Stu­dent debt falls in value

Feilding-Rangitikei Herald - - Backyard Banter - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­dia.co.nz

Stu­dent loans have be­come worse value for money, rais­ing the im­por­tance of par­ents help­ing their chil­dren get as much ed­u­ca­tional bang for their buck as pos­si­ble.

They are worse value for three rea­sons.

One: The loans young peo­ple are be­ing forced to take out are in­creas­ing in size.

Two: The salaries in years one, two, three, four and five are drop­ping as a per­cent­age of na­tional me­dian earn­ings.

Three: As a re­sult, re­pay­ments take longer.

The me­dian re­pay­ment time for all bor­row­ers was 8.4 years, the 2016 stu­dent loans an­nual re­port says.

In 2011, it was seven years. This year’s fig­ures are yet to be pub­lished.

The ba­sic truth holds: It is worth in­vest­ing in ed­u­ca­tion. But the stakes are get­ting higher each year.

Young­sters must bor­row cau­tiously, choose their study

wisely, and then choose how they spend their first 5-8 post-study years wisely.

There’s some­thing a lit­tle overly red-blooded in the ed­u­ca­tion in­dus­try at the mo­ment.

There’s in­tense com­pe­ti­tion for bums on seats. The in­dus­try has its eyes firmly on the dol­lars.

Stu­dents are their cus­tomers. Stu­dent loans are the means they get paid.

There are some stu­dents com­ing out of cour­ses with debts that’ll take 20 years to pay off, and qual­ify the bor­row­ers for a job pay­ing near min­i­mum wage.

A quar­ter of bach­e­lors and grad­u­ate diploma stu­dents are fore­cast to take the bet­ter part of 15 years to re­pay their debts.

We’ve all con­ve­niently ‘‘for­got­ten’’ stu­dent loans are be­ing shov­elled out to young peo­ple who lack ex­pe­ri­ence and worldly wis­dom. And we won­der why there have been so many de­faults.

Our young peo­ple desperately need their par­ents and wise elders to help them make the choices

‘‘There's some­thing a lit­tle overly red­blooded in the ed­u­ca­tion in­dus­try at the mo­ment.’’

that will get them the best-value ed­u­ca­tion.

For some, the best choice is an ap­pren­tice­ship, or to go straight from school into the work­force. Study­ing part-time while work­ing is an op­tion.

The key el­e­ments of get­ting good value for stu­dent debt are sim­ple: Get as good a qual­i­fi­ca­tion as you can for the low­est debt you can.

Pre-sav­ing as many of the costs as pos­si­ble is sen­si­ble. So is work­ing part-time dur­ing study.

Ev­ery dol­lar less bor­rowed makes a young per­son’s qual­i­fi­ca­tion more valu­able, and their fu­ture eas­ier, es­pe­cially if they want to end up on the right side of the prop­erty di­vide be­fore they start a fam­ily.

Do not think help keep­ing the debt down is the end of it, ei­ther. When they fin­ish their study, peo­ple who head over­seas start in­cur­ring in­ter­est, and their fore­cast re­pay­ment times are much longer.

‘‘Over­seas-based bor­row­ers have ex­pected re­pay­ment times more than twice as long as New Zealand-based bor­row­ers,’’ the last stu­dent loans an­nual re­port says.

Young adults with wan­der­lust may need help un­der­stand­ing that.

Re­mem­ber, if they don’t get wis­dom from you, they will get it from their friends, who have as lit­tle ex­pe­ri­ence as they do.

PHOTO: 123RF

Your stu­dent off­spring’s friends. They may be fun, but they’re not nec­es­sar­ily founts of fi­nan­cial wis­dom.

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