Paul’s verdict
Paul’s verdict: Apply for a scholarship or other financial support If all else fails, use the money in your offset account
We are in our early 50s, with two teenage sons at home. We are focusing on paying down the mortgage ASAP. There is $180,000 to go with $75,000 in an offset account and $30,000 in a managed fund. We earn about $90,000 between us. My husband has decided to complete a doctorate part-time over six to eight years – the cost would be about $65,000. What would be the best way to pay for this? Our options are:
1. Use our offset and fund to pay upfront.
2. Add it to the mortgage.
3. Use the federal government’s FEE-HELP scheme (if he is eligible). 4. Take out another loan. Angela
Hi, Angela. Taking on a PhD is a big task but a really worthwhile one. I imagine your husband has already completed quite a bit of study at undergraduate level and also a master’s, so after much study working out how to best finance the PhD is really important.
I am sure both you and your husband will be well versed in university funding but this really is your starting point. Universities greatly value their elite PhD students and my understanding is that most students at this level get support in the form of a scholarship or part scholarship, some tutorial work, cost of living expenses or some such help. Obviously, this would be really valuable as it does not cut into your family finances.
Next, if he is eligible, the FEE-HELP scheme is a huge support to students. When compared with credit card debt, personal loans or other forms of high-interest debt, a FEE-HELP loan is a cracker. It has no interest, it is only indexed and you only start to repay it when you earn a bit above $50,000. So there are no repayments until you are earning a reasonable income, no interest and no pressure to repay it.
Where his eligibility may be impacted is if he has used FEE-HELP to fund other study he has undertaken. There is a lifetime cap of a bit over $100,000. There is always debate about whether this is too generous or too low but my view is that it is pretty fair. Regardless of this debate, though, the lifetime cap may well impact your husband’s use of FEE-HELP.
Even so, FEE-HELP is clearly my second favourite choice, the first being university support via a scholarship or other means.
Let’s move from the best options to the worst. I have no doubt that this is your option 4. Taking out another loan will involve costs and I am sure a high rate of interest. One option is a personal loan but here interest rates can vary from 8% to much higher and I suggest this idea be discarded.
Presumably you are paying around 4% on your mortgage and making good progress on getting it repaid. You now owe $180,000 and you have $75,000 in your offset account, leaving you with effective mortgage debt of $105,000. If you chose to use the $75,000 in your offset account, the cost of this money is the rate of interest you are paying on your mortgage and I would much prefer you pay 4% than 8%-plus. Using the offset should be the same as adding the cost to your mortgage.
Once you have checked out the university support options, the next issue is paying upfront. If the PhD cost you have to meet is $65,000 and this is a fixed amount over the six to eight years, I see no point paying upfront. At best your money will be costing you around 4%, so you would be better off paying each year.
The question to ask is whether the amount increases each year. If it does, and this would be more than 4%, then paying upfront would make sense. Also, the university may offer a discount on payment upfront. I have to say, though, that with a six- to eight-year period of study, paying upfront represents a real risk of your husband not completing the PhD through bad health or other family reasons.
So my opinion is to approach this funding issue as follows:
1. University support in the form of a scholarship or other support.
2. FEE-HELP, if eligible.
3. Your offset account, most likely paying on a year-by year-basis.
My best wishes to you, your husband and family.