Student loan myths

Busted! Debunking a few more student loan myths 

IRD realised there were a lot of  “facts” that have been misunderstood, misinterpreted or just plain missed out on. Here are a few more myths that they feel need busting.


1. My New Zealand repayment obligations if I’m employed are based on the annual repayment threshold of $19,084

“Not quite right. Since April 2012, we’ve moved from an annual repayment threshold ($19,084 annually) to a pay-period repayment threshold (eg, $367 if you’re paid weekly or $734 if you’re paid fortnightly). This means your earnings every pay period will determine how much you need to repay toward your loan. Remember, your student loan obligation is 12 cents (12%) for every dollar you earn over the pay period repayment threshold.”

For example, if your weekly income before tax is $500, then your repayment obligation for that week will be:                             

$500 – $367 x 12% = $15.96
Your employer will deduct $15.96 as your student loan repayment for that pay period.


2. “I will always have student loan deductions if I use a tax code with “SL” even when I earn less than the pay-period repayment threshold”


Not true. If you’re earning salary or wages, you need to use a tax code with the “SL” repayment code regardless of how much you earn. If you earn under the pay period repayment threshold, your employer will not make any student loan deduction from your pay. So if your income fluctuates every pay period, you may or may not have any student loan deductions depending on your gross earnings for that period.


3. “I live in New Zealand, but I still need to make repayments even if I’m not earning any income”

It depends. In most cases you don’t need to make any repayments if you’re in New Zealand and not earning any income. However, the definition of income for student loans has changed recently to align with that used to work out Working for Families Tax Credits. You can check out these types of income definitions to see if they apply to your student loan.

You don’t need to worry about your loan balance going up if you have recently returned from overseas and you’ve lived in New Zealand for 183 or more consecutive days, as interest charged on your loan account is written off.


4. “My student allowance, New Zealand Superannuation or Veteran’s Pension payments are not income and will not affect my repayment obligation”


Not quite right. These types of payments from Ministry of Social Development are considered as salary or wage income and are included when calculating your repayment obligation. This income is factored in if you’re applying for a repayment deduction exemption if you’re a full-time student, or a special deduction rate if you have more than one job (and your earnings from your main job are under the pay period repayment threshold).


5. “I will have an end-of-year assessment of my student loan to see if I have a bill to pay or get a refund”


Not true. New Zealand-based borrowers whose only income is from salary or wages no longer have end-of-year student loan assessments. This is because their student loan deductions every pay-period are expected to meet their repayment obligation. If there is a significant under-deduction, then that will be corrected in future pay periods. Significant over-deductions can be refunded without an end-of-year assessment.

Most salary or wage earners pay the right amount of tax and student loan repayments through their employee deductions. You can always check if you’re due for a refund or have a tax or student loan bill to pay through your myIR Secure Online Services account.


Clarification on using the right tax code for student loan borrowers

Your employer will deduct the right amount for your student loan repayments through your salary or wages as long as you use the right tax code with the “SL” repayment code. In most cases this will be correct.

However, sometimes a borrower may have incorrect student loan amounts deducted from their pay despite using the correct tax code and this could result in significant under-deductions.

If a significant under-deduction does occur, we will request extra repayments through your salary and wages to catch up on what should have been deducted. This is to help keep you on track with your repayments. 

IRD

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