With New Zealand’s borders open again it’s no surprise an estimated tens of thousands of young Kiwis are planning a move overseas.
For many young people, this is an opportunity to use their newly-earned skills and qualifications on the world stage. To live away from family, and to see the world. It’s also a time of increased responsibility and some home-related pressures remain including repaying a student loan.
The result of not managing student loans can impact borrowers in real ways when they return to New Zealand, and that’s why knowing about the obligations and planning ahead is so important.
Once someone is away from New Zealand long enough to be considered ‘overseas-based’, the student loan changes from something that happens in the background to something that requires active management.
The change to being considered ‘overseas-based’ depends on how long a borrower is outside New Zealand -fewer than 153 days is considered ‘New Zealand-based’. Away more than 184 days, and it’s ‘overseas-based’. There’s an ‘Overseas travel calculator’ available in myIR.
When a borrower becomes overseas-based, student loan payments are no longer taken from salary or wages and borrowers have to make the payments themselves. This means finding a payment method that works best for their situation and ensures the payments are made on time.
The amount owed each year is based on the size of the loan, not what someone earns, so the loan repayments are a set amount. Each year there are two repayment dates – 30 September and 31 March. People can pay fortnightly or monthly, likely saving interest and help paying off the loan faster
Interest will now be applied to student loans from the day after someone leaves New Zealand. This interest is applied at a rate of 2.8%. Interest is calculated daily and added to the loan balance at the end of the tax year. Late payment interest applied to the overdue amount is 6.8% (made up of 2.8% base interest and 4% penalty interest).
However, in some cases, the student loan can remain interest-free, depending on the reason a borrower is overseas.
There is the option of a ‘temporary repayment suspension’ if people want to take a break from repayments. IR needs to know either before someone leaves New Zealand or within 6 months of leaving. During a temporary repayment suspension, interest is still charged to your loan (2.8%), but repayments are not required.
Tips for people to stay on top of student loan obligations:
- Register for a myIR and set up notifications to stay in touch with IR while overseas
- Set up small, regular repayments
- Let IR know sooner than later if there’s an issue paying on time.
- Nominate someone in New Zealand to manage the loan.
