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August 22, 2005

My own student loan calculator

National

National's online calculator does the basic comparisons between National and Labour for students. However it doesn't take into account the fact people do not stay on the same salary for life etc.

Therefore I have put together my own calculator in excel. Now do let me know if there is an error in it, but I have tested it and it looks okay. It takes account of both current interest writeoffs, National's tax deduction policy for interest and also tax cuts which can be used as voluntary repayments.

Basically it allows you to plug in five variables (highlighted in bold):

* Your starting/present income
* Loan Principal
* Interest Rate (keep at 7% unless you want to play)
* Annual salary increase (Labour recommends on their calculator this be at least 3%)
* Inflation Rate (Currently 2.8%, long-term should be 1.5%)

Now using the standard Labour example of $40K loan, $38K salary, 3% salary growth and 2.8% inflation the calculator shows 15 years to pay it off under Labour and 13 years under National. Yep that's right pay it off two years earlier and also once paid off you also get all the benefits of future tax savings.

On a $38,000 starting salary you would need a loan balance of over $100,000 to be better oiff with Labour.

The only thing not taken into account, I think, is Labour chewing gum promise to move tax thresholds every three years. It isn't that major and besides I suspect in three years National would be looking at a further round of tax cuts anyway.

Anyway have a play - feedback welcome - and feel free to pass on.

Posted by David P. Farrar at August 22, 2005 03:52 PM | TrackBack
Comments

DPF
Rather than use round numbers for the payback period, why not go to a a decimal point. The difference could be 2 months which would equate as 1 year in your model or 15 months making it two years.

Posted by: Andrew at August 22, 2005 04:03 PM

no matter which scenario i put into the national Bank calculator, it seems we will be better off with national. The combinations of the various positions I have been in over the years, and a few made up ones all demonstrate that people will be better off. So Labour have hopefully fired all their main shots at targeted groups and they still come up short. Labour's last resort will be to attack the man, use lies (something they have proven themselves very apt at doing) and threaten cuts to services - I hope National are ready to rebuke that tonight - because it will be Helen's Focus. Problem - there is a massive $8b surplus that is being returned to the people who earn it in the first place.

Posted by: Peter McK at August 22, 2005 04:07 PM

DPF
Rather than use round numbers for the payback period, why not go to a a decimal point. The difference could be 2 months which would equate as 1 year in your model or 15 months making it two years.

Posted by: Andrew at August 22, 2005 04:07 PM

DPF
Rather than use round numbers for the payback period, why not go to a a decimal point. The difference could be 2 months which would equate as 1 year in your model or 15 months making it two years.

Posted by: Andrew at August 22, 2005 04:11 PM

DPF
Rather than use round numbers for the payback period, why not go to a a decimal point. The difference could be 2 months which would equate as 1 year in your model or 15 months making it two years.

Posted by: Ian Peter Daly at August 22, 2005 08:32 PM

Does that assume that all the tax I save I would put into my loan? If so is that realistic?

Posted by: Phil Barclay at August 22, 2005 09:42 PM
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