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Changes to Student Loan Interest

Proposed changes to student loans will make it cheaper to die in London on your big OE

The government is proposing to make Kiwis with student loans who are overseas exempt from paying interest on their loans if they become seriously ill.

Under current regulation, if you are overseas for 184 consecutive days you are considered an “overseas borrower” and loans begin to gather interest.

Technically, all loans are accruing interest which then gets written off. When a borrower is overseas, the interest is not written off. Does this technicality matter? No, not really.

The current interest rate is 4 percent p.a and in 2018 the average loan balance was $26,065 (this number is growing and is larger for overseas borrowers,) meaning an overseas student would be paying an extra $1000 a year in interest.

While this is not an outrageous price to pay to live in your preferred city and earn a higher wage than back home, it may be an unpleasant amount of money to pay if you are trapped overseas due to an illness.

This is why the bill currently before parliament looks to change the rules so that borrowers who are unable to meet their overseas-based repayments as a result of serious illness or disability can be treated as if they were living in New Zealand.

The bill states that: “This will mean that their repayment obligations are based on their income, and the borrowers will not be subject to loan interest.”

To qualify, you need to have an injury, illness, or disability that results in you being unable to engage in paid work or poses a serious and imminent risk of death.

The other proposed change worth mentioning is a new rule which would allow employers to be notified when an employee’s loan balance is close to being fully repaid.

Under current rules, an employer deducts 12 percent from your income to repay your student loan. This means if the remaining balance of your loan is less than 12 per cent of your income, you will overpay the loan and need to apply to IRD for a refund.

Instead, the employer will be notified when the loan is almost paid off and can avoid deducting more than the loan balance from the employee’s wages.

This will save you the hassle of applying to the IRD for a refund. But let’s be honest, you’ll be old and grey before you have this problem. Overpaying your loan repayments is probably the least of your worries.

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