now generating interest in the region of $160 a week.
This has affected every facet of my life. Now let's add to that the recent announcement that I may be arrested if I try to return to New Zealand.
I have negotiated my loan repayment with IRD to $0. This means that every year I am out of work I do not have any minimum repayments and, therefore, I am no longer classed as a defaulter. However, short of winning Lotto (I couldn't afford a ticket anyway) I am out of options.
I never intended to leave New Zealand permanently. After I graduated with a double degree and mediocre marks in 2005, I found myself washing dishes in a restaurant with a 15-year-old kitchenhand for three months so that I could be free to look for jobs during the day. I could have taken a benefit during this time but I chose to work. Thus, after a day of particularly bad job hunting that finished with finding an email from IRD that my loan was now ready to be repaid, I realised I had two options: Return to university for further study, namely teachers' college, or a law degree, or leave. I took myself, my newly minted degrees, borrowed some money for a flight to Sydney and barely looked back.
Retrospectively, I should have and wish I had made more of an effort to make payments in the first few years. However, at the time, I needed every cent I made for travel and living expenses (Sydney rent!). I always intended to return to New Zealand but I met my husband, got married, had a child and I am now entirely supported by my husband and what little he makes.
My position is unenviable and desperate, and I pray that my son will not have to pay for the choices that led to his life.
Don't hate me. Don't do what I did.
http://www.stuff.co.nz/stuff-nation/assignments/share-your-news-and-views/8694964/Me-and-my-100k-student-loan 8/11/13 @ 10.41am
Key Facts
In 2011:· 48.1 % of tertiary students took out a student loan
· 431,313 students were enrolled in tertiary education
· 207,312 students borrowed from the Student Loan Scheme
· Students borrowed an average of $7,630 in the year
· 22.6 % of tertiary students received a student allowance
· 97,308 students received a student allowance
Of borrowers who left study in 2010:
· The average student loan leaving debt was $16,050
· Those who studied at bachelor's level had an average student loan leaving debt of $22,060
Of students who left study in 2005:
• Graduates had repaid an average 37.0 % of their student loan five years post-study. • Non-graduates had repaid an average 26.6 % of their student loan five years post-study
http://www.stats.govt.nz/browse_for_stats/education_and_training/Tertiary%20education/StudentLoansandAl lowances_HOTP11.aspx 8/11/13 @ 10.31am
Paying the loan back
· You need to start paying back your student loan once you earn over a certain amount every pay period. (This is called a ‘repayment threshold’ and is based on the annual figure of $19,084 for 2013) at 12%.
· Interest free while you are still living in NZ
· You will have to start paying interest on your loan if you leave the country for 184 or more consecutive days (about six months). You can find out more about travelling or living overseas at the Inland Revenue website.
Activity
1. Hemi is working part time at Countdown for 15 hours per week on minimum wage of $13.75. He has a student loan of $10,000. Will he have to make repayments on his student loan?
2. Maia has completed her Bachelor of Arts at Otago University and has a student loan of $35,000. She is now working, earning $30,800 pa. Calculate the student loan repayments Maia will have to make each year. How much will this affect her weekly salary?
Alternatively use the IRD calculator https://interact2.ird.govt.nz/forms/studentloan/
Where to go for help to make decisions
· Careers New Zealand: Career information and tertiary study advice.
· StudyLink: All the details about student loans and allowances.
· Inland Revenue: Your student loan balance and paying it back.
· BreakOut Funding Information Service: Scholarships, awards and grants available.
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