Inland Revenue Department (IRD), which disburses and manages Student Loans through StudyLink, has announced a number of changes that would come into effect on April 1, 2012.
The changes affect the way student loans are managed, repaid and administered. A few other changes would be made effective on April 1, 2013.
In his regular column published in this newspaper (under Educationlink, January 15, 2012), IRD Community Relationship Advisor Abdul Rafik had outlined the changes that affect full-time students and those in employment pursuing part-time degree and diplomat courses.
In deference to the wishes of a number of readers, we reproduce here the main features of the revised Student Loans Scheme.
The changes fall under ten categories. They are: Consolidated view of your student loan balance; Repayments made per pay period considered as your repayment obligation; Exemptions from repayment deductions; Reduced rates for secondary employment; New student loan repayment codes; Annual administration fee; Changes to late payment penalties; Recalling the entire loan amount; Further changes announced in Budget 2011; Pay period threshold for student loan deductions for 2013 tax year
Consolidated view
From April 2012, borrowers who have transactions with both IRD and StudyLink will see a consolidated and up-to-date view of their loan balance through the department’s secure online service, because StudyLink will be transferring loan account information to the department on a daily basis.
This means the statements you would receive from IRD will also include your
StudyLink transactions. Whether it is online or on paper, you will see your total loan balance every time.
Repayments
If you are in New Zealand and earn above the pay period repayment threshold, your student loan deductions every pay period will be considered your repayment obligation, unless there is a significant over or under-deduction.
If there is a significant under-deduction, IRD may require you to have catch-up deductions made through your employer to recover the shortfall.
For significant over-deductions, you can either request a refund or have this applied to your loan balance so that you may be eligible for a 10% voluntary repayment bonus.
For a majority of salary or wage earners, this means they would no longer need an annual square up via a personal tax summary to determine their repayment obligation.
If you have income from other sources such as interest, dividends, rental or business income, you may still be required to have an annual end-of-year assessment.
Exemptions
If you are earning above the pay period repayment threshold, you may be exempt from having repayment deductions if you are a full-time student and expect to earn less than the annual repayment threshold ($19,084 for the 2013 tax year). You can apply online for this exemption from March 2012.
Reduced Rates
Borrowers with more than one job can apply for a reduced deduction rate for their secondary employment if the income from their main (highest paying) job is less than the pay period repayment threshold. They can apply online for a reduced rate from March 2012, with deductions to be made from April 1, 2012.
New loans
If you have a student loan, you must use an ‘SL’ repayment code with your normal tax code, unless you are exempt. Aside from using the standard ‘SL’ repayment code, your employer may also need to use the new student loan repayment codes for extra deductions made on your salary or wage.
SLBOR – used to identify extra repayments you want to make through your employer. If you are in arrears, you can apply the extra repayments to pay off the debt. If your repayments are up to date, any additional repayments will help pay off the loan faster. If these and other voluntary payments total $500 or more in a tax year, you may be eligible for a 10% voluntary repayment bonus.
SLCIR – used when we determine that you have a significant under-deduction and require you to make catch-up deductions.
Annual fee
An annual administration fee of $40 will be charged to your account if you have a student loan balance of $20 or more, unless you have been charged StudyLink establishment fee in the same year.
Changes
From April 1, 2012, the penalty for late payment will reduce from 1.5% to 0.843%. There will be further changes April 1, 2013.
Recall
IRD can now demand full repayment of a student loans, whether or not the entire amount is outstanding, in the case of borrowers who have consistently been non-compliant with their repayment obligation.
Further changes
Proposed changes to student loans have been included in the recently introduced Student Loan Scheme Amendment Bill.
Repayment holidays for overseas-based borrowers will be shortened to one year and borrowers must apply for a repayment holiday and provide a contact person for those leaving New Zealand from April 2012.
Borrowers will not be able to offset losses against their income to reduce their student loan repayment obligations from April 2012.
Borrowers will be required to provide a contact person for all new student loan applications from January 1, 2013.
Borrowers with an overdue repayment obligation of $500 for a year or more will not be eligible for new lending from February 7, 2013.
The repayment threshold will be held at $19,084 until March 31, 2015.
