Q. I have a 17-year-old daughter who will be starting university next year and will therefore be accruing debt in the form of a student loan. She won't turn 18 until June next year. Should she join KiwiSaver when she begins holiday work over the summer or would any money she earns be better put toward paying off that debt as soon as she can? I imagine in the future she will want to buy a car or a home, which will create further debt.

A.

Many parents worry about their children racking up a big student debt once they go on to tertiary education. However, their borrowing is not unlimited.

They can borrow for their fees, up to $1000 for course-related costs and up to $176 per week for living costs during the university year, usually 40 weeks.

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You should have a discussion with your daughter about her plans. Tertiary education is expensive and costs from $15,000 to $30,000 per year once you include fees, rent, books, food and travel.

Staying in a fully catered Hall of Residence is more expensive than flatting.

The StudyLink website has a calculator called SUSSED which helps students work out what tertiary education will cost them and how they will fund it.

With your daughter, list all the costs and work out how they will be funded - student loan, student allowance (if she qualifies), any scholarship(s) she can apply for, help from family members, weekend or evening work and her savings.

Student loans are interest-free as long as the borrower is living in New Zealand.

This puts student loans in a different category to other types of debt which should usually be paid off as quickly as possible.

KiwiSaver has incentives which are worth considering even for students.

Your daughter can join KiwiSaver at any time and get the $1000 kickstart.

If your daughter can afford it, contributing $20 per week by direct debit into her KiwiSaver will help her buy a house in a few years' time.

Not only will she be able to apply to withdraw this money and any employer contributions, she will also be able to apply for the First Home Deposit Subsidy.

This is worth up to $5000 and does not need to be paid back if she lives in the house at least six months.

It's available to first-home buyers who have been in KiwiSaver for three to five years (equivalent to 3 per cent of the minimum hourly wage) and meet the subsidy's terms and conditions (the Housing Corporation website has more details).

Once your daughter turns 18 in June next year, she will be entitled to Member Tax Credits (MTC) and the $20 per week will give her the full entitlement of $521 per year.

Diverting $20 per week into KiwiSaver may sound unaffordable, but for some students who have home ownership in mind, it is worth it not only for the MTC they get once they are over 18 but the Home Deposit Subsidy and First Home Withdrawal benefits. Many young people plan to head overseas as soon as they have finished their studies and, once they have been away for 184 days or more, they will be charged interest (currently 5.5 per cent pa) on their student loan. In that situation, having money in KiwiSaver won't help them. However, it may encourage them to return to New Zealand sooner rather than later and they will be able to access their KiwiSaver savings for their first home.

• Shelley Hanna is an authorised financial ADviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz