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Student loan repayment rate up to 12 percent

Thursday 03 May 2012 1:05p.m.

Student loan repayments up

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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