Reasons for change
2.2 The student loan scheme is a major Crown asset and it is essential that it be well managed. Each year approximately 60,000 new borrowers join the scheme. The nominal value of loans totalled $9.573 billion in June 2008.
2.3 The existing student loan scheme is difficult to administer and potentially confusing to borrowers. This is largely because the systems are modelled on tax principles, which place an emphasis on absolute accuracy over simplicity. This stress on accuracy results in high compliance costs. For example, borrowers have to square-up their loan payments each year which often results in unforeseen debt, or little change in outcome compared with the time and resources invested by borrowers and Inland Revenue. The current rules carry with them the risk of significant late payment penalties, a deterrent which is essentially an income tax concept, and which is of questionable suitability in administering student loans.
2.4 The majority of borrowers are likely to be comfortable with the use of online services so there is scope to move from the current inefficient paper-based system to one which is primarily online. An electronic environment would improve the services available online which will give borrowers, especially those based overseas, greater access to information about their loans whenever it suits them. Expanding online services will also free up Inland Revenue resources to focus on proactive services and better support for borrowers.
2.5 For borrowers, these ideas, if implemented, would improve services, reduce compliance costs and allow a high degree of self-management. Other benefits include protecting the value of the Crown’s asset, and enabling administrative resources to be used more effectively to focus on higher value activities.
2.6 However, the gains, which largely arise from moving employed borrowers to a pay-period based assessment, are likely to result in higher costs for some borrowers and some employers. For example, the pay-period assessment will mean that borrowers who work part of the year are likely to be paying more towards their loan during that time than under the current annual assessment system. Similarly, there will be some increase in compliance costs for non-compliant employers. For example, an employer will be contacted by Inland Revenue if he or she continues to make incorrect repayment deductions.