Heading Overseas — What Happens to My Student Loan?
There’s nothing quite as exciting as your first ever payday. You sit on on your bank app continuously refreshing and then boom, you have funds, but not quite as much as you were expecting.
The reality is once PAYE Tax (pay-as-you-earn) is deducted, then your Kiwisaver (3%, 4%, or 8% of your pay cheque) and then your Student Loan (12%), you are really only left with 65% of your gross pay — how upsetting.
But today I want to highlight the importance of understanding what happens to your student loan when you head overseas — a trap that many young kiwi’s find themselves getting caught up in.
If you go overseas for less than six months the way you pay your loan stays the same.
If you're away for more than six months the way you pay your loan will change, your repayments are no longer based on your income. They are now based on your student loan balance and charge interest to the balance owing.
Here’s some steps to take if you are planning your OE with a student loan:
Log into My IR (link here) and see what your Student Loan balance is.
Apply for a repayment holiday — this lets you take a break from repaying your student loan for up to 12 months. Interest is still added to your loan during this time. A quick note, you need to apply for a repayment holiday before you go overseas or within six months of leaving NZ — This can be done via MY IR.
See the table below and see how much you will need to pay each year while being overseas — this is based on your loan balance. You can make voluntary repayments anytime, but you must meet these installment dates:
- 30 September, and
- 31 March.
For example if my loan has a balance of $28,000 I would need to pay $2,000 per year while being overseas. $1,000 of this would need to be done by 31 March and then the remainder would need to be done by 30 September.
Interest Payments — student loans are interest free until you head overseas for longer than six months. In this case, interest is added to your loan at an interest rate of 4.4%. You can make additional loan repayments to try keep your interest costs down!
Set up free online transfers through My IR and keep your installments regular. There’s nothing worse than coming to the 31st of March and realising you need to fork out $1,000. With the example above I would suggest splitting this into weekly payments of $38 and keep the money back NZ, so that you don’t get tempted to spend it while being in Ibiza. If you are needing to make the transfer while being overseas, check out your options here (most of them are free to use!)
There are some instances where you can stay interest free while being overseas. If you are studying abroad, working for the NZ Government or for a NZ employer, charitable organisations — the full list can be found here
Don’t ignore your student loan while being overseas. They eventually will catch you!
If things do go wrong while being overseas, the best thing to do is get in contact with the IRD. Surprisingly they are actually really good to talk to when it comes to student loans and they realise that everyone's situation is different. If you do have any questions in particular, feel free to get in touch via the contact page.