Student loan debt can pile up. Photo / 123RF
To pay or not to pay? That's the question when it comes to student loans.
Of course if you're working in New Zealand your loan is deducted automatically from your pay, at 12 per cent of everything you make over $20,020. If you're self employed you need to make your own student loan repayments.
If you're in hardship you can apply to the Inland Revenue Department (IRD) for a reduced rate, but you'll be paying the debt for longer.
Some graduates choose to pay it back faster. An argument exists that if the interest is zero, why would you pay back any more than the minimum? That's especially true if your extra repayments mean you can't afford to buy the stuff you need and you must borrow. It certainly makes sense to pay down the higher-interest loans first.
You can't always predict your future life. If you've just left tertiary study you may not think of buying a house. That day could come sooner than you think, however.
Holding student debt doesn't stop you getting a mortgage. The repayments, however, are counted as part of your after tax expenses by lenders. Those 12 per cent student loan repayments reduce your ability to service (make payments on) a mortgage. If you don't have a student loan at this important milestone in your life you will find it easier.
Having debt hanging over you holds some people back psychologically. This is a very good reason to pay the money back if you're one such person.
Or if you plan to live overseas in the future for six months or more when borders reopen you might want to get your repayment skates on now. Ignoring your student loan while overseas can be very costly.
Some far-flung student loan holders may think, or have thought that they'd never live in New Zealand again. So it didn't matter that their debt was rising at 3.5 per cent per year standard interest for overseas borrowers and late payment interest of 7.5 per cent for amounts of $334 or more overdue. There is also an annual $40 administration fee. In extreme circumstances you might be arrested at the border if you come back to New Zealand. There were four such arrests in the year to June.
I think that's a good reason to start paying. Kerre McIvor on Newstalk ZB said it more bluntly: "time to cough up kids", she said, going on to label student loan defaulters as "bludgers".
Parents get old, life changes as Covid-19 has shown and you might end up back here with a student debt millstone around your neck. I can remember saying just after my son was born that I'd never live in New Zealand again. Nine months later I was back living here for reasons I hadn't considered. It happens.
More than 5500 student loan borrowers have returned this year. Not all of them would have been expecting to find themselves living back in Aotearoa.
The Act Party wants interest added back into student loans for all graduates, should the party form a government with the National Party. The party may not help form a government and the policy may never come to fruition. Never, say never, however. If interest was reinstated you found yourself in a position in the future where you still had a large chunk of your student loan outstanding that would hurt.
Having a student loan may not seem fair, when you know other generations didn't. It's life, however, and it's always better to have a positive attitude and move forward than stew over the things you can't change.
Finally, looking forward again, student debt is usually considered by the courts to be separate property. That means if you split from a partner your debt usually remains your own. I mention this because I once reported on a case where a married couple paid off his debt before hers. The husband promptly split, leaving her with a big debt and no recourse.