University is a necessary step for many professions; it can also offer the promise of securing a better paid job at the end. Â Peter Wood talks to RaboDirect aboutÂ savings tips for university and potential ways to manage the debt.
We fill our savings accounts with dreams of holidays, first homes or investments, but one looming financial certainty also requiring a big payment is higher education.
For those looking to smarten up, university costs can become a very real debt. Last year, one Australian was reported to have amassed more than $400,000 in fees. This was part of the biggest student loans pool in Australian history ”“ $22 billion if you count the total for loans and HELP fees for degrees.
The average university debt might be a more manageable $14,400 but over 15,000 students have smarts costing them in excess of $50,000.
Any parent or student interested in boosting their savings position could benefit from questioning how much they might need for their degree, and what tips could see that cash go further.
Are there any education grants I could get?
The government has a page to make it easier to find suitable grants from the many options that are available. GrantsLINK can also help you source funding or assist with application forms for education or training-related grants. Some examples include Austudy or Youth Allowance, which can assist in paying bills while studying.
Cadetship programs can see you paid for work more than two days each week while studying a specific skill. Arts grants can also make pursuing that passion project more worth your while.
Tax breaks on education savings
Be careful with funnelling your own money into investments for children as tax laws have recently tightened. Still, tax isn’t payable on children’s income, including interest, until they reach the under-16 tax-free threshold of $420. The threshold used to be $3333, but current levels still leave you plenty of room for tax-free interest to compound and boost your growth.
Any interest earnings you make on your savings are simply taxed at your marginal rate and you still have full control over your money. Online savings accounts can mean banking on up to 4.95 per cent returns at prevailing rates, and see lower fees and fewer charges eating into your efforts compared to traditional accounts.
Offset your savings
If you have a home loan, investigate using an offset account for your education fund. You will need the financial discipline to make regular contributions and the cash will be accessible, but ‘interest saved is interest earned’. Whatever your home loan interest rate, that will be the rate you are seeing on your cash.
What throws both parents and students off track with savings?
Although habits are improving and Australian savings growing, we also face a culture of spending to derail efforts. According to research from Canstar, NSW residents spend an average of $39 per person each week on alcohol. Other big weekly spends for Australians include $52 a week on holiday money and $32 eating out.
If you had a $5000 start and added those spends each week to a high interest savings account, the power of compound interest would see you with more than $40,000 in 10 years.
Whatever you expect your plans to entail when it comes to future education bills, putting away some steady income without letting your investments become eroded by fees is always a smart bet.
About the author: Peter Wood is a journalist and freelance writer and is a regular contributor to columns in newspapers, business magazines and online. He has more than 8 years’ experience writing in areas such as banking, finance, real estate, advertising, marketing and more. His online editing interests have included entrepreneurship, business innovation and growth and management practices.