Removal of interest write-offs for borrowers ineligible for interest-free loans

Sections 38A to 41 and section 55 of the Student Loan Scheme Act 1992

Interest write-offs for borrowers ineligible for interest-free loans have been abolished.

Background

Before the changes, borrowers who were overseas for more than six months and ineligible for interest-free loans may have been eligible for one of the following interest write-offs:

Full interest write-off for resident borrowers studying

Borrowers who were resident for tax purposes but who were not eligible for an interest-free loan for an entire tax year may have been eligible for a full interest write-off for the entire year if they had studied for part of that year. Eligible borrowers who completed their study part-way through the academic year were entitled to a full interest write-off to 31 March the following year. Borrowers received the write-off even if they had been overseas for most of the year.

Base interest write-off for resident borrowers

Borrowers who were not eligible for an interest-free loan, who retained their place of tax residence and who earned below the repayment threshold were eligible to have their base interest written off for up to two years.

Partial base interest write-off for resident borrowers

Borrowers who were not eligible for an interest-free loan, who retained their place of tax residence and whose base interest charged was more than half of their repayment obligation were eligible to have the difference written off for up to two years.

Interest write-off for non-resident borrowers studying full-time overseas

Non-resident borrowers could qualify for a base interest write-off or base interest reduction in certain limited circumstances. Borrowers could qualify for either provision if they had:

• renegotiated all or part of their assessed repayment obligation for a year on financial hardship grounds; and
• satisfied Inland Revenue that they had been engaged in full-time study overseas and payment of base interest charged during the year in which they were in full-time study would cause serious hardship.

Key features

Sections 38A to 41 and section 55 have been repealed. The interest write-offs have been abolished because they are inconsistent with the policy intent of interest-free loans, which is to encourage borrowers to remain in, or return to, New Zealand.

Application date

The changes applied from 1 April 2007.