Student loan repayments

Almost every misunderstanding about student loan repayments comes from the same place: assuming the 12% applies to your salary. It does not. It applies only to the part of your income above $24,128.

The difference is large at low incomes and shrinks as you earn more. On $26,128 you repay $240.00 for the year — an effective rate on total income of well under one percent. On $120,000 you repay $11,504.64, which is much closer to the headline 12%. The threshold acts as a shield that matters most to the people earning least.

For salary and wage earners the threshold is applied per pay period rather than annually. IRD divides it by your pay frequency, so a weekly earner gets roughly $464.00 of protected income each week. This is why irregular income causes trouble: a big month can trigger repayments even if your annual total lands below the threshold, and squaring that up requires a year-end assessment.

Loans held by borrowers based in New Zealand carry no interest. That single fact should drive most decisions about whether to pay the loan off early — and the answer is usually no.

An interest-free debt shrinks in real terms every year through inflation alone. Money you put into voluntary repayments is money not going into KiwiSaver, a house deposit, or any asset that earns a return. Paying down a 0% loan ahead of schedule is, in pure financial terms, close to the worst available use of a spare dollar. The counter-argument is psychological rather than mathematical: some people simply want it gone, and that is a legitimate reason, just not a numerical one.

The calculus inverts if you move overseas. Interest applies to borrowers who are overseas-based — broadly, away for more than 183 consecutive days — and repayment obligations switch from income-based to fixed instalments tied to your loan balance, regardless of what you earn. Arrears accrue late-payment interest, and unpaid amounts have historically been enforced at the border. Anyone planning a long stint abroad should get the position confirmed with IRD before leaving rather than after.

Student loan repayments come out after income tax is calculated but they are not a tax deduction — they do not reduce your taxable income, and they do not reduce your ACC levy or KiwiSaver contributions. They simply stack on top, which is why an SL tax code can make take-home pay noticeably lower than a colleague's on identical gross pay. Our take-home pay calculator shows the four deductions as separate lines for this reason.

The balance also matters when you borrow. Banks assessing a mortgage application count the repayment obligation against your serviceability, and under the Reserve Bank's debt-to-income rules the loan balance itself counts as debt. A student loan therefore reduces borrowing capacity twice over: once through reduced take-home pay, and again through the DTI calculation.

Second jobs are a common source of surprise. If your main job pays below the threshold and your second job pushes you above it, the second employer may not deduct enough — or any — and the shortfall lands as an end-of-year bill.