National pledges lower repayments for graduates staying in NZ
The National Party has announced it will reduce the compulsory student loan repayment rate from 12 percent to 10 percent if re-elected, a change it says will benefit young graduates who remain in New Zealand.
The party's finance spokesperson, Nicola Willis, said compulsory repayments are currently deducted at 12 cents on every dollar earned above $24,128. Under the proposed change, which would take effect from April 2027, an accountant earning $75,000 per year would keep an extra $39 a fortnight, or around $1,000 a year.
"It is often one of the biggest weekly expenses for a young graduate," Willis said. "Reducing this to 10 cents means an accountant starting out in their career and earning $75,000 per year would keep an extra $39 a fortnight, or around $1000 a year."
The policy is part of what National calls its "Back Pocket Boost for Graduates." Willis said the initiative would "reward young graduates who choose to stay in New Zealand, while pursuing those who leave and default." She added: "That is how we keep talent here, as part of our wider plan to fix the basics and build the future."
New penalties for overseas-based borrowers
Alongside the repayment cut, National is proposing new financial penalties for borrowers who leave the country before repaying their student loans. These include adding to student loan interest, restricting KiwiSaver withdrawals, and making it easier for police to issue arrest warrants for what the party described as "serious, sustained loan defaults."
Specifically, National would restrict access to KiwiSaver so that those living permanently overseas can only access their fund once their student loan debt is cleared. The party would also remove the requirement to prove a borrower had knowingly refused to pay before an arrest warrant could be issued.
Willis said it was not fair for graduates to take their skills offshore after receiving a heavily subsidised tertiary education without trying to repay their loans. She cited figures showing that overseas-based borrowers account for 93 percent of overdue student loan debt, with only around three in ten meeting their repayment obligations in a given year, compared to 95 percent of New Zealand-based borrowers.
"That is why National will introduce tougher measures to recover student loan debt from people who move overseas," she said.
Historical context and current situation
New Zealand's Student Loan Scheme was introduced in 1992 by the Jim Bolger-led National government, replacing a system of near-free tertiary education. Loans were initially interest-bearing for all borrowers until 2005, when Labour made them interest-free for those who remain in New Zealand for at least six months of the year.
In 2014, National introduced "last resort" powers that made it easier for overseas-based defaulters to be arrested at the border. The measure is still enforced, with arrests reported as recently as May, when a doctor living in Australia was arrested at Wellington Airport after defaulting on a decades-old student loan that had grown to about $180,000.
According to Inland Revenue data, a significant portion of overseas-based borrowers are behind on their repayments, with accumulated interest and penalties accounting for a large share of the total debt.
The announcement comes against a backdrop of recent government changes to the student loan system. In last year's Budget, the Government confirmed an indefinite freeze on the repayment threshold at $24,128, a move that effectively forces 370,000 borrowers to pay more as inflation rises. By not adjusting the threshold for inflation, the Government expects to save $65 million over four years.
Earlier this year, Inland Revenue was granted discretion to provide interest relief for overseas borrowers on a case-by-case basis.