2011 amendments to the Student Loan Scheme Act including payment allocations, the administration fee, repayments and recall of loan balances.
Sections 189-226 and schedules 5-10
Changes have been made to the way payments are allocated and offset against a borrower's consolidated loan balance, and an annual administration fee of $40 introduced to reflect the cost of administering the loan. There are also a number of other general amendments made to the Act, which are outlined below, together with the introduction of a new provision that allows the Commissioner to recall a loan, on demand, in certain circumstances.
A new Inland Revenue administration fee has been introduced to recover more of the costs of administering the student loan scheme from borrowers. The administration fee reflects the costs incurred by Inland Revenue in administering borrowers' loans.
To ensure that borrowers are not charged two fees in the same year, the administration fee will only be charged in years when a borrower is not charged an establishment fee through StudyLink.
The administration fee will be imposed when the borrower's loan is $20 or more as at 31 March each year and imposed on 1 April each year.
The annual administration fee applies from 30 August, being the day after the date of Royal assent.
Payment allocation rules
The payment allocation rules specify the order in which the Commissioner offsets payments made by a borrower against their consolidated loan balance. For the period 1 April 2012 until 31 March 2013, the payment allocation rules reflect the rules enacted as part of the Student Loan Scheme Act 1992 namely, that payments satisfy interest first and any remainder is applied to the principal of the loan.
Changes from 1 April 2013
From 1 April 2013, more detailed payment priority rules will come into force, although the underlying concept remains that payments will go to repay debt first before current year obligations and debt repayments will go to pay interest first and then the loan principal.
The payment allocation rules are as follows.
For standard salary and wage deductions and additional deductions required by the Commissioner to repay a significant under-deduction, any amounts received must be offset against the borrower's consolidated loan balance.
Amounts received through salary and wage deductions required by the Commissioner to repay debts, or deductions required by the borrower or payments in respect of the borrower's consolidated loan balance (for example, from overseas-based borrowers), will first go towards paying any unpaid amount. Any remainder will be used to satisfy current year obligations. Any further amounts remaining will be offset against a borrower's loan balance.
There is an exception to these rules where payments are received by or for a borrower who is in an instalment arrangement. Borrowers who are in an instalment arrangement are required to comply with their current year obligations in order to continue to qualify for the instalment arrangement. The payment allocation rules in the Act reflect this requirement and therefore payments from or for borrowers in an instalment arrangement will first go to meet the current year's obligations, then any remainder will be offset against any unpaid amount. If there is any remainder, that amount will be offset against the borrower's loan balance.
Cancellation of interest when loan balance is repaid early
The Act continues the current practice whereby interest is calculated and accrued daily and is charged and compounded annually. When a borrower pays the amount outstanding as outlined in the last statement they received, they will still have a small amount of interest outstanding for the period between the last statement and the date of payment.
To address this issue, the new legislation ensures that when the loan is repaid in full within 30 days of the last statement, any loan interest incurred during the 30-day period is cancelled.
This amendment will only apply from 1 April 2012 until 1 May 2013, when the new method of calculating, charging and compounding loan interest applies and removes the need to provide specific rules for the cancellation of interest if the loan balance is repaid early.
Recall of loan balance
New section 204 allows the Commissioner of Inland Revenue to exercise existing powers in student loan contracts that provide for the full amount of student loans to be recalled or repaid on demand.
Previously, the Commissioner only had the ability to collect loan amounts that were due and owing and had the power under the relevant Acts to enforce only the payment of arrears.
All student loan contracts contain a clause allowing the loan balance to be recalled in certain circumstances, but in most cases this power is not available to Inland Revenue (instead this rests with another Crown agency).
The new legislation allows the Commissioner to exercise existing powers in student loan contracts that provide for the full amount of student loans to be recalled or repaid on demand.
The powers conferred on the Commissioner are no greater than the powers in the loan contracts as signed by borrowers in terms of the amount that can be demanded and the circumstances in which the recall powers can be exercised.
The powers clarify that Inland Revenue as the agency responsible for collecting student loan repayments, has the ability to exercise this existing recall term of the student loan contract. This will enable it to better manage cases of serious non-compliance.
The application of the change to enable the Commissioner to recall the loan will be 30 August 2011, being the day after the date of Royal assent.
Write-off of consolidated loan balance
From 1 April 2012, a borrower's consolidated loan balance must be written off (reduced to zero) if:
- the borrower dies; or
- the Commissioner has reasonable grounds for considering that the borrower has died; or
- the borrower's consolidated loan balance is less than $20 at the end of the year.
When a borrower dies or the Commissioner considers the borrower has died, the write-off has effect from the date the borrower dies or is suspected to have died.
When the borrower's consolidated loan balance is less than $20 at the end of the year, the write-off occurs at that date.
Changes from 1 April 2013
From 1 April 2013, when a borrower's loan balance is less than $20 at any time during the year, the Commissioner may write-off the consolidated loan balance with effect from that date. This change will result in loans of less than $20 being closed off sooner, thereby reducing both compliance and administration costs.
A number of consequential amendments have been made. These:
- provide the ability to make regulations, which applies from 30 August 2011;
- prescribe the way a borrower and the Commissioner may provide information to each other, which comes into force on 1 January 2012; and
- include specific provisions to ensure a smooth transition between the Student Loan Scheme Act 1992 and the commencement of the new Act which apply from 1 January 2012.
Also, an amendment has made to ensure borrowers cannot gain an unintended advantage from the interest-free policy. The change precludes borrowers from obtaining a refund of excess payments made in the 2004 and 2005 years. This amendment applies from 30 August 2011, being the day after the date of Royal assent.