Establishment of a student loan

Sections 9-20, 222 and part of schedule 8

Changes have been made to allow information to be transferred between StudyLink and Inland Revenue to enable the establishment of a loan account. The Act also provides for a near real-time transfer of loan advances from StudyLink to Inland Revenue to allow Inland Revenue to provide borrowers with a consolidated view of their loan balance.

Background

Previously, borrowers had to contact two agencies to determine the total amount of student loan they owed as loan advances were held by StudyLink for a year before being transferring to Inland Revenue for collection. This increased the compliance costs involved for borrowers.

The Act introduces changes which provide for a near real-time transfer of loan advances from StudyLink to Inland Revenue. This ensures borrowers will only need to contact one agency to view their consolidated loan balance.

Key features

• When a borrower applies for a loan, information will be transferred from StudyLink to Inland Revenue. Inland Revenue will use this information to check it against the information it holds on the borrower and set up the borrower's account.
• When a loan is approved, a borrower's contact details will be transferred to Inland Revenue. If the borrower's details change, StudyLink will advise Inland Revenue of the updated details.
• When StudyLink provides a loan advance to a borrower, the loan advance will be transferred to Inland Revenue in a near real-time basis.
• The loan establishment fee charged to a borrower by StudyLink has been increased from $50 to $60.
• Inland Revenue will issue statements to borrowers outlining loan advances, instead of StudyLink.
• Borrowers will continue to have at least 31 days from the date of the statement to object to the loan advances outlined in the statement.
• Student loans will be removed from the requirement to comply with the Credit Contracts and Consumer Finance Act 2003, while changes have been made to the Student Loan Scheme Act to incorporate similar rights that borrowers would have had under the Credit Contracts and Consumer Finance Act.

Application dates

The following changes apply from 1 January 2012:

• the transfer of information from StudyLink to the Commissioner on establishment of the loan;
• the transfer of the loan advances to Inland Revenue on a near real-time basis; and
• the requirement for the Commissioner to notify borrowers of loan advances and the consolidated loan balance.

The disclosure requirements of the Credit Contracts and Consumer Finance Act apply from 30 August 2011, being the day after the date of Royal assent.

All other changes apply from 1 April 2012.

Detailed analysis

Preparation for loan being transferred

Information on a borrower will be transferred from StudyLink to Inland Revenue on a near real-time basis when a borrower applies for a loan.

StudyLink will transfer information on an applicant to Inland Revenue to confirm that the information provided by borrowers is consistent with the information held by Inland Revenue. This will also allow an account to be set up for the borrower with Inland Revenue and facilitate the transfer of loan advances. The information transferred will be the applicant's name, IRD number and date of birth. If the information transferred from StudyLink to Inland Revenue differs from information held by Inland Revenue, the Commissioner must advise the Loan Manager that the information differs. The Loan Manager will then go back to the borrower to acquire the correct information.

Once the borrower has entered into the loan contract, the Loan Manager will transfer further details on a borrower to Inland Revenue, such as when the loan entitlement letter advising the borrower of their loan was issued and the borrower's contact details.

Real-time transfer of information

Changes were made to the bill at the Select Committee stage to provide for the near real-time transfer of loan advances from StudyLink to Inland Revenue. This will enable borrowers to have a consolidated view of their loan and allow them to access this at any time and from anywhere in the world. Borrowers will be able to manage their loan in an electronic environment.

Loan advances will appear on statements provided by Inland Revenue, rather than StudyLink, and borrowers will have a period of time (at least 31 days) from the date of this statement to object to a loan advance. Statements will be issued by Inland Revenue at least twice a year. Objections by borrowers to loan advances outlined in the statement will continue to be dealt with by StudyLink.

Student loan establishment fee

The current administration fee imposed by StudyLink when the loan is established will be incorporated into legislation and referred to as an "establishment fee". The current fee of $50 will be increased to $60.

Disclosure requirements and CCCFA implications

As student loan contracts came within the definition of a "credit contract" under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), an amendment was made to remove the requirement for the Student Loan Scheme to comply with the Credit Contracts and Consumer Finance Act.

The CCCFA was enacted to protect consumers who enter into contracts when there are generally no other legislative protections available. Student loan borrowers have protection under the Student Loan Scheme Act. There are also major differences between the features of student loans and other credit contracts, for example, the provision of hardship criteria and the income-contingent nature of repayment obligations and other protections available to borrowers which reduce the need to extend the requirements of the CCCFA to student loans. To strengthen protections provided under the student loan scheme, a number of amendments were made to the bill at the Select Committee stage to incorporate similar rights that a borrower would have under the CCCFA. These changes are as follows:

• The right to receive a copy of the loan contract within six working days of signing. This change reflects StudyLink's current administrative practice.
• The right to cancel the contract within seven working days of the date of the loan entitlement letter.
• The right to disclosure of information in the loan contract, namely, the annual repayment threshold, base interest rate, repayment percentage, student loan establishment and administration fees, the right to cancel the contract within seven days and the right to object to loan advances.
• The requirement for the Commissioner to notify the borrower of loan advances made by StudyLink to the borrower, the date and amount of any interest or penalty imposed, and the date and amount of any establishment or administrative fees charged.
• The requirement for the Commissioner to notify the borrower of unilateral changes to the contract or statute that increase the borrower's obligations if the borrower's updated contact details are known.

Definition of "unpaid amount"

For the 2012-13 tax year, the current period-based approach to dealing with unpaid amounts will be retained. The period-based approach looks at the unpaid amounts for different periods and different obligations separately. This treatment reflects a tax approach whereby penalties and interest are applied separately to tax types and to tax periods. The provision has been retained until April 2013 to give Inland Revenue time to implement changes as detailed below.

Changes from 1 April 2013

The period-based approach to unpaid amounts is not in keeping with a loan approach whereby an aggregate approach to unpaid amounts is more appropriate. Therefore, from 1 April 2013, the definition of "unpaid amount" will be replaced with a new definition which reflects a "whole of loan" approach to outstanding amounts. "Unpaid amounts" will therefore be defined as the aggregate amount of the borrower's obligations as has not been paid by the due date.