Cullen alters free-loan maths

Michael Cullen

Finance Minister Michael Cullen has warned that those who take advantage of a potential loophole in the Government's interest free student loans policy could lose out.

Yesterday, National leader Don Brash pointed out a potential multi-million rort in the system.

Under the law, someone with a student loan who has made a voluntary repayment in the past six months can ask for their money back.

Dr Brash said Wellington man Thomas Banfield had asked for a $15,000 voluntary repayment he made this year to be paid back.

That meant next year he would have an interest free-debt of $15,000 with the Government, while putting his repaid money into an interest-bearing account.

Yesterday in Parliament, Dr Cullen said students seeking a refund were "silly" as they would start paying interest on the redrawn loan money immediately.

"Unless they are earning at least 11 per cent [interest on the refunded money] on a 39 per cent tax rate, then they actually losing on the deal," Dr Cullen said.

The loophole allowing students to reclaim voluntary payments is part of the Student Loan Scheme Act.

The Government has legislation enacting its interest-free student loan policy before Parliament, and Dr Cullen could use this as a vehicle to close the loophole.

He indicated that any law change could take effect from when he officially announced it, not when it passed through Parliament.

Dr Brash yesterday asked whether officials had taken into account the loophole and a general reduction in voluntary student loan repayments, when they estimated it would eventually cost $202 million a year to implement.

Dr Cullen said the calculation assumed the level of voluntary payments fell from an estimated 18 per cent of the value of compulsory payments to 2.25 per cent of compulsory payments.

Dr Brash asked Dr Cullen to table assumptions that the costings were based on, as Treasury had originally estimated it would cost $390 million but this had been cut to $202 million.

Updated information would be included in the December Fiscal and Economic Update, Dr Cullen said.

He said National was mistaken when it claimed there would be much higher costs as they did not take into account that the current student loan system had effective interest rate payment write-offs.

He did not expect a "significant impact" from the loophole.

- NZPA