Dunne Peter: Student Loan Scheme (Repayment Bonus) Amendment Bill — First Reading 
Dunne Peter: Student Loan Scheme (Repayment Bonus) Amendment Bill — First Reading 
[Volume:653;Page:2810] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Student Loan Scheme (Repayment Bonus) Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be referred to the Education and Science Committee that the committee report finally to the House on or before 30 July 2009 and the committee have the authority to meet at any time while the House is sitting except during oral questions during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
The student loan scheme was introduced in 1992 to make it easier for people to gain access to tertiary education. It allows tertiary students to borrow money to pay their fees and provides help with living costs for some of those students. Repayments for people who live in New Zealand are based on an individual borrower’s income after graduation. Although there have been some major changes since the scheme’s introduction the fundamentals of the scheme have remained largely the same. It would be fair to acknowledge however the increasing concern across the political spectrum and the wider community about the mounting level of student debt and whether it will ever be repaid. That concern led the previous Government to introduce the policy of interest-free student loan repayments for borrowers resident in New Zealand and led the National Party at the last election to commit to a repayment bonus scheme to incentivise early repayment. 
The current student loan scheme is administered by a number of agencies including the Ministry of Education and the Ministry of Social Development. The Inland Revenue Department is responsible for the collection of student loan repayments. Most repayments are made through the PAYE system by means of salary deductions. 
Since the scheme began nearly 800000 people have taken out a student loan. Today with over half a million borrowers and a nominal value of about $9.6 billion the student loan scheme represents a significant Crown asset—one that has to be managed in an efficient and cost-effective manner. 
One area of concern is that since the introduction of interest-free student loans in 2006 the number of voluntary repayments has been decreasing with borrowers tending to take longer to repay their loans in full. Not surprisingly this is because paying interest on the loan balance has been a big incentive to repay the loan as early as possible. Faster repayment of loans is of benefit not only to the individual borrower for obvious reasons but also to the Crown because the longer borrowers take to repay their loan the more expensive that borrowing becomes to the Crown. 
This bill introduces an incentive for faster repayment in the form of a 10 percent bonus for borrowers who voluntarily make extra repayments that total $500 or more in a tax year. Voluntary payments totalling $5000 for example would attract a bonus of $500. All borrowers including those overseas will be eligible for the bonus provided they meet all student loan obligations and have a loan balance with the Inland Revenue Department of $550 or more at the beginning of the tax year in which they make the extra payments. The bonus will be credited to their account at the end of the tax year. For those people who want to pay off their loan in full using a one-off payment the maximum bonus payable will be one-eleventh of that balance. For example if that balance is $1100 the borrower will make an extra payment of $1000 and the maximum amount of the bonus will be $100. 
Once enacted this bonus scheme will take effect from 1 April this year. The bonuses will be credited to borrowers’ loan accounts after 1 April 2010. This means that crediting will be retrospective for those who repay their loans in full before enactment and before the necessary systems changes have been made. Because there is no time limit on entitlement to the bonus borrowers who may be in a better position to make extra payments later in their working lives will be able to take advantage of the incentive when it best suits their financial position. 
I believe that the measures contained in this bill will provide a useful and welcome incentive to people who want to pay off their student loans early. I therefore commend the Student Loan Scheme (Repayment Bonus) Amendment Bill to the House.