Hardship relief
(Clauses 19, 20, 21 and 22)
Sections 54, 55, 55A and 55B of the Student Loan Scheme Act 1992 are being amended to correct an unintended change made by the Student Loan Scheme Amendment Act 2007. That change limits the years for which relief from payment of a borrower’s repayment obligations may be granted to the current tax year and the years either side. This amendment restores the position that previously applied and allows hardship relief to be granted in respect of any earlier year. However, any amount paid in respect of an earlier year before the immediately prior tax year may not be refunded.
The change will apply from the day after enactment.
Interest rate formula
(Clauses 4, 26(1) to (2), 27 and 28)
The student loan interest rate – which only affects overseas-based borrowers – is currently set using the formula in the Student Loan Scheme (Interest Rates Formulas) Regulations 2006. The formula is to be moved to the Student Loan Scheme Act 1992. This will streamline the annual setting of the interest rate. Paragraphs (ab) and (ac) of section 87(1) of the Student Loan Scheme Act 1992, the Student Loan Scheme (Interest Rates Formulas) Regulations 2006 and the Student Loan Scheme (Total Interest Rate) Regulations 2009 are consequentially repealed.
The changes will apply from 1 April 2010.
Grace period
(Clause 24)
Student loan borrowers who are advised of the amount of their outstanding loan balance and fully repay that amount within 15 days of receiving the advice have any interest charged in the intervening period cancelled. As student loans are interest-free for New Zealand-based borrowers, this provision now only affects overseas-based borrowers. It may take more than 15 days for the statement to reach the borrower and the transfer of funds to reach New Zealand. Section 60A of the Student Loan Scheme Act 1992 is therefore being amended to increase the period in which borrowers may fully repay their loan without incurring any further interest from 15 to 30 days.
The change will apply from the day after enactment.
Part-year assessments
(Clause 5)
Section 14 of the Student Loan Scheme Act 1992 is being amended to ensure that only income derived during the period in which there is an entitlement to an interest-free loan is included in establishing borrowers’ income-contingent liabilities.
Borrowers’ repayment obligations are aligned to their entitlement to an interest-free loan. Those entitled to an interest-free loan are assessed on an income-contingent basis, and those not entitled are assessed on the basis of the amount of their loan (subject to entitlement to the three-year repayment holiday available to overseas-based borrowers). Some borrowers may retain their residency for income tax purposes, which means that they must include their world-wide income in their tax return, but they will lose their entitlement to an interest-free loan during the year because they are out of New Zealand for 184 or more days. This amendment aligns the assessment basis with the period of entitlement to an interest-free loan.
The change will apply from the day after enactment.
Volunteer exemption – conditions
(Clause 11)
Section 38AEA of the Student Loan Scheme Act 1992 is being amended to change the reference to countries which the United Nations recognises as a developing country to countries that are listed by the Organisation for Economic Cooperation and Development as receiving official development assistance.
Borrowers who work overseas as volunteers, or for a token payment, for a charitable organisation that has been “named” by regulations may be granted an exemption to the requirement that they be present in New Zealand for 183 or more days to qualify for an interest-free loan. Changes that came into effect on 1 April 2007 require borrowers to be engaged in certain activities, two of which refer to work undertaken in countries which the United Nations recognises as a developing country. As the UN does not, in fact, do that, the requirement is being changed to countries that are listed by the Organisation for Economic Cooperation and Development as receiving official development assistance.
The change will apply from 1 April 2007.
Volunteer exemption – clarification
(Clause 10(1))
Section 38AE(1)(b) of the Student Loan Scheme Act 1992 is being amended to clarify that a borrower may only obtain the benefit of the volunteer exemption if the organisation for which the borrower is working was a “named” organisation at the time the borrower did that work.
The change will apply from the day after enactment.