Student loan repayment hikes to kick in next year

Auckland University students block traffic at the intersection of Symonds St, Grafton Rd and Alfred St during a protest against changes to the student loans scheme. Photo / NZ Herald

The repayment rate for borrowers with student loans will increase next year from 10 cents to 12 cents for every dollar of income over $19,084, as the Government tries to reduce $11 billion of student loan debt.

Cabinet today signed off on changes that will see student loan borrowers paying 12 cents in every dollar earned over the repayment threshold of $19,084 a year. The changes will come into place in April next year.

The increase was announced in Budget 2012 as a measure for loans to be paid off five months faster than under the existing repayment threshold of 10 cents in every dollar.

Mr Dunne said the increase in the repayment rate was a way of alleviating the fiscal pressure of the student loan scheme, during tight financial times.

"With borrowers paying off their loans faster, the Government will be able to invest more in the next generation of students. New Zealand-based borrowers will pay the same amount in total, but the key thing is they will clear their loan faster," he said.

Cabinet have signed off on the changes even though Budget 2012 papers released in June showed Treasury felt the move to increase student loans repayment rates by two per cent was "poorly targeted" and would penalise low-income graduates and young workers.

Treasury said it would instead impact on borrowers with good repayment histories and anyone earning more than $19,000, including people earning near the minimum wage.

The new student loan repayment regulations will require borrowers to provide their contact details to Inland Revenue and add two more charitable organisations to a list of exemptions to interest payments when borrowers travel overseas to work at an accepted charity

Borrowers working overseas for these charitable organisations must still apply to Inland Revenue to determine if they qualify for the interest write-off.