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Inland Revenue

Tax Policy

PUBLISHED 25 February 2003

Student loan interest rate to stay at 7%

The total interest rate for student loans is to remain at 7% for the year beginning 1 April 2003, the government announced today. The base interest rate component will decrease to 4.2% but the interest adjustment rate component will rise to 2.8%. The rates are set annually by Order in Council. For more information see the government's media statement.

Hon Dr Michael Cullen
Minister of Revenue

Hon Steve Maharey
Associate Education (Tertiary Education)


Student loan interest rate to stay at 7 per cent

The headline student loan interest rate will remain at 7 per cent for the year beginning 1 April 2003, Revenue Minister Michael Cullen and Associate Education (Tertiary Education) Minister Steve Maharey announced today.

The total rate is made up of the base interest rate, which will drop from 5.1 per cent to 4.2 per cent, and the interest adjustment rate, which will rise from 1.9 per cent to 2.8 per cent. The interest adjustment rate is based on the Consumer Price Index (CPI) for the December 2002 quarter, and reflects the increase in the CPI between that quarter and the December 2001 quarter.

"The total rate is to remain the same for the coming tax year pending the government's review of student support," Dr Cullen and Mr Maharey said.

"The review will look at ways to make student allowances available to a greater number of students, while setting out fair rules for determining the contribution students make to the cost of their study.

"Under the student loan scheme, all full-time, full-year students and part-time, low-income students qualify for a full interest write-off. Borrowers who are no longer students and whose income is under the repayment threshold have all their base interest written off.

"Other borrowers have their base interest capped at 50 per cent of their compulsory repayment obligation. This means that most borrowers do not actually pay the total interest rate of 7 per cent. For example, Inland Revenue estimates that 57 percent of all interest accrued during the 2002/03 will be written off and that about two thirds of all those who held a loan in the tax year ending 31 March 2002 received some sort of interest write off" the Ministers said.

The total interest rate for the year beginning 1 April 2003 was approved by Order in Council today.

Patricia Herbert [press secretary, Dr Cullen] 04-471-9412 or 021-270-9013
Michael Gibbs [press secretary, Mr Maharey] 04-471-9154 or 021-270-9115