The best start

Why you shouldn’t rush to pay off your student loan

3 min read


After years of study, you’ve finally finished your qualification and (all going well) are now enjoying making money in the workforce. At this point it’s tempting to look at your student loan and think that you should pay it off as soon as possible, however, in these days of interest free student loans, that’s not necessarily the best course of action.

Pay the minimum amount and no more

This advice seems to fly in the face of what you usually hear when it comes to paying down debt, however, when there’s no interest to pay, the rulebook goes out the window. Thanks to inflation, you should pay the minimum amount required and no more.

There are a couple ways in which inflation becomes your friend here. First, think about how the value of money changes over time, for instance, if you have $10 in your hand right now, it’ll stretch further today than 10 years down the track - in short, it’s worth more to you now than it will be later. However, when it comes to your interest free student loan, $10 will still reduce your student loan by $10 no matter when you pay it down. The longer you leave that student loan debt sitting there, the less burdensome it becomes - again, inflation is working in your favour here.

The exception to this is, of course, if you’re heading overseas for longer than six months.

Grow your money instead

If you’re planning on staying put in New Zealand, what you should be doing is paying the minimum off your student loan and then putting any spare cash you have into an interest bearing savings account or term deposit.

A Rapid Save account encourages saving by offering higher interest rates in return for not withdrawing your savings each month. On the flipside, each month that you make a deposit, you can earn bonus interest.

Don’t forget that students and recent graduates can take advantage of some good deals on banking services and save even more money.

Term deposits are another solid option for long term saving because they pay higher returns and they help you avoid temptation by limiting access to your money for set periods of time.

By taking advantage of some, or all of these tips, your money will be working for you instead of someone else - and the sooner you start saving, the more money you’ll make over the years. Check out our guide to saving for retirement in your 20s to see exactly why it’s a great idea to start saving while you’re young.

What if I’m heading overseas?

The last thing to remember is that, even though we’ve focused on people who plan to stay in New Zealand here, if you’re one of many who do head overseas for an extended period, then paying off your student loan sooner rather than later is something you should look at. In this situation you need a plan to prioritise your debts so you can clear them sooner.


Get rewarded for sticking to your goals

Earn bonus interest with Rapid Save when you increase your savings balance each month, and make no more than one withdrawal.

Find out more, or Open a Rapid Save account today.