28 Jul 2015

10 student loan myths busted

10:26 am on 28 July 2015

Remember when everyone thought the earth was flat? Probably not, because that was a while ago and scientists did a good job of debunking that crazy idea.

But there are still a whole lot of myths that exist about student loans, and since over 720,000 of us have student debt, it’s time to get to the truth. 


Myth 1: I don't have to repay my student loan because I'm still studying in New Zealand 

Yeah, nah. You need to make student loan repayments if you're earning over the pay-period threshold.

If you're a student and working at the same time, student loan deductions will automatically be made on your salary or wage when you use the "SL" repayment code and earn over the pay-period threshold.

If you're earning under the threshold (from all income sources), you won't have student loan deductions.

Myth 2: I only have to make repayments on my loan if I'm earning more than $19,084 annually, right?

Not quite. Since 2012, IRD moved from an annual repayment threshold ($19,084 annually) to a pay-period repayment threshold (eg, $367 if you're paid weekly or $734 if you're paid fortnightly). This means your earnings every pay period will determine how much you need to repay toward your loan.

Remember, your student loan obligation is 12 cents (12%) for every dollar you earn over the pay period repayment threshold.

Myth 3: My employer automatically takes care of my repayments - I don't have to do anything woohoo!

Sure, as long as you've used the right tax code.

If you have a student loan and earn salary or wages, you need to use a tax code with the "SL" repayment code. For most borrowers, this will be "M SL" for their main job or "S SL" for their second job.

Make sure you use the correct tax code when filling in a Tax code declaration (IR330) form so your employer can make the right student loan deductions from your pay.



Myth 4: My student loan is interest-free when living overseas, yay!

Um, no. In most cases, interest is charged on your student loan when you're overseas for 184 or more days - you'll be considered an overseas-based borrower by then.

When this happens, interest will be charged on your loan from your departure date.

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Myth 5: But my student loan is interest-free if I'm studying overseas, right?

You may be able to get an interest-free student loan if you're overseas' course meets certain criteria. This may include situations such as studying:

  • with an overseas education provider at undergraduate or post-graduate level

  • as a full-time student with a New Zealand tertiary provider and completing post-graduate study that can't be completed in New Zealand

  • studying full-time and part of a formal exchange from a New Zealand tertiary education provider at undergraduate or above.

Myth 6: I've been overseas for a long time and ignored my student loan (don't judge me). I want to sort it out now, but I'm too scared to contact Inland Revenue - maybe it'll go away?

Sadly, it won’t. You may have gone away but your loan hasn't, and ignoring it won't help. It's best for you to contact IRD so they can work out a repayment plan that will meet your current situation.

No matter how big or old your student loan is, you've got to pay it back. 

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Myth 7: I'm planning to return home from overseas to catch up with family and friends. Should I be worried that I'll get stopped at the border because of my unpaid student loan?

Maybe a little worried...but contact Inland Revenue first. The department may consider requesting an arrest warrant for those who persistently ignore their overseas repayment obligation despite numerous contacts to help sort out their loan and arrears. However, this is a last resort.

If you're getting behind with your student loan repayments, it's best to contact IRD sooner rather than later because no one likes getting arrested.

Myth 8: My student loan doesn't come with any extra costs, right? 

Sorry, but there is an annual fee charged by Inland Revenue at the start of every tax year to cover the cost of administering a borrower's loan account.

The admin fee of $40 is charged on loan balances of $20 or more, unless you've been charged StudyLink's establishment fee in the same year. 

Myth 9: My finances are so tight right now and I can barely pay my bills, but there is nothing IRD can do to help :(

Actually, if you're having difficulty meeting your obligations, IRD have a range of options depending on your situation, such as a reduced deduction rate for your student loan or hardship provisions if you're in dire straits.

Call them now so they can work out a solution that suits you best *prayer hand emoji*

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Myth 10: I don't care, I'll just file for bankruptcy to avoid repaying my student loan! Mwahaha! 

Bankruptcy shouldn't be taken lightly as an option to dodge repaying a student loan. It can affect your short-term options and has serious financial consequences down the track.

There are many ways you can keep up with your repayment obligation even when you're in a pickle and IRD can talk you through the options. 

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Information provided by Inland Revenue. For more information on student loans, visit the website.