Repayment holiday

New sections 106 to 108A, sections 110, 112 and 115(1), and schedule 6, clause 9

The new rules 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 183 days (six months) from the date of departure, and as part of the application process, they must supply details of a contact person who resides in New Zealand.

Background

Under the previous rules, borrowers received an automatic three-year holiday from any repayment obligation when they left New Zealand. The three-year holiday was considered generous and could result in borrowers not resuming repayments when the repayment holiday came to an end. As part of the Budget 2011 student support package, it was announced that the repayment holiday would be reduced, and that borrowers would need to apply for it. The changes in the new legislation seek to improve repayments from overseas-based borrowers, and signal to borrowers the importance of repaying the loan when the repayment holiday comes to an end.

Key features

Sections 106 to 108 have been repealed and replaced with new sections 106 to 108A. The "opt-in" and "opt-out" provisions have been replaced with an application process. A borrower may apply for a repayment holiday within 183 days from the date of departure, meaning that an overseas-based borrower may not apply for a repayment holiday. New section 107B provides for the Commissioner to grant a repayment holiday if satisfied that the borrower has nominated a contact person and has not reached the borrower's repayment holiday limit. The repayment holiday has been reduced from three years to one.

Application date

The changes apply from 1 April 2012.

Detailed analysis

A borrower may apply for a repayment holiday within 183 days from their date of departure (section 107).

When an application is made, the borrower must appoint a New Zealand-based contact person (section 107A).

The Commissioner may grant a repayment holiday if the borrower has nominated a contact person, and has not reached their repayment holiday limit (section 107B(1)).

Section 107B(3) prescribes when the borrower has reached their repayment holiday limit as follows:

1. The borrower has had a repayment holiday of one year (365 days).
2. The borrower has had a three-year repayment holiday under the Student Loan Scheme Act 1992.
3. The borrower has had a repayment holiday for less than three years under the Student Loan Scheme Act 1992, and has had their entitlement set to the lesser of one year or their remaining entitlement under the Student Loan Scheme Act 1992.
4. The borrower has had the repayment holiday continued under the transitional provisions in section 108A(2).

For borrowers who are on a repayment holiday as at 1 April 2012, their entitlement will be set to the lesser of one year or their remaining entitlement (section 108A(2)). For example, if a borrower has been overseas for one year as at 1 April 2012, under the 1992 Act they would have had two years remaining of their repayment holiday. On 1 April 2012, their entitlement will be set to one further year, rather than two years.

Section 108A(1) applies to borrowers who have used part of their repayment holiday and have not exceeded their repayment holiday limit—they must now apply for a repayment holiday if they intend to go overseas.

A borrower is deemed to be "overseas-based" when the borrower has been overseas for 184 or more consecutive days. Section 107B(2) recognises that to be granted a repayment holiday a borrower must be overseas-based. Despite this, section 108 deems the repayment holiday to have commenced on the first day of the period of the borrower's physical absence from New Zealand.

The repayment holiday ends on the earlier of the day that the borrower reaches their limit and the day on which the borrower ceases to be overseas-based.

Sections 110, 112 and 115 have been amended as a consequence of reducing the repayment holiday to one year.