If you are planning on going travelling for 6 months or longer, and have a student loan, you need to read this.
What is a student loan?
If you didn’t already know, a ‘student loan’ is essentially money borrowed from the New Zealand government. It allows you to study, without the pressure of interest over your head, as long as you stay in New Zealand. The idea is that you will gradually pay it off later once you’re in the workforce.
How does it get paid off?
The amount you pay off is proportionate to how much you’re earning. If you’re living in New Zealand, and are paid under PAYE, your employer should automatically send 12% of your income (for everything you make over $19,448 per year) to the IRD, in order to pay off your loan.
If you are not paid via PAYE, you will need to make repayments manually. The amount you need to repay will depend on how much you earn. To work out the minimum repayment amount, head to the IRD website.
As long as you don’t leave New Zealand for longer than 6 months, the IRD will write off any interest incurred on your student loan.
What happens if you head overseas?
If you are away from New Zealand for more than 6 months, your loan will no longer be interest free. And, your repayments will be based on your loan balance and not your income.
This means that instead of a portion coming out of your paycheck each week, you need to make two payments per year. You are responsible for making these payments yourself - there’s no way for them to be automatically deducted from any income you earn while overseas.
There are two main installment dates for student loan repayments that you must meet every year – 30th September and 31st March.
Under certain circumstances you can apply for your loan to remain interest free if you meet any of the following criteria:
If you or your partner or studying overseas
Working for the NZ government
Working for a NZ employer
Volunteering for a charitable organisation
Living in Niue, the Cook islands, Tokelau or Ross Dependency.
How much do you need to repay?
This varies, but as an example, if your student loan is between $30,000 - $45,000, you will need to pay $1,500 in September and $1,500 in March. If your loan is over $60,000, you will need to pay at least $2,500, twice a year.
You can use this calculator to figure out your minimum yearly repayments: https://www.ird.govt.nz/calculators/keyword/studentloans/sl-repayment-calculator.html
Note: You can’t just come back home for a few days every 6 months in order to keep the loan interest free. You would need to be back for at least 32 consecutive days to ‘reset the clock’ on the 6-month rule.
When will you start being charged interest?
If you’re out of New Zealand for longer than six months, you will be charged interest on your student loan. The current rate is 4.3% - however this rate changes periodically.
On top of this, they will actually back-date your interest obligations to start from the day after you left New Zealand.
It’s important to note that the repayments you make while overseas are going to pay off the interest first, and then start chipping into your total loan amount. This means that if you have money available, you may be better off paying more than the minimum repayment amount (if you can), in order to decrease your level of debt as quickly as possible.
What are your options for repayment while overseas?
If you’re working or have money available while you’re overseas, you can make voluntary contributions whenever you like - this will help pay your loan off faster. Make sure you are paying off at least the minimum amount required based on the student loan calculator here.
If you’re not working, or don’t have funds available, you can apply for a repayment holiday. This gives you a 12-month break from repaying your student loan. However, there will still be interest added to your balance which you will have to pay off once your repayment holiday comes to an end. If you’re thinking of doing this, you need to do it before you go, or within 6 months of leaving, through your myIR account.
What happens if you miss a payment?
In short, don’t. This is really not a situation you want to get yourself into. You should tuck the money away for these repayments as an absolute priority. If you miss more than one repayment (and aren’t transparent with the IRD about why you’ve missed it) you may be charged late payment interest, and in some cases people have even been arrested at the border in New Zealand. So yeah, it’s a big deal.
However, if you do miss a payment, call the IRD as soon as you can, and be honest about what’s happened. They may be able to offer you payment options.
What happens when you move back to NZ?
If and when you move home to New Zealand, after 6 months your student loan becomes interest free again. All you need to do is let the IRD know you’re back in the country.
If you planned on being overseas for less than 6 months, but your return was delayed by any of the below, you can apply for your loan to remain interest-free until you return.
Airline strikes
Illness
Death of a family member
Natural disasters
Terrorism or war
In a nutshell, if you have a student loan and are leaving the country for six months or more, you need to let IRD know. You should also start making a plan for how much you need to repay while you’re away, and how you’re going to pay it.
It’s easy to get caught up in the excitement of going overseas, but remember that your interest free student loan comes with conditions. And if you don’t repay it on time, you can get into some serious trouble.
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