Key's student loan write-off

[AMR]

Is this a good deal? From this financial year we get 10% written off for every voluntary repayment above $500. What sort of returns will you need to get from the stockmarket to beat it? (I'm not sure it's 10% as such...for one the loan is interest free and inflation might pay a big part in the future towards reducing the size of the loan.)

[fungus pudding]

Is this a good deal? From this financial year we get 10% written off for every voluntary repayment above $500. What sort of returns will you need to get from the stockmarket to beat it? (I'm not sure it's 10% as such...for one the loan is interest free and inflation might pay a big part in the future towards reducing the size of the loan.)

No tax implications - no risk, and it's debt reduction over something that sits fair and square on the wrong side of your assetts and liability schedule. That's important for future borrowing - mortgages etc. I'd say it's a very good deal.

[upside_umop]

Its a bad deal...well not a bad deal, but you can do much much better elsewhere with your funds. I'll post tomorrow, because I am running late as it is!

[Corporate]

Interesting topic....Since i've got a big student loan I'll have to have a think about what I will do. Gut feeling though is that it is probably better pay it back as slowly as possible.

[Corporate]

This calculator is pretty useful

http://www.sorted.org.nz/calculators/student-loan/page1.php

[Mysterybox]

Its a bad deal...well not a bad deal, but you can do much much better elsewhere with your funds. I'll post tomorrow, because I am running late as it is!

Agreed. Best to pay back as little as possible as slow as possible. With 0% interest this debt gets "cheaper"(to repay) each year that passes.
Even with 6.8% interest the salary increase makes it worth going overseas.

[fungus pudding]

Agreed. Best to pay back as little as possible as slow as possible. With 0% interest this debt gets "cheaper"(to repay) each year that passes.
.

That presupposes you can find a 10% after tax - risk free investment as an alternative.

[Corporate]

That presupposes you can find a 10% after tax - risk free investment as an alternative.

Not according to this


Student loan calculator
What you've told usYear of birth1984Existing student loan debt$40,000Total expected additions to your student loan$0Total loan balance$40,000Starting income$45,000Income after five years (expected)$100,000Here's your answer ( at 0% interest )First monthly payment$216 in the year 2009Time to pay off loan7 years and 4 monthsAge when loan is repaid32 years oldTotal amount paid in nominal dollars$40,000Total interest in nominal dollars$0The above results are in nominal terms. Show these results in today's dollars below.
Total amount paid in today's dollars$36,664Total interest in today's dollars$0

Assuming you paid $40k off in one hit you'd pay $36k with the discount.

In seven years I think I could make a return of $664 in todays dollars.

[upside_umop]

OPTION 1

Lump sum payment - 10% discount.

You pay $500 and recieve $550 off your loan (NPV $550).
This yields an instant 10% return, but is this good?
I'll do a couple of calculations and we'll see.

The cost of our loan is nothing (0% interest), so we can borrow and invest where we choose at zero cost. All that has to be made is $50 on that $550 over the next umpteen years that you choose to pay your loan off.

Say we will use a time period of 20 years.

We can work out the internal rate of return, to give a benchmark return that must achieved elsewhere.

Using excel, financial or graphics calculator we input:

n (periods) : 20 years
I% (the rate of interest required) : we'll try find this...
PV (present value - money we have today to either payoff or invest) : $500
PMT (payments - this is our cashflow which is N/A in this calc) : $0
FV (future value - what we hope to have in 20 years after investment) : $550

This gives us a Internal Rate of Return of 0.4777%. What does this mean? It means that if you choose to delay your payment, you need to achieve a nominal (yes nominal, not real!) return of 0.4777%. From the outset this is obviously quite easy given that banks still return ~4%, and high quality bonds ~8%.

OPTION 2

Invest in term investment/bonds with 4% or 8% return (for example purposes)

The second calculation is to work out what it is worth to us to invest in either of these investments in present value terms. To do this, set the IRR = Required rate of return (return that needs to be achieved), and use a bond valuation formula (see http://en.wikipedia.org/wiki/Bond_valuation )

Formula for bond valuation:

http://upload.wikimedia.org/math/0/6/e/06e821cbccc6fe150fedc4b640319aab.png

Where the payment is equal to either 4% or 8% (less tax):

4% = 500*4%*0.67 = $13.40 per year
8% = 500*8%*0.67 = $26.80 per year

PV(4%) = 13.408((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$713.87 which is greater than $550 - no surprises here.

PV(8%) = $26.80((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$964.58 which is greater than $550 - again no surprises.

What this is saying is that in present value terms, you are better off by $163.87 ($713.87-$550) per $500 at 4% and $414.58 ($964.58-$550) per $500 at 8% if your payment is delayed by 20 years.

So in short, only pay minimum payments (10% of your wage over ~$19000 I believe), and invest your lumps of cash elsewhere.

[Stranger_Danger]

Here is a crazy idea.

Perhaps pay it all off asap, if you can afford to, regardless of the consequences.

After all, a Government is a lender of last resort, or at least should be.

Presumably they gave you a student loan because otherwise you wouldn't have been able to afford an education.

Having received the education - and now profiting from having had an education - why not pay it back asap so the next guy can be lent those funds for an education?

You're either for socialism or against it, and you were definitely for it when you took the money. Witholding nanny states money from the next socialist, in order to invest it, does not a capitalist make.

[upside_umop]

No, Stranger Danger...why pay it back?

My parents have been means tested based on income in which I dont recieve any financial help from the government, and also nothing from my parents. Unlike a lot my peers, they recieve upto $200 a week in which they dont have to pay back a cent of. Whereas I recieve $150 per week which I do have to pay back. Where is the equality in this?

So...I'll make it work for me, not the government because in short, I'm disadvantaged relative to a lot of my peers. Further to that, we wouldnt be having a conversation/discussion of this magnitude if there was no means testing in the first place, as all our student loans would be a lot smaller.

The government, and indirectly you, will profit from having an increased skilled labour work force, although certain people (*cough *cough skol) would not think so.

DISC: Borrowed as much as I can, because at 0% interest, its the smart thing.

[777]

Another thing to think of is that the 10% offer may not stay forever. It may be wiped or reduced. If no one takes it up, as it is better to invest than to repay, then government may wonder why they make it available.

[AMR]

Here is a crazy idea.

Perhaps pay it all off asap, if you can afford to, regardless of the consequences.

After all, a Government is a lender of last resort, or at least should be.

Presumably they gave you a student loan because otherwise you wouldn't have been able to afford an education.

Having received the education - and now profiting from having had an education - why not pay it back asap so the next guy can be lent those funds for an education?

You're either for socialism or against it, and you were definitely for it when you took the money. Witholding nanny states money from the next socialist, in order to invest it, does not a capitalist make.

Well Stranger Danger, your generation got their degrees for free!

[upside_umop]

Another thing to think of is that the 10% offer may not stay forever. It may be wiped or reduced. If no one takes it up, as it is better to invest than to repay, then government may wonder why they make it available.

That doesnt economic sense 777...even if a slight student population takes this up, then the government will do well out of it. This is, because, if you look at the other side of the ledger, they are getting their funds back for minimal cost (compare this cost to their issue of debt).

What would make sense for the govt to do, is to increase it to say 20%, which would still be SFA in terms of cost of recovery...but they would still be getting an extremely good deal. Not that I would take it up....

If the govt takes the offer away, it shouldnt worry anyone of us the slightest (unless you have a mental urge to get rid of it like so many people do??)...

[Stranger_Danger]

Well Stranger Danger, your generation got their degrees for free!

Huh?

I'm in my early 30's. I could of gone to university funded by my savings at 18 (note : from working, not from luck, my parents were poor) and continuing to work part time, but I figured I'd make more money by skipping uni and beginning to compound when I was young and didn't have a family or debts.

Don't get me wrong, I'm not against university or education. But when you have people like upside - living in the paradise that is New Zealand - talking about being "disadvantaged" because someone else bludges slightly more than he/she does, well....

Disadvantaged is living in a swamp, or dying of aids, or being in a ghetto despite working 100 hour weeks.

By the way, since I've been assumed to be an old codger, let me sprinkle some old codger experience on this thread. Obviously in one's early 30's, not all the data is in yet, but I find it interesting that out of everybody I have ever known who is around about my age, the 5 wealthiest did not go to university.

Is it because education is counter productive? I doubt that.

More likely, a "free bonus" of nanny state quasi-socialist "education" is that the concept of someone elses pocket owing you a living becomes embedded into one's psyche.

This is an inhibitor to getting rich, and there is some of this psyche sprinkled amongst this thread.

[Corporate]

OPTION 1

Lump sum payment - 10% discount.

You pay $500 and recieve $550 off your loan (NPV $550).
This yields an instant 10% return, but is this good?
I'll do a couple of calculations and we'll see.

The cost of our loan is nothing (0% interest), so we can borrow and invest where we choose at zero cost. All that has to be made is $50 on that $550 over the next umpteen years that you choose to pay your loan off.

Say we will use a time period of 20 years.

We can work out the internal rate of return, to give a benchmark return that must achieved elsewhere.

Using excel, financial or graphics calculator we input:

n (periods) : 20 years
I% (the rate of interest required) : we'll try find this...
PV (present value - money we have today to either payoff or invest) : $500
PMT (payments - this is our cashflow which is N/A in this calc) : $0
FV (future value - what we hope to have in 20 years after investment) : $550

This gives us a Internal Rate of Return of 0.4777%. What does this mean? It means that if you choose to delay your payment, you need to achieve a nominal (yes nominal, not real!) return of 0.4777%. From the outset this is obviously quite easy given that banks still return ~4%, and high quality bonds ~8%.

OPTION 2

Invest in term investment/bonds with 4% or 8% return (for example purposes)

The second calculation is to work out what it is worth to us to invest in either of these investments in present value terms. To do this, set the IRR = Required rate of return (return that needs to be achieved), and use a bond valuation formula (see http://en.wikipedia.org/wiki/Bond_valuation )

Formula for bond valuation:

http://upload.wikimedia.org/math/0/6/e/06e821cbccc6fe150fedc4b640319aab.png

Where the payment is equal to either 4% or 8% (less tax):

4% = 500*4%*0.67 = $13.40 per year
8% = 500*8%*0.67 = $26.80 per year

PV(4%) = 13.408((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$713.87 which is greater than $550 - no surprises here.

PV(8%) = $26.80((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$964.58 which is greater than $550 - again no surprises.

What this is saying is that in present value terms, you are better off by $163.87 ($713.87-$550) per $500 at 4% and $414.58 ($964.58-$550) per $500 at 8% if your payment is delayed by 20 years.

So in short, only pay minimum payments (10% of your wage over ~$19000 I believe), and invest your lumps of cash elsewhere.

Totally agree with everything you have said. I borrowed every cent I could get my hands on and the govt won't be getting it back any quicker.

[shasta]

Huh?

I'm in my early 30's. I could of gone to university funded by my savings at 18 (note : from working, not from luck, my parents were poor) and continuing to work part time, but I figured I'd make more money by skipping uni and beginning to compound when I was young and didn't have a family or debts.

Don't get me wrong, I'm not against university or education. But when you have people like upside - living in the paradise that is New Zealand - talking about being "disadvantaged" because someone else bludges slightly more than he/she does, well....

Disadvantaged is living in a swamp, or dying of aids, or being in a ghetto despite working 100 hour weeks.

By the way, since I've been assumed to be an old codger, let me sprinkle some old codger experience on this thread. Obviously in one's early 30's, not all the data is in yet, but I find it interesting that out of everybody I have ever known who is around about my age, the 5 wealthiest did not go to university.

Is it because education is counter productive? I doubt that.

More likely, a "free bonus" of nanny state quasi-socialist "education" is that the concept of someone elses pocket owing you a living becomes embedded into one's psyche.

This is an inhibitor to getting rich, and there is some of this psyche sprinkled amongst this thread.


SD

Am also in my early 30's (Gen X) & missed out on both the "free education" that AMR referred to that was around 20 years ago (?), & the interest free loans & entitlements that the impatient Generation Y get today.

Like yourself i chose to work over varsity, but did do some study whilst i worked...

Perhaps one day i'll finish that business degree :D

It has meant jack sh*t to me in the 15 years i've been working in various accounting roles

And for those that think they have it tough, i saw Slumdog millionaire yesterday, quite an eye opener & a great movie to gain some perspective!

[STRAT]

Huh?

I'm in my early 30's. I could of gone to university funded by my savings at 18 (note : from working, not from luck, my parents were poor) and continuing to work part time, but I figured I'd make more money by skipping uni and beginning to compound when I was young and didn't have a family or debts.

Don't get me wrong, I'm not against university or education. But when you have people like upside - living in the paradise that is New Zealand - talking about being "disadvantaged" because someone else bludges slightly more than he/she does, well....

Disadvantaged is living in a swamp, or dying of aids, or being in a ghetto despite working 100 hour weeks.

By the way, since I've been assumed to be an old codger, let me sprinkle some old codger experience on this thread. Obviously in one's early 30's, not all the data is in yet, but I find it interesting that out of everybody I have ever known who is around about my age, the 5 wealthiest did not go to university.

Is it because education is counter productive? I doubt that.

More likely, a "free bonus" of nanny state quasi-socialist "education" is that the concept of someone elses pocket owing you a living becomes embedded into one's psyche.

This is an inhibitor to getting rich, and there is some of this psyche sprinkled amongst this thread.Well said Stranger Danger and that goes for all your posts on this thread. Its mind boggling that of all people the people here would even refer to or think of their loans as Government money.
Where do you lot think the Government gets their money from?

Nanny State mentality. Grrr I sound old lol

[upside_umop]

Huh?
I'm in my early 30's. I could of gone to university funded by my savings at 18 (note : from working, not from luck, my parents were poor) and continuing to work part time, but I figured I'd make more money by skipping uni and beginning to compound when I was young and didn't have a family or debts.

I too have funded myself...I have held a part job all throughout university. I figured I'd rather an education as I'll be happy with a 9-5 work/life balance. I've seen first hand what long/shift hours can do to families and its not something I'd wish to risk...


Don't get me wrong, I'm not against university or education. But when you have people like upside - living in the paradise that is New Zealand - talking about being "disadvantaged" because someone else bludges slightly more than he/she does, well....

I never knew this thread was about how beautiful NZ was - maybe you can start an off topic discussion.


Disadvantaged is living in a swamp, or dying of aids, or being in a ghetto despite working 100 hour weeks.

Disadvantaged relatively. I never asked you to bring starving marvin into this one...



By the way, since I've been assumed to be an old codger, let me sprinkle some old codger experience on this thread. Obviously in one's early 30's, not all the data is in yet, but I find it interesting that out of everybody I have ever known who is around about my age, the 5 wealthiest did not go to university.

I guess thats the old story of the company you keep isn't it. If the type of company I was to keep was CEO's, accounting partners etc then I'd be willing to bet they'd be wealthier than your circle on an expected wealth basis. But whos counting eh? You can say that 4 out of the 5 wealthiest people in the world arent educated (university like), but they are self educated. Do you really think Larry Ellison or Bill Gates would hang out with factory workers? (no offense to factory workers...).


Is it because education is counter productive? I doubt that.

Agrreeeeed...


More likely, a "free bonus" of nanny state quasi-socialist "education" is that the concept of someone elses pocket owing you a living becomes embedded into one's psyche.

Hmmm I wouldnt go so far to say that SD. All i was saying is that I feel relatively disadvantaged to my peers with respect to student allowance. I'd appreciate that you dont in the future 'try' make a stereotype out of students (or me, as it does seem to be a direct attack!).


This is an inhibitor to getting rich, and there is some of this psyche sprinkled amongst this thread.

As above.

Maybe you should re-read AMR's opening spiel about thread as it seems you have got a little off course.

DISC: $45k loan at the end of this (4th year). Have borrowed the lot :D

[Ketel One]

By the way, since I've been assumed to be an old codger, let me sprinkle some old codger experience on this thread. Obviously in one's early 30's, not all the data is in yet, but I find it interesting that out of everybody I have ever known who is around about my age, the 5 wealthiest did not go to university.

Is it because education is counter productive? I doubt that.

http://www.educationcounts.govt.nz/__data/assets/image/0003/2793/edachivemnt-simu12-graph-3.gif

And more info than you probably want to read on the topic: http://www.educationcounts.govt.nz/indicators/education_and_learning_outcomes/labour_market_and_social_outcomes/1919

[Corporate]

http://www.educationcounts.govt.nz/__data/assets/image/0003/2793/edachivemnt-simu12-graph-3.gif

And more info than you probably want to read on the topic: http://www.educationcounts.govt.nz/indicators/education_and_learning_outcomes/labour_market_and_social_outcomes/1919


Impact of education on income
Average earnings are 32% higher for those with a tertiary education compared to those with only upper secondary and post-secondary non-tertiary education.

Date Updated: April 2008

[dragonz]

Totally agree with everything you have said. I borrowed every cent I could get my hands on and the govt won't be getting it back any quicker.


Perhaps you could replace "govt" with "my fellow overtaxed NZ'ers (including the low paid factory workers, most of which could only dream of attaining higher education. I'm sure they wouldnt begrudge you an education so you can attain an average 32% higher wage).

Personaly I'd rather see a completly free education with limited positions available on merit only. Perhaps then we could see more kids from the lower socio-economic sector and a better quality of qraduate.:D

[upside_umop]

Perhaps you could replace "govt" with "my fellow overtaxed NZ'ers (including the low paid factory workers, most of which could only dream of attaining higher education. I'm sure they wouldnt begrudge you an education so you can attain an average 32% higher wage).

Personaly I'd rather see a completly free education with limited positions available on merit only. Perhaps then we could see more kids from the lower socio-economic sector and a better quality of qraduate.:D

Hey, funding based on merit would work in favour for me. But then again, that would be unequitable. It is one of the great things about NZ that allows anyone to have a go at university/post-secondary school education. There is the chance for everyone, including factory workers.

I'd like to see the student allowance bonded, but thats another story.

Interesting graphs too, by the way.

Back to AMR's original question..you are financially better off witholding your payments as long as you can, much to the disgust of some forum members!

[Ish]

I only have 12k left on my student loan, but as umop says there is no incentive to pay it back. Interest free is better than 10% write off.

As for those trying to guilt trip us, more than half of New Zealanders pay very little tax (if any) in the first place and I'm sure I'll pay more than my fair share of tax back in the future so that argument doesnt sway me whatsoever.

[Corporate]

I'll probably spend 80% of my working life in the top tax bracket. I will also pay my unfair share of tax since I strive to better myself and earn a higher salary.

Your average factory worker could have gone to University if they wanted.

[fungus pudding]

I'll probably spend 80% of my working life in the top tax bracket. I will also pay my unfair share of tax since I strive to better myself and earn a higher salary.

Your average factory worker could have gone to University if they wanted.


It really starts to get on the ol' nerves when 80% of your income is in the top tax bracket.

[Mick100]

I thought student loan repayments were compulsory - they just got deducted from pay like PAYE tax when income reached a certain level. IS THAT NOT THE WAY IT WORKS?
If its not then no student loans will ever be repaid by the sound of whats being said on this thread

,

[upside_umop]

I thought student loan repayments were compulsory - they just got deducted from pay like PAYE tax when income reached a certain level. IS THAT NOT THE WAY IT WORKS?
If its not then no student loans will ever be repaid by the sound of whats being said on this thread

,

This thread is on 'voluntary' repayments MICK. It was explained in AMR's opening post. Remember one of John Key's election promises was to give a 10% free write off when payments of over $500 were made?

The original question was 'is it a good deal to pay off the loan using JK's incentive...what return is needed to beat it.'

But yes, repayments are compulsory coming out of pay. You can however choose the amount you wish to pay back. Minimum is 10% of your wage over circa ~ 19000.

[dragonz]

I thought student loan repayments were compulsory - they just got deducted from pay like PAYE tax when income reached a certain level. IS THAT NOT THE WAY IT WORKS?
If its not then no student loans will ever be repaid by the sound of whats being said on this thread

,

I think Strat hit the nail on the head when he called it the nanny State Mentality". Seems to be inherit throughout all the classes from the "I deserve a loan to futher my education" to the "I deserve a benefit to feed my kids".

A little graditude goes a long way.

PS - sorry Corporate. Im not trying to give you a hard time.

[AMR]

I have opened a can of worms in this thread by the looks of it. The unfortunate consensus seems to be "Why should I try to save money for the country when some bludger on a sickness benefit will spend it all on booze?" Very hard to justify saving money for the country when the leadership for the last ten years encouraged the exact opposite to buy votes also.

But going back to the original question, the answer appears to be "No, because you are only generating a tiny return compared to the sharemarkets!"

[fungus pudding]

I have opened a can of worms in this thread by the looks of it. The unfortunate consensus seems to be "Why should I try to save money for the country when some bludger on a sickness benefit will spend it all on booze?" Very hard to justify saving money for the country when the leadership for the last ten years encouraged the exact opposite to buy votes also.

But going back to the original question, the answer appears to be "No, because you are only generating a tiny return compared to the sharemarkets!"


And eliminating all risk. So make sure you have a very good alternative, which because of the tax implications will need to return well over 10% in dividends, or you are relying on capital growth.

[Steve]

And eliminating all risk. So make sure you have a very good alternative, which because of the tax implications will need to return well over 10% in dividends, or you are relying on capital growth.

All this talk about what you need to make to justify not taking up the write-off is all a bit of a red herring.

As long as you keep the student loan "capital" intact and liquid enough to pay off be able to make the voluntary payment once they give warning that the 10% carrot is going to be removed, then any returns you make over the intervening period will be ADDITIONAL to the 10%.

Make sense?

[fungus pudding]

All this talk about what you need to make to justify not taking up the write-off is all a bit of a red herring.

As long as you keep the student loan "capital" intact and liquid enough to pay off be able to make the voluntary payment once they give warning that the 10% carrot is going to be removed, then any returns you make over the intervening period will be ADDITIONAL to the 10%.

Make sense?

It all depends on the borrower.

Anyone who needs to ask is almost certainly not an experienced investor, has probably never earned a proper wage and established any saving pattern. That is why there is a benefit in eliminating risk; but of course you are right, provided the investment is extremely low risk, and as you say intact and liquid.

[upside_umop]

All this talk about what you need to make to justify not taking up the write-off is all a bit of a red herring.

As long as you keep the student loan "capital" intact and liquid enough to pay off be able to make the voluntary payment once they give warning that the 10% carrot is going to be removed, then any returns you make over the intervening period will be ADDITIONAL to the 10%.

Make sense?

I see what your saying, but it still does not make financial sense to take up the 10% writeoff.

All for the reasons I posted above in the calculation, over 20 years you only need to return 0.50% to stay even - hardly a feat. That is unless you expect deflation on average over the next 20 years.

Delay your lump sum payments as long as you can.

[Crypto Crude]

your absolutely right Upside...
I would only ever consider paying the Student loan off in lump sum, if I were going to move overseas...
and in that case I think 7% interest rate kicks in...
:cool:
.^sc

[dragonz]

[QUOTE=upside_umop;250106] It is one of the great things about NZ that allows anyone to have a go at university/post-secondary school education. There is the chance for everyone, including factory workers.

QUOTE]

Geez talk about ignorance. Some people just dont have a clue :eek:

[upside_umop]

Geez talk about ignorance. Some people just dont have a clue :eek:


Please do explain.

[minimoke]

Please do explain.
If I may step in. As a gross generalisaiion your average factory worker is there, not for a lack of intelligence but for a lack of attention during the school years. Primary schools are doing a pretty good job of making up for parental inattention but come Intermeidate the family environment takes over and by high school the enthusiasm some kids had for education has been well and truly knocked out of them. There is a large group of the population who, while in theory, have access to tertiatry educaiton, in practice lost this opportunity by the time the got to their 8th birthday. As to why your refugees, Pacific Islanders and migrants work in factories, I'd imagine that is self evident.

Frankly if the best Victoria students can do is to vote in the likes of Joel Cosgrove as their president the furture of NZ clearly rests on the shoulder of the factory worker. And if there is any doubt it was plainly obvious to any person with a half functioning brain that Labours (and Nationals) election promises to students were nothing other than a bribe to attract their vote. Given the few active brain cells are lonely it is probably inconceivable that students would comprehend that loans come from the generosity of the tax payer - not the governemtn and if that generosity is repaid through the hoarding of loan capital we can see why our financial markets are in a mess. But to be fair - what can we expect when the governemnt teaches students that loaned money is free.

Apologies to any decent current and past students for any offence experineced by this rant.

[upside_umop]

Well that was insightful MM...

Why dont you take it a further step back and ask why there is no enforcement on these 'bad' parents to restrict them having kids in the first place? Thats right...they cant! Its everyones right. Everyone has the right to go to university and thats all I was saying. It seems that factory workers are on the decline in NZ, so I dont know what your on about saying factory workers are NZ?

I can tell your a narrow minded old school preacher who thinks that your generation has done everything right.

Well, let me tell you, you have had it lucky buddy.

Think about university costs in the past? What were they?

Think about housing costs in the past? What were they?

Think about wages in the past? What were they?

You'll find that in every instance, they have gone against the next generation coming through from slack policies with no teeth, that essentially help the older generation.

Your generation had NO university fees, you got PAID to go to university, housing was THREE times earnings multiples, and wages were in the top 10 of the OECD before the 80's. Then you had a nice little inflation boom which created pain for a few years of some home owners, but at the end of it, your nominal wages had risen enough to pay off your relatively miniscule mortgages. A real tough life you have had. Then you have the cheek to tell us, as the next generation coming through, to pay our student loans off as quickly as we can, because we are borrowing it from the tax payer. You were fully funded from the tax payer mate.

You just dont seem to get it, do you? Its our generation Y, which is taking the burden. Think of the rise in value of housing stock, and how much debt this is placing on us. We're essentially funding your sweet and easy life style. Your generation is passing on the debt burden to the next generation.

I'm not saying I'm sour about the future, or what we've been left with, I'm saying I'm sour when people like MM come out and say that generation Y should stop moaning and try to get one over the country. I dont see it as getting 'one over' the country, its just being smart, as things are a bit different to the 'old days.'

A rant from the other side of the argument. Sorry to any older generations than 'Y' people who dont share MM's view...I know a good portion of you dont.

[minimoke]

Everyone has the right to go to university and thats all I was saying.
Its a hollow right if a person is unable to take up that priveldge.

Its a bit mischieveuous comparing previous generations with the current generation. In 2005 there were 500,000 people taking part in tertiary study and 82% of these people passed a Batchelors level qual). This is a particpation rate of 14.1 people per 100 population. Thats quite a number of people the tax payer is expected to support. You only have to go back to 1994 to see a particpation rate of 8 people per 100 - and it drops the further back you go. Back in the old days the working population didn't have to support so many benificiaries - if you go back to 1960 only 2% of the population were dependant on benifits but by the time you get to the '90's this had risen to 15%.


If you think life is tough now - consider that each generation thinks life is tough for them and they look back nostalgically at the good old days - which wern't actually that flash. When you criticise earlier generations, pause a moment and consider what legacy you are leaving generations coming behind you.

[upside_umop]

Its a hollow right if a person is unable to take up that priveldge.

Its a bit mischieveuous comparing previous generations with the current generation. In 2005 there were 500,000 people taking part in tertiary study and 82% of these people passed a Batchelors level qual). This is a particpation rate of 14.1 people per 100 population. Thats quite a number of people the tax payer is expected to support. You only have to go back to 1994 to see a particpation rate of 8 people per 100 - and it drops the further back you go. Back in the old days the working population didn't have to support so many benificiaries - if you go back to 1960 only 2% of the population were dependant on benifits but by the time you get to the '90's this had risen to 15%.


If you think life is tough now - consider that each generation thinks life is tough for them and they look back nostalgically at the good old days - which wern't actually that flash. When you criticise earlier generations, pause a moment and consider what legacy you are leaving generations coming behind you.

Valid points on history of education. A hollow right? There is many hollow rights in this world.

I'm not criticising earlier generations, just putting it in perspective to what your situation was back in the day.

What are we leaving behind to our next generation? Well, it couldnt really get much worse in terms of housing multiples could it? I dont see such a huge debt blowout being passed on as what we have seen in the last generation. Would you agree? Is it possible to go to 20 times earnings for a price of a house? Thats what it would need to be to be relative to the difference between gen y and previous gen.

[minimoke]

Well, it couldnt really get much worse in terms of housing multiples could it? I dont see such a huge debt blowout being passed on as what we have seen in the last generation. Would you agree? Is it possible to go to 20 times earnings for a price of a house? Thats what it would need to be to be relative to the difference between gen y and previous gen.
I don't know about future multiples - but if we look at NZX we seem prepared to pay 20x + PE on "quality" assets (eg AIA is 26.38) so perhaps there is that potential in housing. Debt isn't necessarily the issue - it's the ability to repay that we should be concerend about - assuming of course the asset is there to back the debt. Perhaps ask your folks what it was like when they bought their house. Mine say it was bloody tough.

[axion]

Frankly if the best Victoria students can do is to vote in the likes of Joel Cosgrove as their president the furture of NZ clearly rests on the shoulder of the factory worker.

Haha. To be fair the reason someone like him gets in is because voter turn out for student election is incredibly low, and obviously that means the turn out is going to be based on motivated people who give a **** about student politics (and steroetypically they're the psuedo-communists/activists/arts students (hahahha ;p)/or extremists of other varieties) -- and lets face it university student politics has been like that for a long time... so I really don't think it's some great future problem. :P

Also, I only know he is the VUWSA president (or was? not sure) because of the news recently about his flag burning. So either I've been completely obvlious or it seems the promotional stuff for the VUWSA doesn't happen at the Pipitea campas (commerce and law)... so yeah, blame the arts students at the other campass. ;)

[underground]

yeah.. it was a bit of a no brainer on that one.. you didnt really need to do a NPV analysis to answer that..

based on inflation alone, most of us graduates will be on salaries which will increase in accordance to the CPI.. so even without having money in the bank you will be better off in real terms if the loan balance doesnt change.

maybe John Key reckons some people with Arts degrees or those wishing to jump ship may just wish to wipe it clean.

the government wont lose out.. and heres why..ill use myself as an example.

currently in my 4th year at the University of Auckland, By the end of this year my loan balance will be 30,000 ish

I have a secured a job will be working full time next year on a starting salary of 52,000 as i train to be a chartered accountant..

Income tax rate
Income Tax Income up to $9500 taxed at 13.75% $9500.00 $1306.25
Income over $9500 up to $14000 taxed at 16.75% $4500.00 $753.75
Income over $14000 up to $38000 taxed at 21% $24000.00 $5040.00
Income over $38000 up to $40000 taxed at 27% $2000.00 $540.00
Income over $40000 up to $60000 taxed at 33% $12000.00$3960.00
Income over $60000 up to $70000 taxed at 36% $0.00$0.00
Remaining income taxed at 39% $0.00$0.00 Totals $52000.00 $11600.00

In my first year i will pay the government 11,600 (PAYE) + 3300(LOAN PMT)

which means a payback period for the govt of only ~2 years...

and after 3 years, once i qualify as a CA, i will be earning in the vicinity of 80K minimum. which will put me in the top tax bracket.


if you assume unskilled labour goes at a rate of 40,000 a year then the government make a $3960 return on investment.

And as for the sour traders here, if you buy shares with the intention of making a profit, you should be paying tax under CB4 of the Income Tax Act 2007..

but i bet if you ever got audited by the IRD you would argue that you bought with the intention of deriving a taxable income and not for the purposes of making capital gains...

however if you incurred substantial losses you would switch your story to say you bought with the intention to make a profit in order to claim a deduction agaisnt your income.

the point is, most rational individuals are self interested wealth maximisers.

and another point to note is the better off we are as individuals the better off the country is.. increased consumption, macroeconomic stimulus etc..

discl: i will be paying off my loan as slow as possible, and helping the country in the process.

[Corporate]

yeah.. it was a bit of a no brainer on that one.. you didnt really need to do a NPV analysis to answer that..

based on inflation alone, most of us graduates will be on salaries which will increase in accordance to the CPI.. so even without having money in the bank you will be better off in real terms if the loan balance doesnt change.

maybe John Key reckons some people with Arts degrees or those wishing to jump ship may just wish to wipe it clean.

the government wont lose out.. and heres why..ill use myself as an example.

currently in my 4th year at the University of Auckland, By the end of this year my loan balance will be 30,000 ish

I have a secured a job will be working full time next year on a starting salary of 52,000 as i train to be a chartered accountant..

Income tax rate
Income Tax Income up to $9500 taxed at 13.75% $9500.00 $1306.25
Income over $9500 up to $14000 taxed at 16.75% $4500.00 $753.75
Income over $14000 up to $38000 taxed at 21% $24000.00 $5040.00
Income over $38000 up to $40000 taxed at 27% $2000.00 $540.00
Income over $40000 up to $60000 taxed at 33% $12000.00$3960.00
Income over $60000 up to $70000 taxed at 36% $0.00$0.00
Remaining income taxed at 39% $0.00$0.00 Totals $52000.00 $11600.00

In my first year i will pay the government 11,600 (PAYE) + 3300(LOAN PMT)

which means a payback period for the govt of only ~2 years...

and after 3 years, once i qualify as a CA, i will be earning in the vicinity of 80K minimum. which will put me in the top tax bracket.


if you assume unskilled labour goes at a rate of 40,000 a year then the government make a $3960 return on investment.

And as for the sour traders here, if you buy shares with the intention of making a profit, you should be paying tax under CB4 of the Income Tax Act 2007..

but i bet if you ever got audited by the IRD you would argue that you bought with the intention of deriving a taxable income and not for the purposes of making capital gains...

however if you incurred substantial losses you would switch your story to say you bought with the intention to make a profit in order to claim a deduction agaisnt your income.

the point is, most rational individuals are self interested wealth maximisers.

and another point to note is the better off we are as individuals the better off the country is.. increased consumption, macroeconomic stimulus etc..

discl: i will be paying off my loan as slow as possible, and helping the country in the process.

What accounting firms are offering $52k as a starting position for a Grad? Doesn't sound realistic to me.

[777]

May be you are over paid underground. The tax rates for 2009-2010 are

>14000 12.5%
14001-48000 21%
48001-70000 33%
70001< 38%

This will give you a tax bill of $10,210 plus ACC $884. (1.7%)

[minimoke]

In my first year i will pay the government 11,600 (PAYE) + 3300(LOAN PMT)

which means a payback period for the govt of only ~2 years...

I understand the approach Underground but as an Accounting Grad you'll realise the ledger isn't that simple.

Sure you'll pay your PAYE (which incidentally I recall rates being 12% to $14k; 21% then to $48K and your balance at 33% but lets not argue to the toss - I get your idea), which lets say is $11,600. (I have confidence my taxes are paying for good tax graduates who know better)

The first chunk of your tax is going to pay the interest on your loan. (Yup in the real world there is no free money and when you start paying taxes you'll start contributing to this bill). Lets use the OCR of 2.5% or call it $750.

You will perhaps be leaving some mates at varsity. Their education is partly funded by you now, you're a tax payer. Lets call that $1,000 for your contribution.

You're in Auckland where there is a wee bit of crime - So you'll be contributing say $1,000 to the police and another $1000 to keep the crims moving through the justice systems and into the prisons.

A bit sick - say good bye to a grand for the local hospital.

You still have a bit of your tax left - so nows the time to look after your folks and grandparents with a Superanuation contribution.

Travelling - theres a grand for the roads

And so on and so forth. Your tax will soon be gobbled up by the machinery of government and there will be bugger all left to really pay back the costs of you being a student.

On the other side of the ledger though, thankfully you'll have around $40k net so we can look forward to your GST contribution as you shop for all those other necessities of life.

[CJ]

What accounting firms are offering $52k as a starting position for a Grad? Doesn't sound realistic to me.Agree and so does your $80k after three years. Sounds like you are about a year ahead of yourself.

Happy to be proven wrong (or maybe I should be unhappy?)

[upside_umop]

I agree corporate, $52 k is a little ambitious as is the expected $80k after 3 years..

Of course, no NPV was really necessary when you think about it logically, but Fungus insisted 10% discount was a great deal...I just showed him over 20 years the return needed to beat that.

Basically agree with the rest of what you say, although in saying that, it would be more efficient in free market terms to offload our accounting needs to the likes of India, but thats a whole new kettle of fish.

Back to the original question, delay your payments as long as you can.

[underground]

ok points to address..

for tax rates.. i just used the tax on taxable income calculator on the ird website as an estimate to save time.. i think it was based on the year ending 2009, tax rates change all the time, it wasnt really the gist of my point.

as for how much i earn, its not an accounting firm, i will work for one of the largest listed companies.

Yes the salary is above average, and i know what it is because ive signed the contracts. but keep in mind i will have graduated with a BCom plus one year of postgraduate studies to acheive honours. i also have IT qualifications MCSA/CCNA that compliment my position. i have friends that work as graduates with the big4 who earn circa 45k..but they are willing to work for less due to the brand leverage that big4 employment gives them in the future.

the 80,000 wasnt optimistic, it was actually conservative.It takes 7 years to qualify as a chartered accountant (4 years study + three years practical with NZICA exams etc)

http://www.institutesurvey.co.nz/2008/index.asp

according to the hudson survey the average salary for a chartered accountant last year was well over 100,000. i am going on the assumption that i will pass my pce2 exam by then. and even if i dont, income from investing activities will definately push me there.


anyway i was offering myself up as a case study. each student will have different variables to deal with.

the point is as graduates, we would be doing a lot more for this country.
unlike sitting back and getting the dole, the allowance/loan scheme is actually an investment in us as people this country needs to stay innovative to give itself a sustainable competitive advantage.. look at the likes of Fontera, they market hundreds of products based on milk or its derivatives alone, higher education, provide a platform of leverage. entrepenurs like us will help create jobs in this country, things like this you cant really put a value on. (you probably could, but please dont, im sick of the calculations already!)

at least we are paying a large extent of our studies.. the previous generation had a great deal of it subsidised.. i just feel offended when people are criticised for the way they chose to give it back.

at the end of the day we will have our own families, mortgages and children to feed, and it will be in our own interests to stretch each cent further.

and mini, we cant choose how the government will allocate our funds.. but the point is from the two extremes, if we werent earning and were on the dole, the government would be a lot worse off. we are paying our way and then some. however, as each marginal graduate enters the workforce, the average cost per capita will decrease and as a result GDP per capita should increase. and all those infrastructure projects initiated by Dr Cullen are an investment in themselves, and are probably capitalised in the governments books. in my belief he was the brighest of the labour party, i met him on a number of occasions, hes a good guy.

the responsible thing to do as graduates and as citizens is provide the next generation with a social, economic, political enviroment in an equal or better state than which we had.

personally i will choose to pay my loan off slower, and others may choose to pay it off faster.

the student loan framework was provided to us by the government to encourage a knowledge economy, if people dont value that our contributions to society outweigh the costs, they are plain ignorant. if you want to avoid the "brain drain" effect you need to create a decent enviroment.

As students im sure we all appreciate that taxpayers have contributed to our education, we value that and the majority of us arent bludgers, despite what some people may think. a lot of us struggle to get by day to day even with jobs that we can manage around our commitments..

if you want government to save money its not just about paying loans faster, how about getting rid of some back bench MP's or beauracrats in government departments that are overpaid and underqualified, students should be the last thing to worry about.

(mind you im not for the whole bums on seats travel and tourism things, i reckon thats a waste of time and taxpayers shouldnt have to fork out for that)

[shasta]

What accounting firms are offering $52k as a starting position for a Grad? Doesn't sound realistic to me.

I know the starting salaries at Audit NZ, have gone up & up over the last few years...

Accountants in CA firms, must be getting paid quite nicely...

Here's an article to scare most NZ'ers though...

Give Maori students free pass into varsity, urges Sharples


http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10579095

Talk about lowering the bar for certain "races", my how racist is the Maori Party?

Underground - where are you off too, I've worked at both PwC & GT in my time, though 5 years out of the CA environment...

(Working on contract for Rodders & JK now :D)

[Corporate]

I know the starting salaries at Audit NZ, have gone up & up over the last few years...

Accountants in CA firms, must be getting paid quite nicely...

Here's an article to scare most NZ'ers though...

Give Maori students free pass into varsity, urges Sharples


http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10579095

Talk about lowering the bar for certain "races", my how racist is the Maori Party?

Underground - where are you off too, I've worked at both PwC & GT in my time, though 5 years out of the CA environment...

(Working on contract for Rodders & JK now :D)

yeah but who really wants to work for auditNZ!

I'm also in CA/Big4 doing PCE2 this year.

[shasta]

yeah but who really wants to work for auditNZ!

I'm also in CA/Big4 doing PCE2 this year.

Not me, & nor could them or most CA firms afford me :D

[minimoke]

(Working on contract for Rodders & JK now :D)
Sucking off the public teat may not be the most honourable of livings. Don't forget whose paying you - and it ain't JK or Rodders!

[CJ]

as for how much i earn, its not an accounting firm, i will work for one of the largest listed companies. that makes sense. They do pay more. Well done.

[wbosher]

I know the starting salaries at Audit NZ, have gone up & up over the last few years...

Accountants in CA firms, must be getting paid quite nicely...

Here's an article to scare most NZ'ers though...

Give Maori students free pass into varsity, urges Sharples


http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10579095

Talk about lowering the bar for certain "races", my how racist is the Maori Party?

Underground - where are you off too, I've worked at both PwC & GT in my time, though 5 years out of the CA environment...

(Working on contract for Rodders & JK now :D)


It'll never happen (I hope), political suicide for any government to bring something like this in.

[mamos]

Originally Posted by upside_umop http://www.sharetrader.co.nz/images/buttons/viewpost.gif (http://www.sharetrader.co.nz/showthread.php?p=250025#post250025)
OPTION 1

Lump sum payment - 10% discount.

You pay $500 and recieve $550 off your loan (NPV $550).
This yields an instant 10% return, but is this good?
I'll do a couple of calculations and we'll see.

The cost of our loan is nothing (0% interest), so we can borrow and invest where we choose at zero cost. All that has to be made is $50 on that $550 over the next umpteen years that you choose to pay your loan off.

Say we will use a time period of 20 years.

We can work out the internal rate of return, to give a benchmark return that must achieved elsewhere.

Using excel, financial or graphics calculator we input:

n (periods) : 20 years
I% (the rate of interest required) : we'll try find this...
PV (present value - money we have today to either payoff or invest) : $500
PMT (payments - this is our cashflow which is N/A in this calc) : $0
FV (future value - what we hope to have in 20 years after investment) : $550

This gives us a Internal Rate of Return of 0.4777%. What does this mean? It means that if you choose to delay your payment, you need to achieve a nominal (yes nominal, not real!) return of 0.4777%. From the outset this is obviously quite easy given that banks still return ~4%, and high quality bonds ~8%.

OPTION 2

Invest in term investment/bonds with 4% or 8% return (for example purposes)

The second calculation is to work out what it is worth to us to invest in either of these investments in present value terms. To do this, set the IRR = Required rate of return (return that needs to be achieved), and use a bond valuation formula (see http://en.wikipedia.org/wiki/Bond_valuation )

Formula for bond valuation:

http://upload.wikimedia.org/math/0/6/e/06e821cbccc6fe150fedc4b640319aab.png

Where the payment is equal to either 4% or 8% (less tax):

4% = 500*4%*0.67 = $13.40 per year
8% = 500*8%*0.67 = $26.80 per year

PV(4%) = 13.408((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$713.87 which is greater than $550 - no surprises here.

PV(8%) = $26.80((1/0.004777)-1/(0.004777(1.004777)^20)) + $500/1.00447^20

=$964.58 which is greater than $550 - again no surprises.

What this is saying is that in present value terms, you are better off by $163.87 ($713.87-$550) per $500 at 4% and $414.58 ($964.58-$550) per $500 at 8% if your payment is delayed by 20 years.

So in short, only pay minimum payments (10% of your wage over ~$19000 I believe), and invest your lumps of cash elsewhere.
---------------------------------------------------
Couple of questions with this calc.

1. Does it assume that you have the $500 to invest for the whole 20 years, whereas in practice this amount will be drawn down as mandatory 10% repayment of the loan occurs? Should the model account for a continuing reduction in the amount of the student loan, and accordingly amount to invest? Will the IRR depend on your income and how soon the loan will be compulsorily paid off from 10% repayments?

2. Why has 20 years been chosen? Is this the average time to pay off a student loan? Also there is uncertainty with future governments as to whether the interest free regime will be kept.