Photo: RNZ / Kate Newton
If you are paying interest on your student loan, your bill is about to get bigger.
While student loans are interest free for people who remain in New Zealand, interest is charged when people move overseas.
From 1 April, an additional 1 percent will be applied to student loan interest rates, on top of the yearly re-calculation in rates that occurs.
That will take the base rate to 4.9 percent, the late payment rate to 8.9 percent, which is charged on overdue amounts from student loan borrowers in New Zealand and overseas, and the reduced late payment rate to 6.9 percent.
The forecast for the 2026 rate is 4.9 percent, rising to a maximum of 6.6 percent in 2030 before declining to around 6.0 percent.
Craig Renney, policy director and economist at the Council of Trade Unions, said the increase would not raise any money for the government because it already had to write off about 50 percent of the cost of student loans at the point they were issued, due to the interest-free period and the fact that some people never paid them back.
"The highest the interest rate, the bigger write-off."
But he said any increase in the student loan interest rate was a disincentive to people to return to New Zealand.
People who were skilled and had spent some time in tertiary study and were receiving higher offers overseas might decide never to return if their debt had become out of control, Renney said.
He said those with largest debts could sometimes be the most skilled.
"There will be some people who are making the horrible decision about not seeing their family again."
In 2020, there were cases of arrests at the border over student loan debt. About 20 people who have defaulted on their student loans are being monitored for possible arrest if they return to New Zealand, Inland Revenue said at the time.
Renney said there was little justification for having an interest rate set so far beyond the government's cost of borrowing.
"The government's 10-year rate is nowhere near 6 percent. There is zero economic value in doing this."
The most recent student loan report showed 105,434 borrowers had overdue repayments of whom 74 percent were overseas. Overdue student loan debt was worth $2.375 billion, of which 93 percent was owed by overseas borrowed.
While the number of borrowers with overdue payments had dropped 1.5 percent year-on-year, the amount overdue had increased 9.1 percent.
There were 27,346 New Zealand-based borrowers with overdue repayments in the year, down from 30,037 the previous year.
More than 85 percent of overseas-based borrowers in debt had been outside New Zealand for more than five years.
The report noted that IR had taken an approach of supporting borrowers through the pandemic but last year returned to using a "range of approaches" to improve compliance and reduce overdue repayments.
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