Repayment holiday

(Clauses 17, 18, 19, 20, 29, 31 and 33)

Summary of proposed amendments

The proposed amendments reduce the repayment holiday for overseas-based borrowers from three years to one, and require borrowers to apply for a repayment holiday. Borrowers must apply before the expiry of six months from the date of departure and as part of the application process, borrowers must supply details of a contact person who resides in New Zealand.

Application date

The amendments will apply from 1 April 2012.

Key features

Clause 17 makes two significant changes to the repayment holiday provisions.

First, the repayment holiday entitlement will be reduced from three years to one year.

Secondly, borrowers who intend to go overseas from 1 April 2012 will have to apply to Inland Revenue if they want to enjoy a repayment holiday. To be considered, an application must be received before the borrower becomes overseas-based, typically six months after the date of departure. Applications will be successful only if the borrower supplies a contact person or confirms a contact person that has previously been supplied. The contact person must reside in New Zealand.

Clause 29 provides for Inland Revenue to request the assistance of the contact person when the borrower is in default and cannot be located. The contact person must be willing to act in that capacity. The proposed amendment specifies that Inland Revenue may request the contact person to provide the borrower’s current address details, or ask the borrower to notify Inland Revenue of their details.

The contact person will only be contacted for the purpose of providing any up-to-date contact details for the borrower. No details of the loan such as the loan balance or the amount of the default will be provided to the contact person. Inland Revenue will not use the contact details to follow up on the contact person’s tax obligations.

Borrowers who have used some of their entitlement before 1 April 2012, whether they are currently on a repayment holiday or not, will have their entitlement set to the lesser of one year or their remaining entitlement.

Background

Since 2007, borrowers have received an automatic three-year holiday from any repayment obligation when they leave New Zealand. The current three-year holiday is generous and can result in borrowers not resuming repayments when the repayment holiday comes to an end.

This policy change seeks to improve repayments from overseas-based borrowers. The application process, combined with the requirement to supply a New Zealand-based contact person, signals to borrowers the importance of repaying the student loan when the repayment holiday comes to an end.