Overview

The student loan scheme is a significant Crown asset and a major financial commitment by Government towards supporting those in tertiary education. The amendments contained in the Student Loan Scheme Amendment Bill (No 2), announced as part of Budget 2012, focus on improving the value of the student loan scheme and encouraging personal responsibility for loan repayments.

The bill introduces measures to:

broaden the definition of “income” for student loan repayment purposes to broadly align with that used for Working for Families tax credits;
implement an information-match with the New Zealand Customs Service to identify borrowers in serious default when they enter the country; and
amend the Student Loan Scheme Act 2011 to ensure the delivery of the remaining core policy changes in the 2011 Act.

Broadening the definition of “income”

The bill proposes to broaden the definition of “income” for student loan repayment purposes to broadly align with the definition of “income” used for determining entitlement to Working for Families tax credits. The definition of “income” for student loan repayment purposes is important in terms of meeting the policy objective of ensuring a borrower’s repayment obligation accurately reflects their ability to repay.

Information-match with New Zealand Customs Service

Consistent with the Government’s focus on encouraging personal responsibility for loan repayments, the bill proposes to extend the existing information match with the New Zealand Customs Service for child support to also include contact information for student loan borrowers who are in serious default when they enter or leave New Zealand. The key impediment to collecting repayments from overseas-based borrowers is a lack of contact details which prevents Inland Revenue from engaging with this group. This information-match will mean that Inland Revenue can initiate contact with a borrower to discuss their situation and outstanding arrears.

System reprioritisation and technical amendments

The bill includes a number of amendments needed to ensure the delivery of the remaining core policy changes enacted in the Student Loan Scheme Act 2011. In 2009 Cabinet agreed to a new student loan management system as part of a shift from Inland Revenue’s existing computer system. The new system provided an opportunity to make the administration of the scheme more efficient and make compliance easier.

New student loan policy and rules were introduced into legislation and subsequently enacted in the Student Loan Scheme Act 2011. Some of the key policy changes included:

providing a consolidated loan balance so borrowers could see all their loan draw-downs;
moving from an end-of-year square-up of deductions to deductions each pay period for salary and wage earners; and
changing the penalty regime, including a significant reduction in the penalty rate.

Implementation of the new loan management system proved to be more complicated than expected, and would have put at risk the ability to deliver on key student loan policy changes. In May 2011 Cabinet therefore agreed that the new rules in the 2011 Act should be implemented within Inland Revenue’s current computer system. The new rules would be implemented using a phased approach, from 2012 through to 2013.

Because of the complexity of the student loan system, the detailed analysis has identified that the systems design, development and testing required to implement some of the 1 April 2013 changes is significantly greater than originally expected. To ensure timely delivery of the core Government policies contained in the 2011 Act, and the policies that have the greatest benefit for borrowers, it is proposed to not proceed with some of the measures in the 2011 Act.

The measures were selected on the basis that they met most or all the following criteria:

They had a minimal impact on the repayments of borrowers.
They had an impact on only a small number of borrowers.
They reduced the pressure on Inland Revenue’s student loan system changes.
They were consistent with the policy intent of previous Cabinet decisions.

Four further measures are proposed not to proceed, see (“Matters raised by officials”), described in this report.

The bill also includes technical remedial amendments to ensure the Act works as intended.

Matters raised in submissions

Ten submissions were made in relation to the bill of which only a small proportion related to matters contained in the bill.

Whitireia Community Law Centre supported the broadening the definition of “income”, and raised concerns about the use and privacy of borrower information received through the proposed information-sharing between Inland Revenue and the New Zealand Customs Service.

Other submissions also raised concerns about the use of borrowers’ information and the privacy of information received via the proposed information-sharing between Inland Revenue and New Zealand Customs Service.

The Legislation Advisory Committee commented on the information-sharing provisions of the bill proceeding before the Privacy (Information Sharing) Bill is enacted and implemented, and the desirability of consulting with the Privacy Commissioner. The Legislation Advisory Committee also stated that the definition of “serious default” for the purpose of the information-sharing does not provide sufficient guidance and that more detailed criteria should be provided in the legislation.

The majority of submissions referred to matters not covered by the bill, mainly previous policy changes and the student support package as a whole.

The New Zealand Union of Students’ Association and other submitters called for a complete review of the student support system, including its costing methodology, the adequacy of student support assistance, and the cumulative impact of Budget 2010, 2011, and 2012 changes on students and on the country.

Matters raised by officials

Since the introduction of the bill, officials have identified further changes needed to ensure the remaining core policy changes can be delivered and to address an unintended consequence of the recently implemented near real-time transfer of loan advances from StudyLink to Inland Revenue.

As mentioned above, the four further reprioritisation measures mentioned are:

retaining the existing loan interest calculation method of accruing daily and charging and compounding annually;
retaining the existing process of calculating loan interest for all borrowers and subsequently writing off the interest for New Zealand-based borrowers;
reverting to the previous write-off rules for obligations less than $20; and
retaining the existing way in which payments are allocated to repayment obligations and debt.

In addition to these matters officials propose an amendment to correct an unintended consequence of the recently implemented near real-time transfer.

Before 1 January 2012, the annual loan transfer occurred in February each year. This was replaced with a near real-time transfer, which allowed StudyLink to transfer loan information to Inland Revenue daily.

This near real-time transfer has had an unintended consequence, resulting in borrowers receiving end-of-year student loan assessments that would not have been issued were it not for the near real-time transfer. In effect, borrowers who had student loans for as little as two or three weeks would have assessments relating to the entirety of their previous year’s income (salary and wages, and other income such as business income).

Officials consider that under the new loan-transfer process, borrowers’ repayment obligations in the first tax year of becoming a borrower should be similar to what they were under the previous annual loan-transfer process.

Officials also propose to update the definition of “adjusted net income” for the student loan scheme in line with recent amendments to the definition of “family scheme income” for the Working for Families tax credit rules.

These amendments relate to the exemption of withdrawals from KiwiSaver after a member has reached the date of entitlement or for early withdrawals, and also correct and rationalise cross-references for the exemption of parts of overseas pensions.

Officials’ recommendations are detailed in this report, along with technical amendments and minor remedial items.