Govt seeks views online on student loan repayment changes
The Government is inviting the public's view on proposed changes that will dramatically simplify the way student loan repayments are managed, Revenue Minister Peter Dunne announced today.
"This is the first time that Inland Revenue has used online consultation to seek the views of borrowers and other interested parties, Mr Dunne said.
"The proposed changes are a first step in a bigger project of changes which will move Inland Revenue increasingly towards electronic interaction with taxpayers.
"For student loans this means getting rid of the yearly letters, square-ups and telephone calls for borrowers working in New Zealand and interacting electronically," Mr Dunne said.
"The main advantage of the changes is that all borrowers will soon be able to access enhanced information and manage their loan accounts online, at any time of the day or night, from anywhere in the world.
"However, to ensure that the new system meets the needs of as many people as possible, the Government would like to hear the views of borrowers and other interested parties on the effects of the changes.
"Consultation takes the form of an online forum, for those who prefer to make informal comments, and a standard discussion document, for those who want more detail and prefer to make a written submission.
"In addition to the change to a web-based system there will be a number of other changes to how the repayment system works, and most of these will affect borrowers who are employed in New Zealand.
Removing the end-of-year annual assessment and moving to a pay period repayment system increases accuracy and lowers compliance costs. However, the improved services and ability for borrowers to self-manage their loans does come with a necessary trade-off.
"The change with the widest impact concerns the threshold at which employees must begin to repay their student loan. At present, that threshold is an annual one, currently set at $19,084. Under the proposed system, the threshold will be a weekly, fortnightly or monthly amount, depending on when the employee is paid.
"What that means for borrowers working in New Zealand is that if they work for only part of the year and exceed the specified pay-period threshold for that work, even for student holiday jobs, loan repayments will be deducted from their pay. For example, on the basis of the current annual threshold, borrowers who are paid weekly will have to start repayments once they earn over $367 a week.
"The new system will allow earlier identification and correction of deduction errors, which means there will be fewer and less significant overpayments and underpayments.
"In the case of small underpayments, future deductions can be adjusted to correct the error. Borrowers won't have to pay lump sums or late payment penalties for underpayments. Any small overpayments will be applied to their loan balances.
"We would like to hear from these borrowers and other interested parties to see if the new way of operating will have any unforeseen impacts or create major difficulties for borrowers.
"Self-employed borrowers and those based overseas will not notice many changes in how things are done, although there will be a few which they should check out. They include removing penalties for non-compliance and replacing them with lower interest rates. These borrowers will also benefit from enhanced online services and the ability to do more to manage their student loan accounts.
"At present, over 530,000 people have a student loan, a number that grows every year. Most of these borrowers have finished their studies and are repaying their loans by means of an out-of-date system that requires a lot of personal contact with Inland Revenue. As a result, the system is cumbersome for both borrowers and Inland Revenue.
"Streamlining the repayment system and improving the service is in everyone's best interests. For this reason the Government encourages all interested parties to have their say on the proposed changes, to ensure they work to everyone's benefit," the Minister said.
The closing deadline for comment is 17 July.
Have your say via the online forum at www-ird.govt.nz/studentloanforum [site no longer available] or read the discussion document at www.taxpolicy.ird.govt.nz.
Media contact: Mark Stewart 021 243 6985
Questions and Answers:
The attached covers:
- proposed student loan policy as it applies to employees, the self-employed and borrowers who are based overseas;
- supporting administrative changes; and
- the online forum.
Borrowers who are employees
Q. Why is the repayment threshold changing?
A. For salary and wage earners, the repayment threshold would be set on a pay period basis - weekly, fortnightly, four weekly, or monthly. This change will mean that the complexity and costs of the end-of-year square-up can be avoided.
Q. As I only earn income for part of the year, will I need to pay student loan repayments from my income?
A. Yes, if your income is over a certain threshold. With the change from an annual basis of assessment to a pay period basis you will have to make payments towards your loan if your pay period income exceeds the pay period repayment threshold.
Q. I have a second job. Will I have to make student loan repayments from my second job?
Primary income above repayment threshold
A. If the pay from your primary job is above the repayment threshold then you will be required to make loan repayments from all you earn from your second job.
Primary income below repayment threshold
A. You could choose to apply the "unused" repayment threshold from your first job (the difference between your income from the first job and the repayment threshold) to your second job. Otherwise, loan deductions would be made from the first dollar of income from the second job.
Q. My income fluctuates during the year. Will I receive a refund of loan repayments at the end of the year?
A. No, there will be no square-up at the end of the year. Under the proposed changes, your loan repayments will be 10 percent of the amount of your pay-period income (weekly, fortnightly, four weekly or monthly) that exceeds the pay period repayment threshold. This is your full repayment liability for the pay period.
Q. I have not had student loan deductions made from my pay. Will I have to pay it back?
A. If the under-deduction is small then the amount will be added to the loan balance. If the under-deduction is large then the amount will be recovered from your future pays. The threshold for rectifying errors has not been decided.
No end-of-year square-up
Q. Will I have to file a tax return and do an end-of-year student loan assessment?
A. No, if you are not self-employed and do not have interest and dividend income over a threshold, you will not need an end-of-year student loan assessment. You will only have to file a tax return if you have to for tax purposes.
Interest and dividend income
Q. I earn interest and dividend income. Will I have to make loan repayments on this income?
A. If you are not self-employed and earn a total of $1,500 (say) or less of interest and dividend income then you will not have to make loan repayments on this income. If you earn more than $1,500 of interest and dividend income then you will have to have a student loan assessment.
Q. What will be the impact of the proposed changes on my loan balance?
A. This depends on your particular circumstances. Small underpayments during the year will be added to the loan balance while small overpayments will reduce the loan balance. However, large overpayments will reduce the loan balance, unless the overpayment is due to employer error - and then a refund can be requested.
Q. I make voluntary payments through my PAYE. How will I get my voluntary payment discount?
A. The 10 percent bonus will continue to apply to any repayments of $500 or more above the compulsory repayment obligation. The details of how the bonus applies to deductions made through the PAYE system are still being worked through.
Borrowers who are self-employed
Interim repayments/threshold/annual square-up
Q. I am self-employed, will I still be required to make three repayments during the year?
A. Yes, the current interim repayments and annual threshold will continue to apply to the self-employed as will the end-of-year square-up.
Late payment penalty
Q. I miss an interim repayment, will I be liable for late payment penalty?
A. The late payment penalty for non-payment will be replaced with a use of money interest rate.
At the moment you would be liable for a late payment penalty on underpayments from the third interim instalment onwards. The late payment penalty is 1.5% per month which equates to 19.56% per annum.
Interest and dividend income
Q. I earn interest and dividend income. Will I be required to make loan repayments on this income?
A. Yes, you will continue to make loan repayments on this income as part of your three interim repayments during the year. Your interest and dividend income will continue to be included in your end-of-year student loan assessment and squared up at year-end.
Underpayment at year-end
Q. I have underpaid my student loan liability. When is the underpayment due?
A. The underpayment would now be spread over the next three interim instalments. At present, when that happens, you are required to pay the underpayment on the terminal tax date.
Borrowers who are overseas
Q. Will the current repayment obligations for overseas-based borrowers remain?
A. Yes, the current repayment obligations of between $1,000 to $3,000 (depending on the loan balance) will continue to apply.
Q. Will the changes make it easier for me to make repayments from overseas?
A. Yes, the changes will enable you to view an up to date loan balance at any time from anywhere in the world. We are considering different payment mechanisms to make repayments easier.
Q. Will interest be removed for overseas based borrowers?
A. No, the interest on the loans of overseas-based borrowers will remain.
Late payment penalty
Q. I am overseas and I fail to make a repayment. Will I be liable for late payment penalties?
A. No, the late payment penalty would be replaced by a higher rate of interest for non-payment, higher than the current 6.8% interest rate but lower than current late payment penalties.
Q. What is Inland Revenue doing about contacting overseas borrowers who are not paying back their loans?
A. The new online services will help those who want to meet their obligations but find it too hard to manage their loans under the current system. Voluntary compliance is the cornerstone of a repayment system.
Enhanced onlines services
Q. What services will be provided online?
A. Borrowers will be able to make use of a wide range of enhanced web based services, much as they have to manage bank accounts. A consolidated loan balance should also be available through the timely transfer of loan account information from MSD/StudyLink to Inland Revenue.
Q. What will be the consequence of these changes?
A. Contact with borrowers in the future will be online mainly. Contact by phone would be the exception and limited to complex cases that could not be handled through online services. The aim is to have borrowers manage their loan online along the same lines as internet banking.
Q. I get a lot of confusing statements and letters from Inland Revenue, will this continue?
A. The possible changes should significantly reduce the need for Inland Revenue and borrowers to contact each other. Similarly, the customised self-management of loans that should be possible under the changes should mean that only exceptional cases need to be dealt with by mail or phone calls.
Q. Why is Inland Revenue using the forum to consult?
A. Consultation is an established part of the way New Zealand's tax system is developed but Inland Revenue considered the usual channels, discussion documents and so on, would not have had nearly the reach desired; more than half a million people have student loans and many of them live overseas. As these proposals affect them all Inland Revenue wanted its consultation to reach as many of them as possible.
Q. What will Inland Revenue do with the feedback given on the forum?
A. The feedback will be used by Inland Revenue to develop policy proposals during the second half of 2009. If the Government proceeds with the proposals, new legislation could be introduced in late 2009, with the changes applying from early 2011.
Q. Can only those people with student loans contribute to the forum?
A. No. Anyone can contribute to the forum - you don't have to have (or have had) a student loan.
Q. How long is the forum open for?
A. The forum is open until 17 July 2009.
Q. I've got a personal question about my student loan. Where can I ask that?
A. The student loans page on the Inland Revenue website (www.ird.govt.nz/studentloans/) has answers to common questions.