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April 8, 2013 | by  | in News |
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Govt Kills Students’ Bonus

April fools’ joke not very funny

Anyone repaying a student loan may find their pay packet has shrunk, as the Student Loan repayment rate for borrowers living in New Zealand has risen to 12 per cent.

The changes, announced by Minister for Tertiary education, Skills and employment Steven Joyce as part of the 2012 Budget, took effect on
April 1 and also include cutting the ten per cent Student Loan Voluntary repayment Bonus.

The minimum repayment rate for student loans has now increased from ten cents to 12 cents for each dollar of income that student loan holders earn over the $19,084 threshold, and students will no longer receive a further ten per cent of any extra repayments they make. In Australia, students only have to make repayments when their income is over $48,000 and even then it’s only four per cent, rising to a maximum eight per cent as incomes rise.

Joyce said the repayment-rate increase would mean that graduates and ex-students will pay their loans off more quickly. “Increasing the repayment rate will increase the rate at which people pay off their loans and provides savings of $184.2 million over four years that the Government is investing into the next generation of students,” said Joyce. “We are looking to bring that cost down further over time.”

The change will only affect borrowers with income over the repayment threshold, currently $367 a week or $19,084 annually. It will not impact people who receive income-tested benefits. Borrowers who are unable to meet their obligations due to financial hardship may apply for relief under hardship provisions.

The ten per cent student loan bonus for repayments beyond the compulsory amount was aimed at speeding up slow payers and reducing the Crown’s borrowing costs. The scheme backfired when it became evident that students were gaming the system by claiming the bonus while they were still studying. Rather than changing the rules so that current students could not receive the bonus, the Government has opted to axe the bonus completely. These changes are just another scheme in a long running cost-cutting venture by the Government, which has reduced the cost of lending under the Student Loan Scheme from 48 cents in every dollar to 37 cents.

Other changes rolled out in previous years have included cutting the repayment holiday period for people overseas, refusing loans for living costs to those aged over 55, and freezing the repayment threshold at $19,084 until 2015.

One student Salient spoke said she had a friend whose parents paid off her $28,000 loan to take advantage of the $2,800 discount before the bonus disappeared.

However, the new reality for most students repaying their loans themselves is that it’s better to put extra money in the bank to earn interest, rather than pay off an interest-free student loan promptly. There is a total of $13 billion in student debt and about 82 per cent of full-time students take out a student loan. This total rises by approximately $1 billion each year.

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