Student Loan Repayment -

Student loan repayment in New Zealand is primarily managed through the Inland Revenue Department (IRD). For New Zealand-based borrowers, repayment is mandatory once your income exceeds the annual threshold of $24,128 (for the 2025 tax year). The standard repayment rate is 12% of every dollar earned over this threshold, deducted automatically from your wages or salary via PAYE.

Managing your student loan effectively is a cornerstone of personal finance for hundreds of thousands of Kiwis. Whether you are a fresh graduate entering the workforce, a self-employed contractor, or planning an OE (Overseas Experience), understanding the mechanics of student loan repayment NZ is critical to avoiding penalties and managing cash flow.

What is the Current Student Loan Repayment Threshold?

The student loan repayment threshold is the specific amount of money you can earn before you are legally required to begin paying back your loan. This figure is reviewed annually by the New Zealand government and typically adjusts slightly to account for inflation or cost of living changes.

For the tax year spanning 1 April 2024 to 31 March 2025, the annual repayment threshold was set at $22,828. However, looking ahead to the 2025/2026 tax year, thresholds are often adjusted. It is vital to check the IRD website for the exact figure relevant to the current pay period.

If you earn over this amount, 12 cents of every dollar above the threshold is deducted. This deduction is mandatory and is usually handled by your employer through the Pay As You Earn (PAYE) system. If you earn under the threshold for a specific pay period, no deduction is made.

New Zealand payslip showing student loan deductions

Breakdown by Pay Frequency

Because most employees are not paid annually, the IRD breaks this threshold down into pay periods. If your income fluctuates, you might pay student loan deductions in some weeks but not others. Here is how the 2024/2025 threshold breaks down:

Weekly: $439.00
Fortnightly: $878.00
Four-weekly: $1,756.00
Monthly: $1,902.33

It is important to note that these deductions are based on gross (pre-tax) income, not what lands in your bank account.

How Do Interest-Free Rules Work for Residents?

One of the most significant benefits of the New Zealand student loan scheme is the interest-free policy. However, this is not an automatic right for the lifetime of the loan; it is strictly tied to your residency status.

To qualify for an interest-free student loan, you must meet the criteria of being a New Zealand-based borrower. Generally, this means you must live in New Zealand for at least 183 consecutive days (about six months). Once you pass this 183-day mark, you are classified as NZ-based, and your loan becomes interest-free backdated to the first day you arrived.

Maintaining Interest-Free Status

Once you have established your status as a New Zealand-based borrower, you must remain in the country to keep the interest written off. If you leave New Zealand for a short holiday, your loan remains interest-free. However, if you leave New Zealand for 184 consecutive days or more, your status changes to an “overseas-based borrower,” and interest will be applied to your loan balance retrospectively from the day you left.

Map of New Zealand symbolizing interest-free student loan zone

There are rare exceptions to this rule for people volunteering overseas for charity, studying continuously, or working for the NZ government abroad, but these require specific applications and approval from the IRD.

How Does Repayment Work for the Self-Employed?

If you are a contractor, freelancer, or business owner, you do not have an employer to deduct your student loan repayments via PAYE. Instead, you are responsible for calculating and paying this yourself.

For the self-employed, student loan repayment is calculated as part of your end-of-year tax return (IR3). The same threshold and 12% rate apply. However, because you are paying a lump sum or provisional installments, the cash flow impact can be significant if you haven’t saved for it throughout the year.

Adjusted Net Income

The IRD calculates your repayment obligation based on your “adjusted net income.” This includes your taxable income minus any business expenses, but with certain adjustments added back in. If your adjusted net income is under the threshold, you pay nothing. If it is over, you will receive a bill.

Pro Tip: If you are self-employed, it is highly recommended to set aside 12% of your income over the weekly threshold into a separate savings account. This prevents a “shock bill” at the end of the financial year.

What Are the Rules for Overseas Borrowers?

Moving overseas is a rite of passage for many Kiwis, but it drastically changes your relationship with your student loan. Once you are classified as an overseas-based borrower (after being away for 184 days), two major changes occur: interest is charged and repayment obligations change.

Interest Rates for Overseas Borrowers

Unlike the interest-free nature of loans for residents, overseas borrowers are charged interest. The rate is reviewed annually and is based on the cost of lending to the government. For the 2024 tax year, the student loan interest rate was 4.8%. While this is often lower than commercial personal loan rates, it means your loan balance will grow if you do not make minimum payments.

Fixed Repayment Obligations

Overseas repayments are not based on your income (as the IRD cannot easily verify foreign income). Instead, they are based on the size of your loan balance. The IRD sets two repayment dates per year: 30 September and 31 March.

The repayment amounts are tiered. For example (figures are indicative and subject to change):

Loan balance under $1,000: Entire balance must be repaid.
Loan balance $1,000 – $15,000: Obligation is roughly $1,000 per year.
Loan balance $15,000 – $30,000: Obligation is roughly $2,000 per year.
Loan balance over $30,000: Obligation is roughly $3,000 per year.

Travel essentials and banking app for overseas student loan repayment

Repayment Holiday

If you are heading overseas, you can apply for a “repayment holiday” of up to one year. During this time, you do not have to make repayments, but interest will still accrue. This is useful for the initial setup phase of moving abroad when cash might be tight, but it does increase the total amount you owe.

Are There Bonuses for Voluntary Repayments?

A common misconception persists regarding “voluntary repayment bonuses.” Historically, the New Zealand government offered a 10% bonus on voluntary repayments made above the standard obligation. This was designed to encourage faster repayment of debt.

However, this scheme was abolished in April 2013. currently, there are no financial bonuses or “cash back” incentives for paying off your student loan early. Every extra dollar you pay simply reduces your loan balance by one dollar.

Despite the lack of a bonus, voluntary repayments can still be beneficial, particularly for:

Overseas borrowers: Reducing the principal balance reduces the amount of interest charged annually.
Peace of mind: Becoming debt-free sooner improves your credit profile for future mortgage applications.

Strategic Repayment: Pay It Off or Invest?

For New Zealand residents enjoying interest-free loans, the question often arises: Should I pay off my student loan faster than required?

From a purely mathematical perspective, paying off an interest-free loan early is often considered “inefficient” use of capital. Because inflation reduces the real value of money over time, a $20,000 debt today is “cheaper” to pay off in ten years with inflated dollars than it is today.

Scale weighing investment vs student loan repayment

The Case for Minimum Payments (Residents)

If you have extra cash, investing it in a high-yield savings account, term deposit, or managed fund (like KiwiSaver) will typically yield a return (e.g., 4-6%). By contrast, paying off your interest-free student loan yields a 0% financial return. Therefore, many financial advisors suggest sticking to the mandatory 12% deduction and investing any surplus income.

The Case for Aggressive Repayment (Overseas)

If you are overseas, the math flips. You are being charged interest (e.g., ~4.8%). If your investments cannot reliably beat 4.8% after tax, it makes financial sense to pay down the loan aggressively to stop the interest from compounding.

What Happens If You Default?

Ignoring student loan obligations is dangerous. The IRD has significant powers to collect unpaid debt.

Late Payment Interest: If you miss a payment, you may be charged late payment interest, which is significantly higher than the standard overseas interest rate.
Border Arrest: In extreme cases of persistent default, the IRD has the power to issue an arrest warrant at the New Zealand border. This prevents the borrower from leaving or entering the country until the debt is addressed. While rare, it is a tool used for those who repeatedly refuse to engage with the IRD.
Credit Rating: Defaulting on student loan repayments can negatively impact your credit score, making it difficult to get a mortgage or personal loan in the future.