Student Loan facts

Journalists should be careful about taking assertions as facts. The Herald reports:

When Matthew Fraher left for Australia in 2000, he says, he was required to pay back as much on his student loan as his entire income, within a year.

Wrong. Impossible.

Now, after incurring penalties, his loan balance is six figures and could grow to almost $1 million by retirement age, even if he keeps up minimum repayments, he says.

Only because he has moved overseas.

Mr Fraher said he contacted the Inland Revenue Department (IRD) when he first left NZ in 2000 with a student loan of about $70,000.

The requirement for him was to pay 15 per cent of the principal and all of the interest in a year, he said – about $15,000, though Mr Fraher recalled the amount was $23,000.

The income from his first job would not have covered it, even if he had lived homeless and ate at soup kitchens, he said.

This is not what the law at the time was. Repayments were never based on the size of the loan – they have always been based on your income. 10% of your income above the $15,000 or so (then) threshold. So if you were on $55,000 you would be paying $4,000 a year interest.

And the law also said that after an adjustment for inflation, at least 50% of your repayments would go on reducing your principal, with interest written off above that. This was to stop the principal always increasing.

So say you were on $75,000 and had a loan of $70,000 (I’d love to hear how a loan that large was incurred back in the 1990s). Repayments would be $6,000 a year. If inflation was 2% then $1,400 would go towards inflation indexing the loan effectively. Of the remaining $4,600 $2,300 would reduce the principal and $2,300 would be interest.

This is massively different from either $15,000 or $23,000 as cited.

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