When you first leave university, it’s really easy to ignore that student loan balance and hope it’ll go away on its own. While you’re probably paying it back very, very slowly as a percentage of your income, it’s still important to peek at the balance regularly and see how you’re getting on. Keep an eye on both the principal and the interest balance to make sure you’re not falling into the trap of only paying off your interest.
Each country has their own repayment thresholds, which dictates the amount you can earn before you start paying back your loan. Once you’re over the threshold, you make repayments at an increasing rate as your income increases, so being across your remaining balance and how that affects your repayments as your income increases is key.
In most cases, your student loan repayments will be deducted from your salary just like tax. Keep on top of the repayments your employer is taking and ensure you’re up to date during the financial year. If you’ve underpaid throughout the year, you could face a hefty bill when tax time rolls around.
If your student loan repayments aren’t shown on your payslip, log into your loan portal and cross-reference your tax against your loan repayment portion, to make sure you’re paying the right amount. Sites like Pay Calculator (Australia), PAYE Calculator (NZ) and The Salary Calculator can help you calculate how much you should be paying so you can stay on track.
When you’re a graduate earning a very small amount, it can feel like you’ll never pay off the loan balance. Even when you manage to land a job that pays a higher salary, it can feel like a major lifestyle drain to make additional payments towards paying off your loan. But once you start earning more – and therefore paying more – it could work in your favor to make some extra payments towards your loan.
As your income increases, your regular repayment liabilities increase too, so paying the balance off quicker can fast-track you to being able to enjoy more take-home pay once it’s paid off! Any extra money, even just $20 per week could make a huge difference. A student loan repayment calculator in your country will be able to show you the impact of small extra repayments!
It pays to treat your student loan as part of your money management strategy, just like you would with any other debt. As you start to make headway on repaying your student loan, using tools like forecasting can help you visualize not only your student loan repayment date, but how much additional cash flow you could have by the time you’d paid it off.
Your student loan may not impact your finances too much when you’re making minimal repayments, but as your income increases, so does your liability. This could impact your ability to borrow for a mortgage or loan, as it’s not the balance that’s factored into your borrowing capacity, but the amount you’re liable to pay every payday.
For example, if you’re required to pay $1,000 per month, but you only have $5,000 left on your balance, it could be more beneficial to pay down the full amount in one go, to free up your monthly capacity long-term.
PocketSmith can help you manage your financial position with and without factoring in your student loan. Discover more about how you can manage your money with PocketSmith here.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.