Exemptions from the requirement to be present in New Zealand
(Clauses 16 to 22 and schedule 1)
There are currently a number of exemptions from the requirement that borrowers must be present in New Zealand for at least 183 days to qualify for an interest-free loan. The policy intent of the exemptions was that borrowers should not lose their status as New Zealand-based borrowers for the time that they meet the conditions of an exemption. An error in the Student Loan Scheme Act 1992 means that a borrower is given interest-free treatment from the first day they meet the conditions of an exemption, rather than allowing that time to contribute towards satisfying the 183-day requirement. Clauses 16 to 22 and schedule 1 correct this error and treat borrowers who meet the conditions for the exemption as though they are present in New Zealand for that time.
The amendments will apply from 1 April 2012.
Repayment obligations for overseas-based borrowers
(Clauses 97 to 105, and 107 to 109)
The existing repayment obligation rules for overseas-based borrowers mainly remain the same under the proposed legislation, with the exception of when a borrower has a repayment obligation that is limited to the loan balance. Borrowers who currently have their repayment obligation limited to their loan balance continue to have interest charged on their outstanding loan balance and as these borrowers do not meet the interest-free criteria they will have a small loan balance left at the end of the tax year equivalent to the interest charged for that year. This results in the borrower having a small residual repayment obligation for the next year. The bill addresses this problem by including the interest charges which will be payable for the year in the overseas-based repayment obligation for these borrowers.
A borrower has a loan balance of $900, which means currently the borrower has a repayment obligation of $900 due in two instalments on 30 September and 31 March. The borrower makes a payment on each instalment due date of $450 which meets their repayment obligation for that tax year. However, the borrower has been charged approx $45 in interest for the year. This will leave the borrower with a small loan balance for the next year of $45, which will have to be paid in two instalments to meet the next year’s repayment obligation. This will continue until the borrower’s loan balance is less than $20 and the loan balance can be written off under the small balance write-off provisions.
Under the proposed amendments, the $45 interest will be included in the repayment obligation for the first year and at the end of that year there will be no residual loan balance and no further repayment obligation for the next year.
The amendments will apply from 1 April 2012.
(Clauses 186 to 189)
The current student loan scheme legislation has limited detail on how payments should be allocated to a borrower’s repayment obligation and loan balance. It simply refers to payments being credited first against any interest charged, and secondly against the principal outstanding. The bill expands on these provisions to provide greater detail and certainty for borrowers about how and when their payments and deductions will meet their repayment obligations and debt or unpaid amounts and how those payments and deductions will reduce the various parts of a borrower’s total loan balance.
Clause 187 will require that payments and extra deductions (except standard salary or wage deductions, and payments or extra deductions identified to pay debt or unpaid amounts) will satisfy the following obligations in due date order:
- remaining repayments;
- interim payments;
- overseas-based borrower repayment obligations;
- late filing penalties;
- student loan shortfall penalties; and
- amounts specially assessment by the Commissioner.
However, the date order rule does not apply when the due date for payment of an obligation has passed. Also when two payments are made on the same date and one of those payments is an interim payment, the interim payment will be satisfied last.
Clause 188 requires that all payments and salary and wage deductions that are not identified to pay debt/unpaid amounts, will be first off-set against any overseas-based interest that has been charged, and secondly, the loan balance. However, the amount off-set must not exceed the borrower’s total obligations for that tax year. Any amount that exceeds the total obligations for that tax year will be first off-set against any late payment interest charged, and secondly, any unpaid amounts, thirdly any remaining overseas-based interest, and then against the loan balance.
Clause 189 requires that payments and salary or wage deductions (such as extra deductions) that are identified as intended to pay debt or unpaid amounts, will be off-set first against any late payment interest charged, and secondly, any unpaid amounts. Any part of an identified payment that exceeds the late payment interest charged and the unpaid amount will be off-set against any overseas-based interest that has been charged and then against the loan balance.
The amendments will apply for the 2012 tax year, and subsequent tax years.
(Clauses 110 to 123)
Payments and deductions in excess of a borrower’s repayment obligation for a tax year will generally form part of a borrower’s excess repayment. “Excess repayment” is defined in clause 111 as is a salary or wage deduction or a payment received by the Commissioner in a tax year from a borrower that is in excess of the borrower’s repayment obligations for the tax year and any amount that is due and payable for a prior tax year.
However, for the majority of borrowers, salary or wage deductions will only be considered an excess repayment if they are considered to be a significant over-deduction, according to the threshold set by the Commissioner. Over-deductions that are below the Commissioner-set threshold will not be considered as an excess repayment.
If a borrower makes payments in excess of their repayment obligations for the current or prior tax years, the Commissioner must as soon as practicable, notify the borrower. The borrower can then put the excess repayment towards the consolidated loan balance (and may qualify for the 10% repayment bonus), elect to receive a refund, or credit the excess to a future repayment obligation.
10% excess repayment bonus
Currently, when a borrower has an excess repayment of $500 or more they will be entitled to a 10% bonus which reduces the borrower’s consolidated loan balance, provided they don’t elect for the excess repayment to be refunded or credited to a future repayment obligation.
The major change to this policy in the bill is to exclude the 10% excess repayment bonus from minor over-deductions that occur through the PAYE system. This change is required to enable PAYE deductions to satisfy borrower’s repayment obligations on a pay-period basis. Any over-deductions that are determined as significant over-deductions (as determined by the Commisioner in clauses 57 and 60) will be eligible for the 10% bonus, provided the other criteria for the bonus are met.
In addition, operational changes will mean that borrowers who wish to have additional amounts deducted from their salary or wages through the PAYE system and put towards an excess repayment for the purposes of the bonus can do so. Employers and PAYE intermediaries will be required to identify or “tag” these payments as separate from standard salary or wage deductions when providing this information to the Commissioner, through the Employer Monthly Schedule. This will allow the current practice to continue, where some borrowers have their employer deduct additional amounts from their salary and wages.
The changes will apply from 1 April 2012.
(Clauses 146 and 147)
The bill contains amendments to allow borrowers to apply to enter into an instalment arrangement to pay any late payment interest and the unpaid amount over a period of time. If an instalment arrangement is granted by the Commissioner, the late payment interest rate charged on the unpaid amount is reduced by 2%. Non-compliance with an instalment arrangement will result in the instalment arrangement being cancelled and the late payment interest rate restored to the full rate.
The changes will apply from 1 April 2012.
Interactions with loan contracts and disclosure requirements
(Clauses 214 and schedule 7)
The migration of current borrowers to the electronic environment is key to the new student loan repayment management system, and to Inland Revenue’s ability to offer improved services to borrowers. While Inland Revenue will take reasonable steps to inform all borrowers of the changes, obtaining consent from all borrowers for electronic disclosure is not feasible. The bill will also provide a set of comprehensive rules that govern how student loans are repaid and the process for making disclosures to borrowers. These protections are similar to those provided by the current consumer credit legislation..
The bill contains amendments to exempt student loan contracts from the requirements of the Credit Contracts and Consumer Finance Act 2003 and the Credit Contracts Act 1981. This will ensure that information can be communicated in an electronic form without the consent of a person as long as the person for whom the communication is intended is directly alerted to it in some manner. .
The amendments will apply from 1 April 2012.
Establishment and administration fees – Budget 2010 changes to the student loan scheme
(Clauses 8 and 181)
The bill makes several changes to the student loan administration fee structure. The current administration fee imposed by StudyLink will be renamed the “student loan establishment fee”, and a new annual Inland Revenue administration fee will be introduced.
In addition, as part of Budget 2010, the student loan establishment fee will be increased from $50 to $60 for all loan accounts established for study beginning on or after 1 January 2011. Until 31 March 2012 this fee will be imposed by contract. From 1 April 2012, it will have statutory authority as provided in this bill.
The new annual Inland Revenue fee will apply from 1 April 2011, with the first charge to borrowers being on 31 March 2012.
The Student Loan Scheme Act 1992 will specify the amount of the establishment fee and the administration fee. Any future changes to these amounts will be made by regulations. In addition, the bill proposes that a student loan contact is not considered a loan contract under the Credit Contracts and Consumer Finance Act 2003 or the Credit Contracts Act 1981.
(Schedules 5 and 6)
Schedules 5 and 6 provide for the transition from the existing Student Loan Scheme Act 1992 to the new Act. These provisions generally provide that the 1992 Act continues for the proper administration and completion of all matters relating to the 31 March 2012 tax year and prior years.
The new Act will apply to the administration and completion of matters relating to tax years from 1 April 2012 onwards.
However, for loan advances made on or after 1 January 2012, the new Act and other provisions related to loan transfers will come into force from 1 January 2012. This date is the start of the academic year and will provide a smooth transition for borrowers from the Student Loan Scheme Act 1992 to the new Act.
Comparative table of old and the new sections
|Section reference current Act||Clause reference in Bill|
|Part 1: Transfer of loan balances to Commissioner for collection|
|Part 2: Collection of repayments from New Zealand-based borrowers|
|14(1)||Part 2, subparts 1 to 3|
|14(3)||183(1) & (2)|
|15||46 & 47, 70, 82|
|19(1)||31 & 33|
|20A(1) to (2)||43|
|21||39 to 42, 93 to 96, and 140 to 142|
|25||64 & schedule 2|
|26 to 30||71 to 79, 82 to 91 and schedules 3 & 4|
|Part 3: Collection of repayments from overseas-based borrowers|
|32A - repealed in Act||N/A|
|32B - repealed in Act||N/A|
|Part 4: Miscellaneous provisions applying to the student loan scheme|
|38AA||125 & 126|
|38AE(1) to (7A) & (9)||20|
|38AEA to 38AJA||Schedule 1|
|38AJ(2)(a) to (b)||21(b) and schedule 1 clause 7(1)|
|38AJ(4)||Schedule 1 clauses 1 and 7(2)|
|38AJA(2)||Schedule 1 clause 8(1)|
|38AJA(3)||Schedule 1 clause 9(a)|
|38AJA(4)(a)(i)||21(b) & schedule 1 clause 8(1)(b)|
|38AJA(4)(a)(ii)||21(b) & schedule 1 clause 9(b)|
|38AJA(6)||Schedule 1 Clauses 1 and 8(2)|
|38AK||125 & 126|
|38A – repealed in Act||N/A|
|38B – repealed in Act||N/A|
|38C – repealed in Act||N/A|
|38D – repealed in Act||N/A|
|39 – repealed in Act||N/A|
|40 – repealed in Act||N/A|
|41 – repealed in Act||N/A|
|42(2) to (4)||N/A|
|43(2) to (4)||135|
|44(2)||129(2) & 131|
|44(3)||4 Definitions of "outstanding obligation" and "unpaid amount"|
|45||132 & 133|
|45F||118 & 119|
|48 & 49||186|
|50||187, 188 & 189|
|51(2) to (5) & 51A||136|
|54, 55, 55A, 55B||139|
|55D(2) & (3)||145|
|56 to 57||110 to 113, & 123|
|57A to 57D||N/A|
|Part 5: Challenges after transfer of loan balance to Commissioner|
|66A – repealed in Act||N/A|
|70 – repealed in Act||N/A|
|71 – repealed in Act||N/A|
|72 – repealed in Act||N/A|
|73 – repealed in Act||N/A|
|74 – repealed in Act||N/A|
|75 – repealed in Act||N/A|
|76 – repealed in Act||N/A|
|Part 6: Offences and penalties|
|77 to 79||155|
|80 – repealed in Act||N/A|
|85||150 to 154|
|86 – repealed in Act||N/A|
|Part 7: Regulations and miscellaneous matters|
|88||Schedule 6 Clause 2|
|Part 8: 2007–08 transitional provisions for fresh start for certain borrowers|
|89 to 105||N/A|
|Part 9: Other transitional provisions|
|106 to 111||N/A|