The Student Loan Scheme Bill introduces legislation to reform the way student loans are repaid, the way borrowers can manage their loans and the way loans are to be administered. It also rewrites the current student loan legislation. The bill replaces the Student Loan Scheme Act 1992, and generally applies from 1 April 2012.
The changes proposed in the bill are the first part of wider reforms to the tax system to support the Government’s plans for economic growth. Such a tax system should deliver certainty for taxpayers, allow customers to interact with Inland Revenue speedily, provide value for money, and build trust and integrity in the system, leading to high compliance.
To achieve this, there must be greater emphasis on improving technology to move taxpayers (or, in this case, student loan borrowers) into an electronic environment with improved services that deliver greater certainty and lower compliance costs for both taxpayers and Inland Revenue.
The main purpose of the bill is to make it easier for borrowers to manage their loans, pay back what they owe, and encourage earlier repayment. It is not intended as a wider review of student loan scheme policy.
The bill also introduces a number of minor policy and technical changes to simplify and improve some functions of the student loan scheme.
Transforming the administration of the student loan scheme
Transforming the administration of the student loan scheme has three elements. The first is implementing a new loan management solution which will allow borrowers to manage their loans in an electronic environment, giving them a seamless view of their loan from the time they borrow the money to when it is repaid. Improved technological capabilities will also allow Inland Revenue to increase the services it can provide to borrowers. The second element will simplify the loan repayment process by removing the current annual assessment for the vast majority of borrowers whose income is from salary and wages only. Under the proposed changes, repayment deductions made from salary and wages will be considered full and final for the pay-period. To reduce the time borrowers must spend on managing their loan accounts, and to improve the overall service to borrowers, minor under- or over-payments will be ignored. The third element to the administrative reforms will simplify the current interest rule, replace the late payment penalty with less punitive rules and replace the penalty rules for student loans with those applying to other taxes to give more certainty to borrowers.
The importance of the student loan scheme to the Government is two-fold. While supporting the Government’s commitment to open access to education by providing financial support, the scheme also represents a significant Crown asset, with over 560,000 borrowers and a nominal value of $10.3 billion. The portfolio is currently projected to grow to $14.5 billion by 2014–15, driven by growth in the number of new borrowers. Lending exceeds repayments and there is evidence that borrowers’ compliance with their repayment obligations is declining as student loan debt continues to grow.
Administration of the student loan scheme is complex, with multiple organisations administering parts of the scheme. This means borrowers must interact with a number of administrators, sometimes making it difficult for borrowers to have a clear view of their overall loan position. Inland Revenue collects student loan repayments, on a system originally designed to collect tax. It is largely paper-based, requires annual assessments, and is complex and inflexible. The policy of annual assessment results in a complicated annual interaction with borrowers and generates compliance and administration costs. The paper-based system also presents difficulties in maintaining communication with borrowers who are based overseas. Transforming Inland Revenue’s administration of the student loan scheme from paper-based to more electronic communication with borrowers seeks to address these problems.
The majority of the changes will apply from 1 April 2012.