21st October, 2020
How to pay off your New Zealand student loan from overseas
If you’re a New Zealander living overseas and you have a government student loan, this guide gives you the lowdown on how to manage your repayment obligations. Find out how much you’ll need to send and how often, and how to save yourself money in the process.
The Big OE (overseas experience) is a rite of passage for many New Zealanders, but it’s not without its challenges – especially if you’re one of the 700,000-plus Kiwis with a student loan.
While you’re in New Zealand your loan is interest-free, but if you move overseas it starts accruing interest. If you don’t make payments then not only will the balance keep growing, but you could face late payment penalties – and worse. Legislation passed in 2014 means overseas-based student loan defaulters can be arrested when trying to leave the country after a visit home.
As of October 2019, the NZ Herald reported, overseas-based student loan borrowers owed $NZ3.5 billion. With Inland Revenue Department (IRD) data putting the total amount of NZ student loan debt at $NZ16 billion, this means 20% of this debt is held by people living overseas.
So, if you’re a Kiwi abroad or considering leaving New Zealand and you’re worried about repaying your student loan – you’re not alone! The good news is, it’s easier than ever to make loan payments from overseas.
The New Zealand student loan scheme: an overview
The New Zealand government introduced the student loan scheme in 1992, with the aim of removing barriers to education by giving students a means to finance course fees, living costs and other expenses. The government claims this money back through the tax system once borrowers reach a certain income threshold. Student loans are only written off in the case of bankruptcy or death.
For borrowers who pay NZ income tax on a PAYE (pay as you earn) basis, student loan payments are automatically deducted from their salaries as a proportion of their income. There’s also the option of making additional voluntary repayments to pay down the balance faster.
Moving overseas with a student loan
Once you’ve been out of New Zealand for six months, you will be classed as overseas based, and you will start paying interest on your student loan. If you’re travelling a lot and coming back and forth to New Zealand, it may be tricky to figure out whether you meet the criteria for being based overseas. In this case, you can use the ‘overseas travel calculator’ on IRD’s myIR website – find out more information here.
How much interest will I be charged?
Once you’re classed as an overseas-based borrower, Inland Revenue will start charging your interest on your loan. There are some circumstances in which you can avoid paying interest, however. These include studying or volunteering overseas, working for the New Zealand government, or if you have a serious illness, accident or disability. Read the full list of exemptions on the IRD website here.
Otherwise, you can expect to be charged interest on your loan, backdated to the day that you left the country. The amount of interest is fixed at the start of each New Zealand tax year. For the 2020-21 tax year, which ends on March 31 2021, the student loan interest rate is 3.5%.
How much do I have to pay, and when?
While you’re overseas, you can take a year off making payments towards your student loan by applying for a temporary repayment suspension (TRS), formerly known as a repayment holiday. Although you won’t have to make any payments during this time, you’ll still be charged interest on your loan.
Otherwise, you’ll need to make two minimum payments each year that you’re away. The due dates for these are generally 30 September and 31 March.
Unlike NZ-based borrowers, whose loan repayments are proportional to their income, IRD calculates the amount you need to pay based on the size of your loan balance when you left New Zealand. If you left before 31 March 2014, they use the balance of your loan on that date.
This table shows the current repayment amounts based on loan balance:
It’s worth noting that if your loan balance increases while you’re away, for example due to interest charges or late payment penalties, your minimum repayment amount may go up too. If your balance decreases, though, your minimum repayment amount won’t decrease.
What happens if I miss a payment?
If you are late making one of your minimum payments, IRD may charge you extra interest on the overdue amount. This late payment interest will be charged until you have caught up on any missed payments. IRD may reduce the late payment interest rate if you contact them to discuss your situation – find out more here.
How to make payments towards your student loan
The ever-growing interest and risk of penalties are good reasons to tackle your student loan upfront and make a plan for meeting your payment obligations. It’s easier than ever to send payments to IRD from overseas, but it’s important to know that some methods will cost you more than others.
By credit or debit card
You can pay IRD directly using your overseas debit or credit card, either by logging in to the myIR website, or via a separate online service, for which you’ll need your IRD number. If you choose either of these methods, you should be aware that your card issuer may charge you fees – for example an overseas transaction fee, and/or a currency conversion fee. You can find more information in IRD’s terms and conditions for card payments.
By direct debit from your bank account
If you are in Australia, Canada, the UK, US or one of the Single European Payments Area (SEPA) countries, you can set up a direct debit with your bank to make payments directly to IRD. The IRD website has information on how to set up a direct debit. Like any international bank transfer, though, these payments can incur fees. To understand more about the ways you could be charged for international bank transfers, read our guide to everything you need to know about transferring money abroad.
With international money transfer services
Another option for sending your student loan payments is to use a specialist money transfer service. In recent years, a number of providers including international money transfer apps have emerged as a convenient and low-cost way to send money overseas. Some of these services have partnered with the Inland Revenue Department to offer no-fee student loan payments for borrowers overseas.
A word of warning on this: even if a service as advertised as no-fee, you should check what exchange rate you will be offered on your transfer. The real-time, mid-market rate is what you’ll find when you search for the current exchange rate in public sources such as Google, Reuters and Bloomberg.
Find out more about this in our article on understanding real-time, mid-market exchange rates. If a service doesn’t offer you this rate, you could be paying more money than you need to – even if it’s advertised as fee-free.
PagoFX is a new low-cost international money transfer app that’s backed by Santander, one of the world’s most-trusted banks. If you send money with PagoFX you’ll always get the real-time, mid-market rate, and the transparent pricing means you’ll see upfront exactly how much your recipient will receive. Plus, until 15 January 2021, first-time users can send up to £1,000 with no transfer fees (terms apply).
PagoFX is currently available on the App Store, Google Play and PagoFX.com for UK residents, with more countries coming soon. You can use PagoFX is to make a payment directly to the Inland Revenue Department, or you can send the money to your New Zealand account and then transfer it to IRD.
To send money directly to IRD using PagoFX, you will need to enter the following information, which you can find in the downloadable sample telegraphic transfer form on their website:
– The Inland Revenue Department’s SWIFT/BIC code
– Their bank account number
– Your IRD number, the relevant tax code, and the period end date the payment is for (all of which you can put in the reference field)
You will also need their address details (first line of address, city, and postcode).
With PagoFX you can send your student loan repayments with confidence, and enjoy the peace of mind that comes with staying on top of your obligations.
This article is provided as general information purposes only, and is not intended to cover all aspects of the topic. We recommend that you take professional and specialised advice before taking, or refraining from, any action based on the content of this publication, as this article is not intended to constitute expert advice. We do not guarantee, explicitly or implicitly, that the content of this article is accurate, complete or up-to-date. The information in this article does not constitute legal, tax or other professional advice from PagoFX or its affiliates.