Understanding your student loan

Understanding and navigating the realm of student loan repayments might be an integral part of shaping your financial future. The following insights and information will help you make informed decisions about handling your student loan responsibly. 

We aim to present an overview of the available options and strategies to navigate your repayment journey effectively. By gaining a deeper understanding of the nuances involved, you can develop a well-informed approach that aligns with your financial goals and aspirations. 

Whether you are considering moving overseas or planning your financial future post-graduation, understanding the structure and implications of your student loan is important.  

Here’s what we’ll cover: 

• ​What is a student loan?
• ​What happens if you don’t repay your student loan?
• ​How student loan payments are made
• ​Tips for repaying your student loan
• ​Considerations if you want to invest with a student loan
• ​For current students

What is a student loan?

A student loan can help support your education by covering course fees and additional living costs while you study. In New Zealand, StudyLink administers student loans. As a student, you may have access to 2 types of financial assistance: the Student Allowance and the Student Loan. 

The student loan process involves applying for the loan through StudyLink. The amount you can borrow depends on your course type, level of study and individual circumstances. After you graduate or stop studying, you will enter a repayment phase and understanding your repayment obligations is essential. 

Student allowance

This is a weekly payment designed to help with your living expenses during your studies. Unlike the student loan, the Student Allowance does not need to be paid back if you meet certain criteria as part of a means test. This test will take into account your parents’ and partner’s income to decide whether you need to pay back the allowance. Students may also be eligible for an accommodation benefit, which is separate from this initial allowance. 

Student loan

If you need additional financial support to cover your course fees and living costs, you may want to consider a student loan. This loan is interest-free while you remain in New Zealand. However, interest may be charged if you move overseas or fail to meet your repayment obligations. There are options, like a temporary repayment suspension, to consider if you want to work overseas without being charged interest. It’s best to talk over what is possible with Inland Revenue.  

What happens if you don’t repay your student loan?

While it may be tempting to overlook your student loan obligations, neglecting repayment can lead to serious consequences. Inland Revenue is responsible for managing student loan repayments, and they take non-repayment seriously. Here are the potential consequences of non-repayment: 

• Interest penalties

Failure to make regular repayments can result in interest penalties, potentially increasing the overall amount you owe. The longer you take to repay, the more interest will accrue, which may impact the total repayment amount. 

• Negative credit rating 

Non-repayment can have an impact on your credit rating, which could make it challenging to secure future loans or credit. Credit history can affect various aspects of your financial life, including obtaining a mortgage or credit card. 

• Passport restrictions 

Persistent non-repayment can lead to restrictions on your passport, which might affect your ability to travel. If your loan remains unpaid for an extended period, Inland Revenue may issue a border arrest warrant, potentially affecting your travel plans. 

• Legal action 

If you default on your loan, Inland Revenue may take legal action to recover the outstanding amount. This could lead to court proceedings and possible additional costs. 

If you encounter financial difficulties or anticipate challenges in meeting your loan repayments, it is essential to contact Inland Revenue promptly. They may be able to provide guidance and explore options to ease the burden, such as adjusting your repayment plan based on your income. 

How student loan payments are made

Student loan repayments are generally made through the PAYE (Pay As You Earn) system, which deducts a percentage of your income directly from your wages or salary. Inland Revenue calculates the repayment amount, generally 12% of your income, ensuring that you contribute regularly towards your loan balance. Understanding this process will help you effectively manage your finances. It’s also worth noting that you will need to have SL as your tax code for repayments to happen. 

The amount you pay back each pay period depends on your income. As you progress in your career and your salary rises, your repayments will also increase. However, the PAYE system ensures that your repayments are proportional to your income so they remain manageable. Of course, you can also make voluntary extra payments to pay off your loan faster. 

Tips for repaying your student loan

Here are some valuable insights into managing your student loan responsibly and without stress. These tips will empower you to make informed decisions about your repayment journey. If you live in New Zealand, a student loan isn’t seen as interest-bearing debt. However, you may still want to pay off the loan as soon as possible. If you’re living overseas, some of this information may help you to avoid paying unnecessary interest.  

1. Consider different repayment options

Repaying your student loan doesn't have to be a one-size-fits-all approach. Depending on your financial situation and career prospects, you may want to explore various repayment options. Voluntary repayments are a great way to reduce your overall balance quicker. You may enjoy the extra benefits of making additional contributions, such as lump sum payments or scheduled deductions, to expedite your loan repayment. 

It's essential to stay informed about changes to the loan repayment threshold, interest rates, and any new repayment options that may be introduced. By keeping up to date with relevant information, you can make informed decisions about the best way to manage your loan. 

2. Know your student loan inside and out

Understanding the details of your student loan is essential for making informed decisions about your repayment plan. If you’re living overseas, you may want to review the terms and conditions, interest rate, and any specific conditions associated with your loan. If you have multiple loans or debts, you may want to consider prioritising the ones with higher interest rates. Knowing the projected end date of your loan may help you feel more secure, as it allows you to plan your finances more effectively. 

Considerations if you want to invest with a student loan

While investing can be an attractive option to build wealth, you may want to consider prioritising your student loan repayment first. Understanding your financial priorities will help you make informed decisions about allocating your resources. 

If you have no income, you aren’t required to make repayments towards your student loan. However, your student loan balance won’t be going anywhere until you begin earning money again. It can be prudent to protect your income with income protection insurance once you enter full-time work. Income protection insurance can provide financial security in case of unforeseen circumstances, such as illness or injury, that may hinder your ability to work and make repayments. 

You may want to explore insurance options offered by MAS to safeguard your financial wellbeing. 

For current students

If you’re currently a student, MAS can provide valuable support through the 'Here for Good' scholarship. This scholarship rewards 2 recipients each quarter with $1,000 towards their study and living costs if they actively participate in a programme benefitting others.  

Additionally, you can consider joining the MAS student newsletter, 'Join the Conversation,' to receive relevant student and life hacks, budgeting tips, wellbeing advice, and the chance to win great monthly prizes. Staying informed and connected with MAS can provide valuable resources to enhance your financial journey. 

Keen to take control of your finances as an ex-student?

Understanding your student loan and considering responsible repayment strategies are essential steps in managing your finances effectively. We hope this guide has provided valuable insights into the various aspects of student loan management, but it is essential to remember that financial planning is not one-size-fits-all.