Overview

The Student Loan Scheme Bill introduces changes to the way student loans are administered by Inland Revenue and StudyLink. Ten submissions were received on the bill. The two proposals which proved to be the most controversial with submitters were the changes to the assessment basis for salary and wage earners – moving from an annual basis to a pay-period basis, and to the exemption of student loan contracts from the requirements of the Credit Contracts and Consumer Finance Act 2003.

Other changes in the bill were greater use of electronic services to enable more timely provision of information and the ability for borrowers to self-manage their loans, increasing the StudyLink and Inland Revenue administration fees, aligning penalties with those that apply for other taxes, aligning the interim payment rules more closely with the provisional tax rules, and changes to interest rates.

Most submissions supported the intent of the bill, welcoming moves to improve student loan administration and reduce the compliance costs imposed on borrowers. Submitters commented that the proposed measures would reduce compliance costs for borrowers and a high degree of self-management would be a welcome improvement.

There was also support for aligning the penalties that apply to student loans with those that apply for other taxes, and the excess repayment bonus.

Three submitters raised matters that were not directly related to changes in the bill. These related to requiring borrowers to pay a deposit for each loan, the recent announcement to introduce a lifetime limit on accessing student loan funding and ways to provide further assistance to borrowers.

This report sets out officials’ detailed responses to submissions. Officials have taken into account the recommendations in submissions seeking greater disclosure to borrowers following the exemption of the Student Loan Scheme from the Credit Contracts and Consumer Finance Act, and the extension of the exemption from student loan repayments for full-year students while studying full-time to also include those students with a full-time workload but who study for part of the year.

Supplementary Order Paper No. 200 – Student Loan Scheme Bill, was released by the Minister of Revenue on 14 December 2010. The SOP outlined changes to enable the Commissioner to exercise rights in the contract to recall the full amount of the student loan. No submissions were received on the SOP.

Repayment obligations for salary and wage earners determined on a pay-period basis

The bill proposes that for the majority of salary and wage earners, their repayment obligations will be determined on a pay-period basis, providing greater certainty for borrowers as their repayment obligation will be finalised each pay period or errors identified and if significant, corrected sooner.

Borrowers will focus on the pay-period income and expenses and not on their annual liability. Under this proposal borrowers will make repayments when they can afford to – that is, when their income is over the repayment threshold of $19,084 ($367 per week), and are not required to make repayments when they cannot afford to pay.

If a borrower is in significant financial difficulties, they will qualify for hardship and will either not be required to make repayments, or their payments will be reduced.

A borrower’s loan repayments each pay-period (excluding errors and income fluctuations) will not change between the current process and that proposed in the bill. What will change is that borrowers will not be required to undertake an end-of-year return and deal with any resulting additional repayments.