By Cassie Steele
Balancing Repayment of Student Debt with Preparation for the Future
Just nine months after leaving third level education, 78% of graduates have found employment. The country’s continuing economic recovery is creating a welcoming environment for students entering the workforce for the first time. Unfortunately, many of those starting employment are worried about managing their finances independently and, in particular, juggling the repayment of large student debt with saving for the future. However, careful budgeting while enjoying generous employee remuneration packages can provide funds for paying back loans and saving for the immediate future. In addition, promptly joining a pension scheme will ensure a comfortable retirement in the long-term.
Prioritising Debt Repayment
Although the introduction of a student loan scheme for third-level education has once again been delayed, students are still leaving college with hefty debts. Tuition fees may be free, but those students who were not eligible for a grant paid roughly €3,000 per year in college registration fees, some of the highest in Europe. They may have loans provided directly from banks to pay for everyday expenses or more specifically for the student contribution charge. Although the loans are supplied interest-free for the duration of study, they become repayable upon graduation. As graduates learn to handle their own finances for the first time, their first task should be to arrange financial goals in order of priority. Any high interest debts such as unauthorised overdrafts should be paid off first. By making cutbacks initially, it may be possible to accelerate repayment of the most costly debt which can save money in the long run.
Saving A Safety Net
As a rule of thumb, a readily available savings account should provide between 3 and 6 months worth of salary in case of redundancy. This is to cover immediate bills and living expenses while finding a new job. As soon as high interest debts are covered, putting aside a set amount each month can quickly provide this cushion of savings. The novelty of earning money for the first time can lead to overspending for some young people. However, others are managing average discretional savings of up to €500 a month, through reducing excessive spending and avoiding getting into further debt.
Once debt management is underway and a safety cushion is secured, the next priority should be establishing a pension. Even though increasing life expectancy is leading to longer retirements, only 40% of workers have a pension plan. Repayment of debt can seem like a barrier to starting a pension, however, it is possible to manage the two simultaneously. Contributions from employers and tax advantages are attractive incentives to join a pension scheme. By starting a pension as early as possible, full use can be made of compound interest. In this way, even just small contributions in the first few years of a pension can ultimately be more significant than adding larger sums later on.
On leaving college, student debt can seem like an insurmountable impediment to future savings. However, once repayments are under control, the benefits of saving far outweigh the small sacrifices necessary to start building up reserves for a comfortable future.