More Australian women are faced with rising student debt as the number of female enrolments continues to outpace that of men for yet another year.
Student fees are set to rise by 7.5 per cent by the year 2021, and the repayment threshold is dropping from $55,000 to $42,000 a year, which means repaying student loans is set to become more of a challenge.
Women are more likely to feel the pain of student debt, given that they tend to earn less than men and are more likely to undertake tertiary studies after high school.
According to the most recent 2016 data from the Department of Education, there were over 807,000 female tertiary enrolments, compared to 650,000 males.
Women are still earning less than men, so not only are they facing higher student loans, but their payments are coming out of smaller wages. It’s likely that many women in Australia are facing the same problems since women are earning 15.2 per cent less than men.
This gender difference reminds us of the importance of taking control of our finances and taking the time to come up with a strategy to pay off your debts in the smartest way possible.
Here are some tips for repaying student loan debts:
- Pay off your bad debts first
HELP (Higher Education Loan Program) debt is often referred to as the “best loan you’ll ever get” and it’s easy to see why.
With a high payback income threshold and low interest, it’s pretty much the best debt you could get yourself into, which is why you shouldn’t necessarily be in a rush to pay it off.
The key is to understand the difference between good and bad debt, and which debt you should focus on paying off first.
Student loans are considered “good debts,” not just due to low interest, but also due to the education you receive, which will help you land a better-paid job, enabling you to build personal wealth and improve your financial position in the long run.
On the other hand, bad debts typically include things like credit cards, which often have the highest rate of interest and annual fees, pay day loans, and personal loans. These are the loans you should be focusing on paying off first, as they attract the highest rate of interest.
Once you take care of the bad debts, you can focus on the good ones.
- Make extra repayments if possible
It’s quite common for graduates to leave student debt to take care of itself.
While this may be a good approach at the start of your career, when things like acquiring a car or saving for a deposit on a house take priority, you don’t want to ignore the debt.
Remember, while HELP debt has low interest, it’s still compounding over time.
By making voluntary contributions, you can pay the loan back faster, and once it’s paid off, it’s no longer come out of your wages. Think of it as a pay rise!
That being said, don’t get impatient about paying it off by needlessly taking money out of your savings account. It’s still the cheapest finance you’ll ever get, so enjoy it while you can.
- Or, use the money to save and invest
Now that the schemes devised to entice borrowers to pay back their debt faster have been eliminated (the 10 per cent discount to those who paid upfront and the 5 per cent discount for those who made voluntary repayments), it may make more sense to hold on to that extra cash.
Rather than paying off extra on the debt, you could be earning more on your savings and investments, so it’s worth doing the numbers before you run off to make those extra repayments.
At the end of the day, the way you choose to tackle your debt will also come down to personal preference and how you feel about having debt hanging over your head. Just make sure you don’t miss an opportunity to pay your debts off in a smarter way.