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Student Loan

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What is a Student Loan?

As many Kiwis who have studied in New Zealand will know, a Studylink student loan is money borrowed from the government to assist with the cost of study. Student loans are available to any permanent New Zealand resident studying an approved course, whether this is a full time or part time course of study. A student loan can be used to cover course fees, living costs and course-related costs such as textbooks or special tools and clothing. A Studylink student loan can’t be used to cover optional fees or special charges, such as late payment penalties, university administration fees, or student association levies.

Having a student loan can affect the tax code that you use for your salary or wages. You will need to use one of the SL – or “student loan” – tax codes so that your employer knows to deduct your student loan repayments each payday along with your regular income tax.

Student Loan Interest

Thanks to a decision made by the government in 2006, student loans are interest free provided you remain a New Zealand tax resident.  How this works is that Studylink applies interest to your student loan and, if you meet the requirements, your interest gets written off when your loan balance is transferred to Inland Revenue at the end of the financial year. This means that for most students and graduates living in New Zealand, you won’t have to pay back interest on top of the amount that you borrowed.

If you leave the country for more than 6 months however, you will be considered a non-resident and interest will be applied to your loan. Note that if you pop home for a visit, for example to see family at Christmas, you will still be considered a non-resident if your trip back to New Zealand is less than 32 days in length. The student loan interest rate is reviewed each year and adjusted; in the 2018 financial year, the interest rate was 4.4%, whereas in the 2019 financial year, the interest rate is 4.3%. The interest only applies for the time you are away: once you have returned to New Zealand for more than 32 days, your student loan will stop accruing interest.

Even if you have been overseas for more than 6 months, you may be eligible to have the interest on your student loan written off if you meet certain criteria. For example, you can apply for an interest write-off if your travel was for study or to accompany your partner. You may also be able to stay interest free if you are living in the Cook Islands, Niue, Tokelau or the Ross Dependency.

Paying Back Your Student Loan

For most Kiwis with student loans, making student loan repayments isn’t something that takes too much thought. As long as you are using the correct SL tax code, your employer will start making student loan deductions from your salary or wages once you start earning over the repayment threshold of $19,448 per annum. Plus, you can check out your remaining loan balance by logging into MyIR on the Inland Revenue website which will give you an idea of how long it might take to pay off your loan. For New Zealand residents, you will pay your loan back at a rate of 12c for every dollar you earn before income tax has been deducted. You may be able to apply for exemptions to your automatic student loan deductions. For example, if you are struggling to meet your repayment obligations or if you have multiple jobs that mean your deductions would be too high.

Things are a little different if you are a contractor (i.e. you receive withholding or schedular payments) or if you are self-employed. You pay the same percentage back as a salary or wage earner, however you pay a lump sum that is worked out at the end of the financial year – after you have filed your tax return and declared your total annual income. If paying a lump sum sounds a little too scary, you can also choose to make voluntary repayments to your student loan by arrangement with Inland Revenue.

If you are no longer a New Zealand resident, then paying back your student loan is a different process again. Not only is your loan balance affected as interest is added on, but the amount you need to pay back each year is calculated in a different way. Instead of basing your repayment obligation on your income like if you live in New Zealand, overseas residents must pay back an amount that is based on their loan balance.  Additionally, while you can pay back installments on your student loan any time, you must meet the biannual installment due dates of 30th September and 31st March.

Voluntary Re-payments

For some salary or wage earners with unusual circumstances, you may need to use a specific tax code that tells your employer to make additional deductions towards your student loan. This might happen if Inland Revenue requires you to make compulsory extra deductions, or if you volunteer to make extra repayments.

The special tax codes for these situations are:

  • SLBOR – “borrower deduction” – when you volunteer.
  • SLCIR – “commissioner deduction” – when Inland Revenue makes the request.

You might need to use these tax codes if you want to pay off your loan faster, or if Inland Revenue wants you to catch up on significant underpayments.

It is also possible to make one-off voluntary repayments at any time of the year. You can do this through internet banking, with a debit or credit card, or by overseas transfer. This is a great way to reduce your overall loan balance to pay off your debt faster – especially if you know you might be moving overseas in the near future. 

Understanding the ins and outs of a student loan might seem complicated, but for most New Zealanders, the entire process from application through to repayment is a relatively straightforward one. As long as you use the right “SL” tax code, and keep an eye on your student loan balance and repayment obligations if you are self-employed or travelling overseas, there shouldn’t be any nasty surprises from the tax man at the end of the year.