April 1st student loan changes are no joke

As of Monday this week, the rate for repaying student loans has increased from 10% to 12%.

This means that everyone with a student loan who earns more than the $19,084 threshold will now have to pay 12 cents of every dollar they earn over that threshold towards their student debt.

This is a significant change, and will have a real effect on many graduates. It’s important to remember that a large proportion of those paying off a student loan are also parents – nearly half of all young couples with children have student loan debt.

We think there’s a better way to change student loan repayments. If the repayment rate was progressive based on your income, rather than set at a rate of 12% across the board, then graduates who could afford to pay their loans off faster would, without putting the squeeze on those who couldn’t afford an increase in repayments.

This would achieve faster repayment rates without placing an unnecessary burden on low-income graduates and young families. Forcing them to pay 12% of their income on their student loans when they may be struggling to make ends meet is unfair.

It’s also unfair that the repayment threshold is only $19,084, which means that students and graduates have to start paying off their student loans when they earn less than someone working full-time for the minimum wage.

In Australia, graduates do not have to start repaying their student loans until they earn over $48,000, and they have progressive repayment rates. This system is clearly fairer and makes a lot of sense. Our Government should really take note.

Another change that took effect yesterday is the scrapping of the voluntary repayment bonus, which was the one incentive for students and graduates to pay off their loans quicker.

According to the Government at the time of the announcement last year, there was little uptake, so there was no need for it. The Government is now also arguing that it needed to be scrapped because students were ‘gaming the system’ by apparently borrowing more than they needed to in anticipation of a bonus, or by taking out a loan and then repaying it straight away – in effect making 10%.

In advice from before the decision was made, officials recommended restricting the bonus to graduates only, rather than those still studying, in order to stop this ‘gaming’. Instead, the Government decided to get rid of it all together. This has prompted some commentators to suggest students and graduates should pay their loans off as slowly as possible – have a look at today’s article in Business Day to find out why.

This is yet another example of this Government’s short-sighted approach to students and graduates in this country.

1 Comment Posted

  1. Great post, I had no idea Australia were so much kinder to their graduates. In addition to paying extra on our student loan repayments, we are also paying an extra 1% on our Kiwisaver deductions. I imagine there are plenty of other 20/30-somethings on the threshold of trouble if they also decide to increase tax deductions!

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