So you want to... pay off your student loan?

Last updated 5 July 2022

Student loans are both figuratively and literally the price we must pay if we want a higher education. But when the study is over and we’ve thrown our grad cap up in the air, it’s hard to know where to start when it comes to paying it off.

Here are some important things you should know about getting rid of that lurking student loan debt – fast.

1. The bare minimum

If you’re earning $21,268 a year or more in Aotearoa New Zealand you will automatically have to start paying back your student loan at 12% of every dollar you earn over that $21,268 repayment threshold. You don’t have to pay student loan contributions on the part of your pay that’s below that threshold.

For example, if you are earning $75,000 a year, you will pay approx $248 a fortnight as a minimum repayment (but you can pay more if you want to). Find out more about minimum student loan repayments. 

When you start a new job, make sure your tax code includes the letters ‘SL’  so your student loan payments are automatically deducted from your salary or wages.

Inflation has an interesting effect on the relative “value” of your student debt. Every year, prices go up, and the amount of stuff that we can buy with our money shrinks a little. If your student loan isn’t accruing interest, its worth falls a little bit each year because of inflation, so there’s no real advantage to pay it off quickly – unless you’re hoping to head overseas soon, as you start accruing interest on your loan if you are overseas for six months or more.

That said, how great would it be to get back a chunk of your earnings each payday after paying it off? If it works for your financial situation, consider treating this like any other debt and pay as much of it off as you can, not just the bare minimum.

2. Interest, interest, interest

As mentioned, graduates in New Zealand are generally not charged interest on their student loan debt but there are a couple of catches you should be aware of.

Going abroad: If you are overseas for more than six months, you will start accruing interest on your debt which will increase your payments. The way your repayment instalments are calculated will also change. Instead of these repayments being based on your income, they’ll be based on your current student loan balance and you will be charged interest on what is owing. Find out more about paying off your student loan when you go overseas.

Paying late: If you miss the due date of your repayment, you will have to pay ‘late payment interest’ on unpaid amounts of $334 or more. The late payment interest charge is based on the loan interest rate for the tax year, plus 4% calculated as a monthly rate. Our advice: don’t miss a payment.

3. Get ahead

As you don’t accrue interest on a student loan if you’re living in New Zealand, there’s no immediate rush to pay it off like other debts. But there are some other benefits to quickly clearing your debt.

For example, having large debts can affect how much you can put away in savings to buy your first home. If you’re applying for a mortgage, banks will also deduct your student loan repayments from your income when they’re calculating how much you can afford to borrow. Or if you’re planning to travel for an extended period, it might be worth paying more than the minimum to get ahead.

4. Extra $$$

If you’re in a situation where you have more income than usual, like from a part-time job or a side-hustle, this might put you over the repayment threshold or change your deductions. It totally depends on how much the extra income comes to, so get in touch with Inland Revenue and check what you need to do and how much extra you’ll pay.

5. Get KiwiSaver smart 

Making the most of KiwiSaver while you’re still young will mean a better chance of a comfortable retirement – and it could help set you up to buy your first home too. Making a few tweaks to how you contribute now could have a big impact down the line, so find out more about making the most of your KiwiSaver contributions once you start working. 

6. Build better habits 

Achieving good financial habits while you’re a student will help you make the most of your salary once you graduate. 

We’ve got some more handy tips to help you get money smart while you’re studying, like:

• Making wise financial choices as a new graduate
• Budgeting basics for students
• How does your KiwiSaver account grow? 
• Finding a balance between saving hard and enjoying life
• Life in plastic: what you need to know about credit cards

While everyone’s financial situation is different, one thing we all have in common is that getting expert advice can help us make the most of our money. Get in touch with MAS to speak to a MAS adviser about setting yourself up for financial success.