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Student loan repayment rate up to 12 percent

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Student loan repayments up

3News NZ

Steven Joyce wants graduates to pay more of their wage toward their student loans

Steven Joyce wants graduates to pay more of their wage toward their student loans

By Dan Satherley and Lloyd Burr

Graduates will have more of their wage docked to pay off their student loans after the Government announced plans to increase the repayment rate to 12 percent.

Tertiary Education Minister Steven Joyce confirmed the latest changes today which will see the current student loan repayment rate of 10 percent increased by a further 2 percent.

The new rate, just like the old one, applies to incomes over $19,084 and will come into force from the beginning of next year.

Mr Joyce also announced the Government is contemplating scrapping the voluntary repayment bonus because he says it is not encouraging people to pay off their loans enough.

He says the changes will save the Government between $60-70 million every year and most of those savings will be reinvested into the tertiary education sector – specifically engineering and science.

There will also be a four-year freeze on the parental income threshold at which students under 25 become ineligible for the student allowance.

“In the short term they will pay off more of their student loan but in the long run, it will reduce the period taken to pay off loans by around four or five months.

“Some people would rather they didn’t do that but they have had access to a pretty good system,” he says.

Mr Joyce says he considered a number of options when contemplating a new rate.

 “We’ve had a look at a number of option, 1 cent or 2 cents in every dollar and we think 2 cents is about right. It is quite significant in the higher income levels.

The Government says the changes are necessary to stop the cost of student allowances and loan debt – which is now over $11 billion – from blowing out further.

In Australia, the student loan wage repayment threshold is much higher - $48,000 – and the repayment rate starts at 4 percent, rising to 8 percent at higher incomes.

The latest changes have riled the Green Party who say the changes effectively wipe out any gains from tax cuts the Government issued in previous Budgets.

"Graduates have grown up," says Green Party education spokesperson Holly Walker.

"A significant proportion of those paying off a student loan are also parents, who are set to be hit with a double whammy this budget as they expect cuts to their early childhood subsidies as well."

Labour deputy leader Grant Robertson yesterday said increasing the repayment rate on student loans would drive more graduates overseas.

"I don't think this is going to act as an incentive to our best and brightest when they graduate to stay in New Zealand – I think this policy is actually going to discourage a lot of people from sticking around here."

Mr Robertson said the Government sees education "mostly as a cost", rather than as an investment.

The Government says it will help students get debt-free quicker.

“It's good news for them because they will pay off their loan faster and good news for us because our liability decreases," says Prime Minister Key.

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Comments

26/01/2013 8:07:57 p.m.

Tom wrote:

People should not only comment here but consider avenues to publicly lobby and march to point out objections to harmful decisions by the current administration. Given the extremely high taxation rates in NZ, I think the government can readily afford to reward loan repayment and also begin to offer tertiary fee payment on a 1 year subsidy for 1 year student paid basis to improve the population quality. After time, the load of a loan on an individual can prevent them from obtaining housing (increasingly costly) in a country where wages have not increased significantly in over 10 years. It would be most wise, ultimately, for parents to either pay for their children's education up to employment or better educate their children about the catastrophic effects of debt and the actual value of self-study and personal education over academic qualification.

12/06/2012 3:06:57 p.m.

David wrote:

I agree with Julia, Student loan debt has blown out of proportion, I am a 23 year old BCA grad, finished uni with a $53,0000 student loan. I paid off $20k and took advantage of the voluntary repayment bonus. I could pay off more but I have no incentive to once the voluntary bonus is removed. So instead of the Government getting $30k ($27k) in the next year or so, they will only $2,900 or $3,500 with the 12% hike. Heck if I were them I'd prefer $27k, its all about the time value of money don't you think? Sure my circumstances might be different to many others, but if the voluntary bonus is costing the government $60m to $70m in bonuses each year don't you think that is money well spent? Student debt is at $11b. If its costing the government $70m per year, that means that people are paying an extra $700m per year, hello! that is 6.36% of student debt extra being repaid each year, the government could definitely do with an extra $630m. It does make my decision whether to pay back my loan immediately or get it deducted over the next 8 years rather wasy though. $30k certainly helps towards a house deposit!!!

24/05/2012 4:26:25 p.m.

Julia wrote:

I think it is a good idea. Sure, I will be getting a bit less in my pocket now, but it will mean I will pay off my student loan faster. Also, the government is paying far too much to make our loans interest free. The faster they make us pay off our student loans the less they will have to pay. I would be sad to see the volutary repayment scheme go though.

7/05/2012 7:36:39 p.m.

Guest wrote:

I was at university from 1991 - 1993. We were the first students to utilise the student loans scheme in 1992. Back then, anything we drew down incurred interest. Once I completed my degree, and secured my first job, I paid back $12,000 plus interest at $200 a week whilst living with my girlfriend in a flat. This was a massive amount back then. It was extremely hard, but you just did it. Has the student loan landscape changed that much since then?

4/05/2012 9:21:24 a.m.

smithy wrote:

Raising the repayment rate will allow businesses who employ graduates to raise their rates, meaning most will have to pay more for the services that they provide. And so much for the knowledge economy

4/05/2012 8:06:26 a.m.

Mike B wrote:

To all those who have said they will be leaving when they graduate, it is because of you that the government has had to make this decision. We are currently writing off 45% of student loans due to students running away. Why not got to Auss and get your degree there? Pay more for your studies and pay interest on your loan! But it is fine that you want to run away, because we don't need losers here. At least the graduates who stay will be the type of people this country badly needs-winners!

4/05/2012 7:22:00 a.m.

Carlos wrote:

If you borrow money, you must pay it back. If you can't hack college life, and its time and costs, get an apprentice trade.

3/05/2012 5:35:24 p.m.

JAMIE wrote:

I am in the fourth year of my five year degree, so this mean next year I lose out on $40 a week by being kicked off student allowance :( I would be fine with this, if you could borrow living costs to the same level as allowance.

3/05/2012 5:33:31 p.m.

Steve wrote:

National truely don't care about the future of the country. They seem to forget that they also were once students, and now they're leading the country. Todays students will one day be leading the country I hope the govt of today knows.

3/05/2012 4:57:45 p.m.

Ryan wrote:

Great work scrapping the voluntary repayment bonus, if anything they should be increasing it on a sliding scale. Ten percent is just not enough to encourage people to pay off an interest free loan when they can make far more with compounding interest by saving the money just as it will cost the government far more than ten percent by not having the loans paid back faster. A sliding scale up to 25% for repayments above 10k could make a huge difference.