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Inland Revenue

Tax Policy

Chapter 1 - Introduction

1.1 The Government is considering changes to the way borrowers pay back student loans and how the student loan scheme is administered by Inland Revenue. The aim is to make it easier for borrowers to manage their loans, pay back what they owe, and to encourage earlier repayment.

1.2 The focus is on removing the current end-of-year assessment and square-up, earlier detection of PAYE errors, reducing penalties, and improving online services to make it easier for borrowers to manage their accounts. These measures, coupled with new online technology will allow Inland Revenue to provide a more responsive and flexible service to borrowers.

1.3 To reduce the time borrowers must spend on managing their loan accounts, and to improve the overall service to borrowers, only large overpayments will be refunded. Consequently, some borrowers may pay back their loans earlier than they would otherwise.

1.4 We seek your views on the ideas set out in this discussion document. Chapter 2 sets out the background to the changes, while the following chapters outline the impact on borrowers who are employees, self-employed, or based overseas. The final chapter outlines the enhancements and new services proposed for student loan online services.

1.5 This work is not intended as a wider review of student loan scheme policy.

1.6 This discussion document has been prepared as part of a consultation process. Consultation will also take place through an online forum. If the Government decides to proceed, submissions on the ideas explored in this paper will be taken into account in designing policy proposals that could be included in legislation introduced into Parliament later this year. Changes could apply from 1 April 2011 at the earliest, depending on the nature of the changes. To meet these tight timelines, written submissions or those made via the online forum, must be received by 17 July 2009.

1.7 The online forum is available at [site no longer available] so you can comment on the ideas raised and we encourage you to do so. You can also let us know your views by making a written submission. Written submissions should be addressed to:

Student Loan Proposals
C/ - Deputy Commissioner, Policy
Policy Advice Division
Inland Revenue Department
PO Box 2198

Or email [email protected] with “Student Loan Proposals” in the subject line.

1.8 Feedback made through the online forum and written submissions may be the subject of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular written submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. Those making written submissions who consider there is any part of it that should properly be withheld under that Act should clearly indicate this.

Summary of proposed changes


  • The repayment threshold would be set on a pay-period basis – weekly, fortnightly, four-weekly or monthly – rather than an annual basis.
  • Borrowers and students who only work for part of the year may be required to make repayments during the time they work.
  • Major PAYE errors would be identified and corrected earlier than they are now.
  • If an employer under-deducts loan repayments, future deductions could be adjusted to correct the error. A lump sum payment would not be due, and late payment penalties would not apply.
  • Most overpayments would be used to reduce the loan rather than be refunded.
  • Borrowers could seek a refund of overpayments only if the amount was significant and caused by an employer error.


  • The late payment penalty (currently 19.56 percent a year) for non-payment of a borrower’s repayment would be replaced with interest on the outstanding amount.
  • Under-payments resulting from the year-end square-up would be collected over the next three interim instalments.

Overseas borrowers

  • The late payment penalty imposed on overseas-based borrowers who fail to pay their repayment obligations on time would be replaced with a higher rate of interest on the outstanding amount.

New online services for all borrowers

  • Online services would be similar to those that are used to manage bank accounts.