Voluntary repayment bonus exceeds promise

Student loan borrowers will qualify for a voluntary repayment bonus whether they are based in New Zealand or overseas, Tertiary Education Minister Anne Tolley announced today.

 

Before the election, National said that borrowers making a voluntary repayment of $500 or more would get an extra 10 per cent bonus from the government. This would mean, for example, that a voluntary repayment of $800 would reduce a borrower’s loan balance by $880.

 

Announcing the details today, Mrs Tolley says the bonus is more generous than that promised by National before the election.

 

“This is because it includes overseas-based borrowers, it isn’t limited to repayments made 10 years after a person graduates and the $500 repayment doesn’t have to be made in one transaction,” says Mrs Tolley.

 

“This is a significant step to encourage student loan repayment and reduce overall repayment times. It will give student loan borrowers greater incentive to make voluntary repayments and help them repay loans faster.”

 

Voluntary repayments made after 1 April 2009 will qualify, and the first bonuses will be credited after the end of the 2009/10 tax year.

 

The scheme is designed so that all borrowers making a payment over and above their compulsory student loan repayments can receive the bonus, provided they make their payments when they are due.

 

“Shorter repayment times will mean young New Zealanders will be debt free earlier. This means more money in their pockets each week and more freedom to make major life decisions such as travel, starting a family or home ownership,” says Mrs Tolley.

 

Voluntary Repayment Bonus: Questions and Answers

 

What is the voluntary repayment bonus?

 

 

• The government will credit a borrower’s student loan account by an extra 10 percent of any qualifying voluntary repayments. This is the voluntary repayment bonus.

 

 

• A voluntary repayment is a payment over and above a borrower’s compulsory repayment obligation for a tax year. Any payments will first be credited to any old and current repayment obligations and anything left is treated as a voluntary repayment.

 

 

• If a borrower makes a voluntary repayment of $500 or more, then they will be entitled to the 10 percent bonus.

When does the voluntary repayment bonus start?

 

 

• Voluntary repayments will count towards the bonus from 1 April 2009. The government will make changes to the Student Loan Scheme Act as a priority so the bonus can be given full effect. The first bonuses will be credited to student loan accounts after 1 April 2010.

How is the bonus more generous than the pre-election announcement?

 

 

• The voluntary bonus is more generous than the government’s pre-election commitment in three ways:

 

smaller payments qualify for the bonus, as long as they total $500 or more over the year (not just in a lump sum),

borrowers who live overseas are eligible (not just those in New Zealand

there will be no time limit on the entitlement to a bonus (it won’t be limited to ten years).

Am I eligible for the bonus?

 

 

• Any student loan borrower who has a student loan with Inland Revenue and who has made all repayments when they were due is eligible for the bonus. Repayments made to the Ministry of Social Development (i.e. on a new loan before it is transferred to Inland Revenue) will not attract the bonus.

 

 

• You don’t need to live in New Zealand to be eligible.

Do I have to apply to get the bonus?

 

 

• You do not need to apply. Inland Revenue will check whether your voluntary repayments during the year are $500 or more and will apply the bonus accordingly. If you repay your loan in full, Inland Revenue will check whether you are entitled to a bonus.

Why will my bonus be paid at the end of the tax year?

 

 

• For most borrowers your repayment obligation is based on your income for the year, so it is not calculated until the end of the tax year (31 March). Inland Revenue need to know your compulsory repayment obligation for the tax year in order to calculate the voluntary repayment and the bonus.

What if I cannot afford to pay $500 all at once?

 

 

• If you are able to make smaller voluntary repayments during the tax year and these repayments total at least $500 above your compulsory repayment obligation, you will receive the bonus.

Will voluntary repayments made to StudyLink qualify for the bonus?

 

 

• No, repayments made to StudyLink for the current year’s study will not qualify. This policy focuses on voluntary repayments of older loans held by Inland Revenue. The Government has decided that the extra administrative cost of making StudyLink repayments eligible is not justified.