Student Loans: The Basics

We have had a few questions recently about Student Loan deductions and payments. Here are a few basic things you may like to know if you have a student loan:

We have had a few questions recently about Student Loan deductions and payments. Here are a few basic things you may like to know if you have a student loan:

 

    • From 1 April 2013, the repayment rate for student loan deductions was increased from 10% to 12%.

 

    • If you have a student loan and you are earning salary or wages in New Zealand, you must add “SL” to your existing tax code (unless you have an exemption). For example, if you earn salary or wages from one job or you are receiving an income tested benefit, your tax code would be “M”. If you also had a student loan, your tax code would be “MSL”. This will ensure that the correct repayments towards your student loan are being deducted from your wages or salary.

 

    • If you only have one job, are studying full time, and it is unlikely that you will earn over the pay period thresholds at any time during the year, your employer will not make student loan deductions from your pay. The pay period thresholds are:

Thresholds

If you are not sure about the amount that you will earn from your salary and wage each pay period, but you will be under the annual earnings threshold of $19,084 for the 2014 year, you should apply for a student loan repayment exemption.

Also, if you have more than one job, the repayment thresholds do not apply to these secondary earnings. The student loan repayment deduction rate for a secondary job is 12 cents from every dollar earned. However, if you earn less than the pay period thresholds from your main job, you can apply for a student loan special deduction rate for your secondary earnings.

 

    • If you're studying full-time and working, or if your income is only from adjusted net income, or a combination of salary or wages and adjusted net income, you can apply for a student loan repayment exemption if:



a) you expect to earn under the annual repayment threshold of $19,084 for the 2014 tax year, AND
b) you are about to start (or have already started) a programme of study that is:
- 32 weeks or longer in duration in any 52-week period and at least 0.8 of equivalent full-time student units, or
- 12 weeks or longer in duration in any 52-week period and at least 0.3 of equivalent full-time student units or the equivalent on a pro-rata basis, AND
c) You’re a New Zealand-based borrower.

    • If you have a loss from business or investment activities, you cannot offset this against your income in order to reduce your student loan repayment obligation.

 

    • You can make voluntary repayments towards your student loan through your salary or wages. You just need to advise your employer how much extra you want to pay off your loan, and your employer will deduct these from your pay and send them to the IRD as normal.



STUDENT LOAN REPAYMENTS WHILE OVERSEAS

    • If you are overseas for the full tax year, IRD will calculate your repayment obligation on your total loan balance as at 31 March plus the annual administration fee. A full years repayment obligation will be:

Repayments Schedule

    • For overseas borrowers, repayments are generally due in two equal instalments on 30 September and 31 March. However, if a standard due date has passed by the time you are issued with your overseas-based repayment obligation by IRD; you may be given more time to pay. Each instalment can be paid in a lump sum or by a number of smaller payments as often as often as you like during the year. But note that you must have paid the amounts in full by their due dates or you may have to pay late payment interest.

 

    • Please also note that the repayment obligation is the minimum amount you must pay each year to meet your student loan repayment obligations. Depending on the size of your loan, it may not actually be enough to cover the loan interest charged.

 

    • If you left or returned to New Zealand part way through a tax year, then you may have both a New Zealand-based and an overseas-based part-year repayment obligation. The amount you need to pay will be a proportion of the yearly amount, unless your total loan balance is less than $1,000, then you’ll need to pay the full amount.

 

    • You can apply for a repayment holiday if you are going overseas for 184 days or more, which will exempt you from repayment obligations for the first year you are overseas. You must apply before you leave New Zealand, or within the first 183 days of being overseas.



Author: Catherine Sheard