How to manage your student loan debt
Q Can I use KiwiSaver to pay for my student loan when I leave New Zealand? I have got a job offer in Melbourne and I have decided to go there soon.
A KiwiSaver is designed as a long-term savings scheme to help New Zealanders financially in retirement. Your money is locked in to age 65 except in cases of first home purchase, permanent emigration, significant hardship, serious illness or death. Unfortunately for you, KiwiSaver cannot be used to repay your student loan.
New Zealanders who study here are subsidised by the government through the course of their tertiary education. The government would like a return on its investment in your education — by you working and paying taxes here. To encourage graduates to remain in New Zealand, student loans are interest-free as long as the borrower lives here. If you travel overseas for more than six months interest will be charged to the balance owing — and it is backdated to the day after you left New Zealand.
You should notify Inland Revenue as soon as you leave and they will classify you as an overseas-based borrower. The interest rate is set at the start of the tax year and is currently 2.8 per cent per annum.
There are certain exemptions, for example if you are studying or working for the government overseas, or volunteering. To apply for an interest-free exemption your application must be in writing and you need to provide evidence.
You can put your student loan repayments on hold with a repayment holiday, which lets you take a break from repaying your student loan for up to 12 months.
Interest is still added to your loan during this time.
All overseas borrowers not on a repayment holiday are required to make two minimum repayments on or before September 30 and March 31 each year. The amount you are required to pay on these dates depends on your balance.
Someone owing $40,000 will be required to repay at least $4500 each year ($1500 in September and $3000 in March). The repayment schedule for all amounts can be found on the IRD website.
IRD recommends that you set up regular weekly or monthly payments as it’s much easier to stay on track.
If you do not make your payments on time, IRD may charge late payment interest on the overdue amount until you have caught up with your payments. The late payment interest is currently 6.8 per cent per annum (or 0.549 per cent per month). If you contact IRD about any late payments, they may reduce the amount of late payment interest.
You should let IRD know as soon as you return to New Zealand. In order for your student loan to be interest-free again, you will need to live in New Zealand for at least 183 consecutive days to become a New Zealand-based borrower. Then all the interest applied to the loan since your return will be written off.
If you decide to stay in Australia, you can apply to transfer your Kiwi Saver funds to an Australian superannuation scheme. There are advantages and disadvantages in doing this. Even if you stay overseas for many years, you are not obliged to transfer your KiwiSaver account. Under current rules if a member living overseas leaves their fund to age 65 they can then withdraw all funds (including all government contributions).
All they need is an active New Zealand bank account to which the money can be paid.
To encourage graduates to remain in New Zealand, student loans are interest-free as long as the borrower lives here.