Detail - Student Loan Scheme (Repayment Bonus) Amendment Act 2009
2009 amendment to the Student Loan Scheme provides a 10% bonus for borrowers who pay $500 or more in excess of their annual compulsory repayment obligation.
Sections 45A to 45H of the Student Loan Scheme Act 1992
The Student Loan Scheme (Repayment Bonus) Amendment Bill was introduced into Parliament on 27 April 2009. The Bill had its first reading on 5 May 2009 and was considered by the Education and Science Committee, which reported the Bill back to the House on 3 August 2009. The Bill completed all remaining parliamentary stages on 17 September 2009 and received Royal assent on 22 September 2009.
The Act amends the Student Loan Scheme Act 1992 to provide a 10% bonus for borrowers who pay $500 or more in excess of their annual compulsory repayment obligation.
The bonus will not be of financial benefit to all borrowers. The Commissioner of Inland Revenue is unable to provide financial advice. Borrowers may therefore wish to seek independent advice before making excess repayments.
The Act gives effect to a commitment given by the National Party in the lead-up to last year's election to introduce a bonus scheme for borrowers to encourage them to make voluntary repayments so their student loans are repaid more quickly.
A 10% bonus will be available for those who make excess repayments on their student loans on or after 1 April 2009. The bonus will be available to both New Zealand and overseas-based borrowers. Only repayments made to Inland Revenue will qualify for the bonus.
Excess repayments will be any repayments in respect of a tax year that exceed the borrower's compulsory repayment obligation for that tax year by $500 or more. The excess repayment can be made in a lump sum or by smaller contributions throughout the year.
The loan balance needs to be at least $550 at the beginning of the tax year for excess repayments to attract the bonus. If the loan balance was $550 or more at the start of the tax year, but between $500 and $549 at the time of the final repayment, the maximum bonus will be $49. Borrowers wishing to repay their loan in full will need to pay 10/11ths of their loan balance (provided all obligations are up to date).
Borrowers who are required to make interim instalments during the tax year will have until the third interim instalment date - 7 May after the end of the tax year for most borrowers - to make repayments that will count towards the bonus.
For borrowers fully repaying their loan during the tax year, the bonus will be credited to the loan balance as at the date of the final repayment. Borrowers repaying in full before 31 March 2010 will have the bonus backdated to the date on which the final repayment was made.
For borrowers who do not repay in full, the bonus will be calculated after the end of the tax year and credited to their loan balance as at the following 1 April. This is because it is not until after the end of the tax year that a borrower's compulsory repayment obligation, which is income-contingent for New Zealand-based borrowers, and thus the amount of any excess repayments, can be established with certainty. Borrowers will generally not have to apply for the bonus. (The exception to this is PAYE errors which are discussed below.) After the end of the tax year, or at the time the final repayment is made, Inland Revenue will check borrowers' entitlements and apply the bonus accordingly.
Small inaccuracies may arise in the repayment deductions that are made from salary and wages during the tax year. In addition, employers sometimes make errors in the amount of these deductions. The Commissioner has therefore been given the ability to allow the bonus if the Commissioner considers that the borrower did make a voluntary repayment(s) of $500 or more, but the end-of-year excess was less than this because the shortfall arises under the PAYE system and is:
- less than $20;
- due to the borrower starting or ceasing employment; or
- due to the employer's error.
Inland Revenue has no way of automatically identifying whether one of these events has occurred and it will be necessary for any affected borrower to bring this to Inland Revenue's attention.
The bonus will not apply to any excess repayment for which a refund is subsequently requested or to any repayment that needs to be applied to another liability, such as an amount in respect of an earlier tax year.
The Act comes into force on 1 April 2010, but the bonus will apply to excess repayments made on or after 1 April 2009.