Net income after student loan changes

May 7th, 2012 at 9:00 am by David Farrar

I’ve prepared a table below showing what the net income will be for graduates with , after the changes take effect, and comparing them to the impacts of tax cuts.

     Income Apr-08 Oct-08 Apr-09 Oct-10 Oct-12       Increase
$10,000 $8,470 $8,750 $8,750 $8,775 $8,775 $305
$20,000 $16,278 $16,898 $16,898 $17,050 $17,032 $754
$30,000 $23,178 $23,798 $23,798 $24,162 $23,944 $766
$40,000 $29,838 $30,698 $30,698 $31,274 $30,856 $1,018
$50,000 $35,538 $36,398 $37,358 $38,141 $37,523 $1,985
$60,000 $41,238 $42,098 $43,058 $44,027 $43,209 $1,971
$70,000 $46,338 $47,798 $48,758 $49,913 $48,895 $2,557
$80,000 $51,438 $52,898 $53,958 $55,509 $54,291 $2,853
$90,000 $56,538 $57,998 $59,158 $61,105 $59,687 $3,149
$100,000 $61,638 $63,098 $64,358 $66,701 $65,083 $3,445

The six columns are:

  1. Net income after tax and student loan deductions in April 2008 before tax cuts
  2. Net income after tax and student loan deductions in October 2008 after Labour’s first round of tax cuts
  3. Net income after tax and student loan deductions in April 2009 after National’s first round of tax cuts
  4. Net income after tax and student loan deductions in October 2010 after National’s tax switch package. To recognise the increase in GST, a 2% deduction is made from net income.
  5. Net income after tax and student loan deductions in October 2012 (presumably) after the student loans repayment rate lists from 10% to 12%. Note this still includes the GST adjustment.
  6. The difference between Oct 2012 and April 2008, before tax cuts started to occur.

This shows that all graduates will have higher net incomes than in April 2008, even after the repayment rate increases. In fact they will also have higher net incomes than in October 2008 and in April 2009.  So all graduates will still have higher net incomes than before the tax switch, and considerably more than before the other tax cuts.

The other factor of course, is that you keep the tax cuts for ever. The additional student loan repayments means you pay the loan off quicker, and end up paying the same amount – just over a shorter time-frame. It will means things are tighter for graduates while the loan is repaid, but still not as tight as if we hadn’t had tax cuts.

The Greens have suggested that the repayment rate should increase as income increases. I think there is some merit to this. You could have a 12% repayment rate from $20k to $70k and say a 15% rate above $70k.

Tags:

13 Responses to “Net income after student loan changes”

  1. Pete George (23,832 comments) says:

    The Greens have suggested that the repayment rate should increase as income increases. I think there is some merit to this. You could have a 12% repayment rate from $20k to $70k and say a 15% rate above $70k.

    There’s already a repayment free threshold, currently $19084.

    To not overly complicate an already complicated tax system perhaps it could use the same tax brackets as PAYE. Eg:

    up to 14000 – 0%
    up to 48000 – 10%
    up to 70000 – 12%
    over 70000 – 15%

    On Q+A yesterday Bryce Edwards kept referring to the repayment as a “tax” – a common misrepresentation – but Holmes did pull him up on it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. tepopo (6 comments) says:

    I agree with Pete George’s suggestion. One of my concerns about this change is that it doesn’t doo anything for our gap with Australia – where is the incentive coming from for the graduates to actually stay here and reinvest their investment in education into our economy and society?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. Key is our man (900 comments) says:

    Bryce Edwards is a Left leaning socialist of the highest order. No wonder he is using the word “tax”. There is a concentrated effort by TV3, NZ Herald and left leaning socialists like Bryce Edwards, communists like Mac McCartern and others to destablise National and John Key

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Grendel (1,013 comments) says:

    why do the greens hate people who do well?

    why is their kneejerk reaction that everyone over some arbritrary figure must always pay more for everything. first its tax, then they want an earthquake tax and now they want graduated Student loan payments.

    maybe its because until they get elected to parliament all the greens end up earning bugger all becuase their education is only useful when they can con taxpayers out of money?

    i dont see any benefit to raising the base student loan figure, there are enough expenses out there that grads have to face without dumping extra punitive ones on them. i dont see a 2% rise impacting too badly on the ability to buy a house but you start going to 15% and its possible. id rather see incentives to repay (rather than interest free, and yes i do have a student loan and still think there should be interest) and have them better advised, most grads i know dont even know about the 10% discounting for paying extra there is at the moment.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. dime (10,220 comments) says:

    So those earning more than 70k a year would be paying 50% of their income in tax and student loan repayments?

    theres an incentive to work harder and make that extra 10k a year…. not!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. Graeme Edgeler (2,972 comments) says:

    So all graduates will still have higher net incomes than before the tax switch, and considerably more than before the other tax cuts.

    Yes, but GST has increased. This affects those currently paying back loans because their expenses are higher. It also affects those studying now because their tuition is higher, so they have to borrow more.

    [DPF: No I factored in the GST increase by deducting 2% off their net income.]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. jakejakejake (143 comments) says:

    If only inflation didn’t exist :)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. Elaycee (4,425 comments) says:

    A key issue for me is the massive amounts written off because collection has been deemed to be ‘too hard’… so I’d like to see a guarantor system set in place.

    Anyone with an outstanding student loan who leaves NZ to travel / work overseas, has to nominate a New Zealand based, (taxpaying) guarantor. And any instance where loan repayments are missed or they stop, the guarantor has to step in and meet all obligations.

    No interest free student loans should be written off as ‘bad debts’. None. Nada. Zip.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. Pete George (23,832 comments) says:

    A key issue for me is the massive amounts written off because collection has been deemed to be ‘too hard’…

    Yep – did I see that recently at forty something percent? It’s a major reason why those left in New Zealand paying off their loans are being pushed to pay back faster.

    I’m pleased to say mt daughters both paid off their sizable loans within three years of travelling overseas, they had enough income to honour their debts, and were very happy to have put the burdens behind them.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. homepaddock (408 comments) says:

    “you keep the tax cuts for ever.” – or until there’s a change of government.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. immigant (950 comments) says:

    Well there goes my annual pay rise.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Paulus (2,712 comments) says:

    The Greens are in fact middle class, very well educated, left wing socialists.
    They can afford from their backgrounds to be sanctimonious, as they only have their values, and their values are the only ones that matter.
    When thay are in Coalition with Labour they will run rings round them, and Labour will not be able to see it – other than Shearer who would make a good Greenpeace man (after all he was a teacher, and a version of Mahatma Ghandi).

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. Weihana (4,621 comments) says:

    dime (4,237) Says:
    May 7th, 2012 at 9:43 am

    So those earning more than 70k a year would be paying 50% of their income in tax and student loan repayments?

    theres an incentive to work harder and make that extra 10k a year…. not!

    According to DPF’s figures each income band is better off than the one below it, so there would seem to be an incentive to earn more. Though I wonder how those incentives look after considering WFF.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote