University is a wonderful season in life. It's an exciting time of knowledge acquisition and personal growth. Not to mention the opportunity to interact with interesting people from a range of backgrounds who often end up being life long friends and even spouses. Oh the good old days!
Increasingly, the ''good old days'' of university life are turning into the bad old days of poor spending habits, living for the now and debt accumulation that burdens graduates well beyond their university years.
My challenge to students is to ''be weird'' don't follow the norm, stay debt free during university. Learn money management skills while you are young and it will change your destiny.
For many of us our first major debt is student loans - either in the form of Commonwealth HELP debt or bank loans. The trouble is, the debt accrues without us really thinking about it, and then, with the HELP debt in particular, we don't have to think about repayments until we're earning about $38,000 and the ATO takes care of them.
The fact is, by going down this route students are missing out on significant opportunities to get ahead. Yes, that's right, get ahead during your university years. This is even more important for those pursuing Christian ministry as these vocations are not renowned for paying well.
If you pay your HECS fees upfront you save a massive 20% of the fee. Now that is worth writing home to mum about. If you have already incurred a HECS or HELP debt you can pay off lump sums of $500 or more and get a 10% discount. It may be not worth writing home to mum about but certainly well worthwhile.
So what can be done to avoid debt to fund your tertiary education? There are four major strategies:
1. Start saving now
2. Scholarships
3. Other income sources
4. Funding options
Start saving for university now
I don't know how many kids get part time jobs as soon as they are eligible but with the unemployment rate at the lowest it's been in years there should be ample opportunity for diligent kids to get a job at 14 years and 9 months. That's what I did. I worked as a check out chap at a local supermarket before I turned 15 years old. It taught me so much about the 'real' world and enabled me to buy my first parcel of shares. There are many benefits to having a part time job. I was able to fund a 12 day voyage on the Young Endeavour tall sailing ship, spend a year in Sweden as a Rotary Youth Exchange Student and buy the toys that all teenage boys love.
Years later while recruiting university graduates for a global consulting firm I quickly learned that graduates who worked through university are more attractive to employees. They have learnt responsibility in the work place and can balance work, family, sporting and social activities. A part time job will enable you to achieve these things and help you save for university education.
If parents have the ability to fund a child's university education, I'm all for it on two conditions - as long the parents don't go into debt, and as long as the young person is taught financial responsibility. Failing to teach financial responsibility by completely supporting children through university may result in character flaws in the child. If a student is entirely supported by parents he is sheltered from the ramifications of his actions, and may not care how many subjects he fails, how many times he changes course or how much money is wasted on extended time at university. Why should he when Mum and Dad paying?
The best place to invest savings set aside for education depends on the time frame. I recommend a high interest paying, low frills, no fees, at call, internet or phone banking account with a bank or quality financial institution. If you have 4 to 7 years to invest I would invest at least some of the savings into a Listed Investment Company such as Australian Foundation Investment Company, an Exchange Traded Fund or an index fund with international diversification.
Insurance bonds are another investment structure that may be suitable for high income earners to save for tertiary education. Because you need 10 years for insurance bonds to be most tax effective these structures are really only useful for parents and grandparents to invest for children and grandchildren. Tax is paid within the investment at the company tax rate (currently 30%) which is great for high income earners but might not be that advantageous for someone over sixty with capacity to invest through their superannuation fund at a lower or zero tax rate. The range of underlying investments with insurance bonds has also broadened providing a lot more flexibility to choose the type of investment.
Scholarships
Scholarships are a great way to fund tertiary education. The Commonwealth Learning Scholarships (CLS) programme provides financial support to eligible undergraduates to assist with higher education costs. There are two scholarships - one for general education costs and one for accommodation costs.
The scholarships are administered on behalf of the Australian Government by individual higher education providers. The providers are responsible for conducting their own application and selection procedures in line with Government guidelines. Contact your university to see if you are eligible for a scholarship.
There are also a plethora of scholarships provided by various corporations, universities, church groups and foundations. Investigate the opportunities. Sometimes they are not available until the second or third year of the course. Your university student services office is a good place to start.
Other income sources
Centrelink is a potential source of funds for living expenses during university. Payments including the Youth Allowance (16-24 years olds) and AUSTUDY (25 years and over) have eligibility criteria including an income and asset test. Students can earn up to $6,000 p.a. without it affecting their allowance. There is no reason why you shouldn't work during term or at least during the long summer break.
Awards can be another source of funds for the diligent university student. I managed to receive two prizes at university. One was a book prize that was nice but didn't help the hip pocket. The other was a cash prize which certainly came in handy.
Another opportunity I jumped at during university was an industry based learning year. This involved taking a year out from study to work within two corporations. Sometimes called sandwich years, they are a great opportunity to earn income and gain experience. The income generated enabled me to pay off my HECS debt (and receive a 15% discount for doing so) and fund a 5 month trip around the world before commencing full time employment.
Funding options - Commonwealth loans
There are three types of loans available to fund your tertiary education provided by the Commonwealth under the Higher Education Loan Programme (HELP):
1. HECS-HELP is a loan available to eligible Commonwealth supported students to cover all or part of their student contribution amount.
2. FEE-HELP loan is available to eligible fee-paying students to cover all or part of their tuition fees. Limit is $80,000 or $100,000 depending on the course.
3. OS-HELP is available to assist eligible undergraduate Commonwealth supported students to undertake some of their course of study overseas. Limit of $5,196 that can be accessed twice over your lifetime.
I would not even consider the FEE-HELP or OS-HELP as there is a loan fee of 20% of the amount borrowed.
Other options I would avoid are bank loans and credit cards. Work and study part time, seek out a cheaper institution. If you are suffering genuine hardship let it be known in your local church. We supported an international student who experienced financial difficulty 6 months before completing her degree when funding from her home country ceased after the death of a family member.
So go ahead be weird, swim against the tide, stay out of debt and reap the rewards.
Some further food for thought...
'Train up a child in the way he should go, and when he is old he will not depart from it.' (Prov. 22:6)
'The aim of education is the knowledge not of fact, but of values.' (Dean William R. Inge)
'Diligent hands will rule, but laziness ends in slave labour.' (Proverbs 12:24 NIV)
'In a time of tight budgets, difficult choices have to be made. We must make sure our very limited resources are spent on priorities. I believe we should have no higher priority than investing in our children's classrooms and in their future.' (Bob Riley)