10% off

March 24th, 2009 at 6:48 am by David Farrar

From the 1st of April, any voluntary repayments over $500 towards your student loan, will get you an additional 10% knocked off the balance.

And as the Herald reports, this will apply to everyone with balances – not just those still in NZ.

The interest free students loans policy is fundamentally flawed. It provides an incentive for students to borrow more than they need, and to pay it back as slowly as possible.

The voluntary repayment discount is a good way to counter one of those problems, as it will now give an incentive for early repayments.

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32 Responses to “10% off”

  1. petal (705 comments) says:

    Yeah. By giving them more money. I can see the point. But still.

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  2. KiwiGreg (3,244 comments) says:

    Yes surely the correct policy response is to charge an appropriate amount of interest so people have the right incentives to repay?

    [DPF: That would be preferable but it would have given Labour a 4th term so National said it would not do that]

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  3. goodgod (1,348 comments) says:

    This is hilarious! It’s a Labour Party style loans bribe applied with a bit more class i.e. not a week out from elections. New faces, same free n easy cheque book attitude. Pretty soon someone will remember to remburse the students who have already paid off their loans. Maybe something for Chris Finlayson to wrestle with. I’m sure someone has been discriminated against. :lol:

    The National Party of NZ – we hope you’re as dumb as we think.

    [DPF: This was a pre-election promise. And it is probably saves the taxpayer money in the long term as the Government saves interest repayments on student loans paid back early.]

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  4. goodgod (1,348 comments) says:

    The voluntary repayment discount is a good way to counter one of those problems, as it will now give an incentive for early repayments.

    Double post alert! :lol:

    I’m sorry this is so funny.

    Hmm, lets see…incentives to repay…hmmm. Well, in the good old days when you borrowed too much and couldn’t repay you went bankrupt, lost your house etc. That was a good incentive to not borrow too much, or to waste what you had borrowed at the pub. These days you can borrow as much as you like, even if you’re an international bank, and when you default, instead of bearing the responsiblity of your choice, you get bailed out by the taxpayer, oh sorry, the government.

    No one in their right mind could cheerlead this.

    The National Party of NZ – Recession? What Recession?

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  5. andrei (2,568 comments) says:

    Surely this acts as a disincentive to voluntarily pay back more than $500 in one year since $1000 dollars voluntarily paid back in one year will only attract a 10% reduction in the balance whereas spreading it over two years will get gain the 10% reduction in each of those years.

    I suppose its a good way to get the those with very large loan liabilities off the books since by making a $500 voluntary payment each year will rapidly see your loan liability evaporate.

    [DPF: Your logic is faulty. The 10% is 10% of the repayment not the loan balance]

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  6. Ferdinand (93 comments) says:

    andrei, I think the 10% is a on the payment. That is, you pay off $500 and the govt deducts $550 from your loan. But I may be wrong about that. If it is the case it means people with a lot of spare cash are in a position to save up to 10% of their total loan compared to those who can’t afford to pay large lump sums.

    I’m not sure making student loans cheaper for the wealthy than the poor is such a great idea.

    [DPF: You are wrong. There is no requirement for the $500 to be a lump sum - just over a year. So $10 a week will do]

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  7. Fisiani (1,031 comments) says:

    Ferdinand you are so wrong. If you actually read what is now proposed you will see that among the changes made are that the $500 does NOT have to be a lump sum. That was the initial proposal . Keep up with the play.
    People who can pay off just $10 a week can get $550 paid off for contributing for 50 weeks of the year or any combination of payments to make up $500 . This is a fantastic offer for all students no matter what their circumstances

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  8. clintheine (1,570 comments) says:

    Is this a one off 10% or is this reocurring every year for this $500 voluntary payment?

    [DPF: One off. If you pay back $500 they knock $550 off]

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  9. NOt1tocommentoften (433 comments) says:

    Am I correct in thinking that as this will only apply to voluntary repayments I’d need to pay $10 per week over and above my compulsory repayment in order to benefit from this? Not a criticism, just clarification…

    [DPF: Yes]

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  10. big bruv (13,718 comments) says:

    And last night on TVOne news Comrade Espiner breathlessly told the viewing audience that this scheme “favours the rich”.

    Key’s only mistake (and something he is going to have to get over) is his annoying habit of defending policies like this when confronted by a pinko journalist asking a loaded question.

    [DPF: Of this favours the rich, then did Guyon use that term for the interest free loans Labour introduced that was a massive transfer of wealth from poor people to wealthy graduates]

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  11. LiberalismIsASin (288 comments) says:

    This is actually false DPF (the idea of borrowing more than you need I mean). You cannot borrow more than you need because the money is paid directly to the provider, it used to be different, but that was a long time ago, maybe 10 years plus. The only money you can borrow that goes directly to the student is course related costs, which is fixed at $500 per semester. From my experience this amount was pretty much equal to what you needed to spend on textbooks for the average course in that semester. This is similar to the 2005 election campaign when Bill English claimed that students would borrow interest free loans and then invest the money. I can’t believe that he did not know this was not true, therefore he was lying. Of course, politicians of all stripes do this, something to do with a culture of moral relativism and the end justifying the means, etc, etc.

    [DPF: Absolute nonsense. Say you have $5,000 in the bank paying 5% interest. You can use that $5k to pay your $5k of course fees or you can take out a student loan to pay them (even though you do not have to) and keep earning interest on your $5k. You also ave overlooked the student loans for living costs]

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  12. dime (9,849 comments) says:

    wow another sweet student loan deal!

    my loan is almost gone, i havent made a voluntary payment since the loan became interest free.. i suspect that is about to change :P

    course, i would have preferred a dirty big tax cut!

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  13. stephen (4,063 comments) says:

    The only money you can borrow that goes directly to the student is course related costs, which is fixed at $500 per semester.

    Nope. You can get ‘living costs’ up to $150 a week straight into your account, to spend on whatever you like. Goes right onto your loan.

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  14. goonix (140 comments) says:

    I’ll repay mine on the 1 April then.

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  15. KiwiGreg (3,244 comments) says:

    “[DPF: That would be preferable but it would have given Labour a 4th term so National said it would not do that]”

    So instead we end up with a National government also following poor policies. While I am probably OK on the plus of having Key and English over Clark and Cullen, bad policies are bad government. This is a bad policy (strapped onto a whole bunch of bad policies around students).

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  16. longbow (118 comments) says:

    win-win a good move, $10 more each week and at end of financial year you pay off $572, or you could pay $520 once before 1 April 2010 and have you loan write off $572. which is probably better than any investment options you could find.

    LiberalismIsASin – last time i checked students not qualified for allowance, can borrow $150 per week for living cost, plus $1000 per year towards course related cost (e.g. a new computer but you can do whatever you like), probably 5k~6k in total each year. i would not be surprised if some students taking both and put them in a saving account or such. Apparently you had enjoyed the allowance..

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  17. Michael M Wilson (55 comments) says:

    Surely it is better to put it in the bank (not citibank) and get compounding interest. I am annoyed I paid my off quickly before it became interest free.

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  18. LiberalismIsASin (288 comments) says:

    Yes, I did overlook living costs, sorry. But I stand by what I said regarding lump sum payments, you cannot get a loan over $1000 per year paid directly to yourself. It goes to the provider, that was what I meant, sorry.

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  19. stephen (4,063 comments) says:

    You were right about that is used to be the case. I would’ve bought a boat.

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  20. racer (257 comments) says:

    [DPF: This was a pre-election promise. And it is probably saves the taxpayer money in the long term as the Government saves interest repayments on student loans paid back early.]

    An economics lecturer of mine ran the numbers on this, only roughly mind you, but with consideration to what the compulsory repayment thresholds are (ie your not getting 10% off your entire loan as your paying a large part of it off with out the 10% benefit), any savings account paying more than 5%ish (I know, good luck at the moment), leaves you better off.

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  21. OECD rank 22 kiwi (2,746 comments) says:

    A case of good money following bad.

    Thank goodness New Zealand’s economy is in good shape and Government revenue is abundant. ;-)

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  22. Madeleine (230 comments) says:

    I saw this, for the first time ever I wondered about taking a chunk of cash, we just sold our investment house, and wiping my loan out – it’s just topped $20k (years of interest as because I have studied part-time, being a mother, I never qualified for any of the interest free deals).

    I suppose I need to get the calculator out and work out what the incentive is for not just continuing to have a chunk taken out of my pay.

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  23. burt (8,232 comments) says:

    Over a decade ago I signed my kids up for ASG scholarship schemes. Basically every month I invest money into the scheme which will then pay for the course and living costs for my kids when they go to Uni. I did this because I didn’t want my kids leaving Uni with massive student loans.

    Since I started this the election bribe of “free money” has come along which in some ways undermines the value of the ASG scheme. OK I thought, all is not lost – the kids can borrow as much as possible and invest it to earn interest through the duration of their studies then pay their loan off before bailing the country. (either on an OE or to take their qualifications and earn a real salary in a country that is not constrained by an ideology determined to make sure nobody earns more than a beneficiary)

    Now this policy makes it all the sweeter, when they repay their loans they only need to repay 90.9% of the money they borrowed.

    Fantastic result – the unintended consequences of a policy designed to address the unintended consequences of a policy designed to win an election will benefit people who know how to budget and save in the best interests of their children. More free money for borrowing, investing and repaying free money.

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  24. Put it away (2,878 comments) says:

    Good stuff, I’ve been thinking about a voluntary payment, this has tipped me towards actually doing it…

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  25. stephen (4,063 comments) says:

    Why would you bother with voluntary payments in a no-interest situation, if you don’t mind my asking?

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  26. burt (8,232 comments) says:

    stephen

    I think when Treasury asked Labour that same question it was described as an Ideological burp.

    Cullen told us that students would not borrow more than they needed, so they could invest, if loans were interest free. And we called that Muppet a finance minister… Shame on us really.

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  27. Put it away (2,878 comments) says:

    stephen – ummm because it’s 10% for free ? But I was thinking about it before this anyway because it’s psychologically annoying having a chunk of my pay disappear every payday. I’d rather knuckle down and get it over with on my terms so I can start actually getting the pay packet I earn.

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  28. stephen (4,063 comments) says:

    stephen – ummm because it’s 10% for free ?

    Sorry, i mean your first comment (12-52) indicated that you were already thinking about it, but now that this policy was announced you have been ‘tipped’ towards it. The rest of your comment explains it. But what about the money that wasn’t being used to pay off the debt- why not bank it and earn interest? Though it’s certainly nowhere near as profitable as it used to be, otherwise i’d call you nuts!

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  29. clintheine (1,570 comments) says:

    So at best if I did this I’d get $50 off my loan? WOW. Thankfully it isn’t an option but I was thinking it meant I’d get 10% off my entire loan balance! That would be a nicer carrot :)

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  30. OECD rank 22 kiwi (2,746 comments) says:

    Is there a ceiling on the scheme?

    If you pay the whole loan off in year one you get a 10% discounts less the compulsory payment component.

    Still a better option to bugger off overseas and never pay one cent back.

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  31. stephen (4,063 comments) says:

    clintheine, it says any voluntary repayments of over $500…would seem to mean you could pay of 10,000 and get 11,000 off.

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  32. DingDing (2 comments) says:

    Hi,there.I have an awful experience for my repayment of Student Loan.
    On Jan 2009, my Student Loan Balance is about $16,000 Dr. I made the payment on that day and it showed my Balance is 0. But now, when I check my account, it shows I still have extra $1800 student loan debt.
    Actually, I finished my Degree in July 2008, and my opening balance in July 2008 was a little above $15,000.I do not know what had happened.
    I regret I repaid my student loan.

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