Skip to main content
Inland Revenue

Tax Policy

Chapter 5 - Borrowers who are based overseas

Current rules

5.1 Overseas-based borrowers are entitled to a three-year repayment holiday when they go overseas. Interest is still applied to the residual repayment obligation when a borrower takes a repayment holiday.

5.2 Overseas-based borrowers who are not on a repayment holiday have to pay between $1,000 and $3,000 each year, depending on their loan balance. Interest is also applied to the loan balances of overseas-based borrowers. Currently, this is 6.8 percent.

5.3 Late payment penalties of 1.5 percent per month (or 19.56 percent a year) are applied when borrowers fail to meet their repayment obligations.

Proposed changes

5.4 Under the proposed changes, overseas-based borrowers will still be entitled to a three-year repayment holiday. Interest would still apply to their loan while on a repayment holiday.

5.5 The current obligation to pay between $1,000 and $3,000 would remain.

5.6 A higher rate of interest, rather than the late payment penalties, would apply in the event of non-payment. Borrowers who do not meet their repayment obligations would be subject to interest on the shortfall. This interest rate would be, say, the interest rate on student loans plus a margin of 4 percent. This is in lieu of the much more significant 1.5 percent per month (19.56 percent a year) late payment penalty which currently applies. The replacement of penalties with interest for non-payment will reduce the rate at which student loan debt grows.

Example: Non-payment of loan while overseas

Peggy graduated and went on her OE three years ago. The three-year repayment holiday Peggy arranged before she left has recently ended, and she now has a repayment obligation. She does not make payment.

Rather than the late payment penalties of 1.5% per month that currently apply (which add up to 19.56% per annum), Peggy is charged a higher interest rate on the missed payment. The higher interest rate will continue until she has paid the outstanding amount.

5.7 The 10 percent voluntary repayment discount would apply to any repayments of $500 or more that are above the compulsory repayment obligation, if there are no arrears.

5.8 One of the key features of expanding online services is the option for overseas-based borrowers to deal with Inland Revenue by email. Currently it is difficult for Inland Revenue to provide services to overseas-based borrowers. For example, it is difficult to maintain a current address for many overseas-based borrowers and for borrowers to call during office hours because of international time differences.

We welcome submissions on:

  • Doing away with late payment penalties, and replacing them with an extra rate of interest that would be less than the current penalty rate.
  • Any other changes you think we should consider.