Student Loan repayment

Please note this sub-forum does not provide professional finance advice. You should seek advice from a licensed financial advisor.

To post in this sub-forum you must have made 100 posts or have Trust status or have completed our ID Verification.

If investing please consider our affiliate link for new accounts: Sharesies.

Forums › Finance and wealth management › Student Loan repayment

1 | 2

AliMac

39 posts

Geek

#483318 20-Jun-2011 18:11

As already stated they will send a letter to employer asking for a change of tax code. At the end of the tax year you would receive a tax bill and if you didn't repay or make arrangements for payment after the due date they will write to your employer asking to make deductions from your wages to the IRD until the overdue amount + penalties was paid. The more you earn the higher the weekly/fortnightly deduction will be. You can make extra payments to the IRD to clear the amount, just make sure IRD put the extra payments against the right thing (i.e student loan and not P.A.Y.E or vise versa) as they are good at messing it up.

The above applies for any money owed and goes for any wrong tax code applied.

In other words, you can run but you can't hide from them unless you leave the country and even then they are working on ways to get you.

Wise

Send money globally for less with Wise - one free transfer up to NZ$900 (affiliate link).

kingjj

1728 posts

Uber Geek

ID Verified

Trusted

#483471 21-Jun-2011 00:03

mikerussellnz: Your employer will get a tax code change letter and you will get a bill for the outstanding student loan payment amount at the end of the tax year.

If you don't pay that, it will have penalties etc applied, just like any tax bill.

My ex-employer had me on the correct tax code but had no idea how to pay my student loan payments so didn't. My ex-employer got several of these letters over the course of 2 years and ignored them. As at the time I had NZ Tax Refunds as my tax agent I was not receiving the personal notifications either. I got a bit of a shock when I spoke to IRD and discovered I owed rather a bit in unpaid student loan fees. Thankfully IETC credits covered most of it. Moral of story, they will catch up with you and you will pay. Second moral, don't trust your employeer....

Geese

1028 posts

Uber Geek
Inactive user

#483477 21-Jun-2011 06:26

kingjj:
mikerussellnz: Your employer will get a tax code change letter and you will get a bill for the outstanding student loan payment amount at the end of the tax year.?

If you don't pay that, it will have penalties etc applied, just like any tax bill. ?

My ex-employer had me on the correct tax code but had no idea how to pay my student loan payments so didn't. My ex-employer got several of these letters over the course of 2 years and ignored them. As at the time I had NZ Tax Refunds as my tax agent I was not?receiving?the personal notifications either. I got a bit of a shock when I spoke to IRD and discovered I owed rather a bit in unpaid student loan fees. Thankfully IETC credits covered most of it. Moral of story, they will catch up with you and you will pay. Second moral, don't trust your employeer....

And 3rd moral don't trust your tax accountant either. Mine nearly trashed my credit rating by illegally trying to claim passive earnings on my income - end result was 4 years of ACC bills all came at once! Unlike IRD who give 8 months to pay, ACC levies are only 1 month.

srose9

6 posts

Wannabe Geek

#483574 21-Jun-2011 12:00

I accidentally forgot to add in the correct tax code MSE i think it is.

They changed it to the correct code after 3months...

edith1334

4 posts

Wannabe Geek
Inactive user

#487630 30-Jun-2011 03:22

I wish that my loan info would get lost in their pile. My student loans are killing me!!!

corksta

2397 posts

Uber Geek

Trusted

Subscriber

#487649 30-Jun-2011 07:41

End of the day if you avoid paying it for a while the loan is still going to be there, it's not going to magically disappear so why not just pay it and get rid of it faster?

bazzer

3438 posts

Uber Geek

Trusted

#487751 30-Jun-2011 11:01

corksta: End of the day if you avoid paying it for a while the loan is still going to be there, it's not going to magically disappear so why not just pay it and get rid of it faster?

The obvious answer is that if the loan is interest free, then the money used to pay the loan would be better utilised elsewhere. You'd want to delay paying the interest free loan as long as possible. That's a pretty fundamental financial concept.

reven

3736 posts

Uber Geek

Trusted

#487756 30-Jun-2011 11:09

yeah but if you pay back more than $500 a year you get 10% credit back, ie by paying $500 a year you really are paying $550.
you're very unlikely to get more than 10% interest if you just saved that money in the bank.

so best thing would be to save the money for 11 months 28 days, and then pay it off before end of tax year.

personally i would spend the money before the 11months is up, so im paying it off in lumps sums (couple months to go for me)

bazzer

3438 posts

Uber Geek

Trusted

#487764 30-Jun-2011 11:27

reven: yeah but if you pay back more than $500 a year you get 10% credit back, ie by paying $500 a year you really are paying $550.
you're very unlikely to get more than 10% interest if you just saved that money in the bank.

so best thing would be to save the money for 11 months 28 days, and then pay it off before end of tax year.

personally i would spend the money before the 11months is up, so im paying it off in lumps sums (couple months to go for me)

You'd also have to take into account the fact that to get the 10% credit, you need to be making the compulsory payments too (i.e. you do need to have met all your student loan obligations).

So that $50 bonus on $500 becomes $50 on $1300 (less than 4%) even for a minimum wage job.

Also, consider that the OP may have higher interest loans (credit card etc) that are at far higher rates than 10% anyway (and those savings are "tax free").

lchiu7

6466 posts

Uber Geek

Trusted

#487791 30-Jun-2011 12:05

Note that employers file what they call Employee Monthly Schedules that detail how much income each employee received, tax withheld, Kiwi Saver deductions, tax code etc. This is all done online.

So if your tax code changed it would not be hard for the system to know that you have an inappropriate tax code and take some action. As to if or when they would do it, I guess that's up to IRD. Maybe that's a suitable area for an experiment NOT!

Staying in Wellington. Check out my AirBnB in the Wellington CBD. https://www.airbnb.co.nz/h/wellycbd PM me and mention GZ to get a 15% discount and no AirBnB charges.

Bee

731 posts

Ultimate Geek

#487803 30-Jun-2011 12:38

Ok,

I have less than $2k remaining on Student loan, so the theory was - I change my tax code now - take the extra money NOW and pay the full student loan at the end of the next tax year. but clearly other experiences show that this wouldnt work out...

I fully intend to pay the student loan - if I proceed with Compulsory payments I will have done this sometime before the end of the year, and then next year I will reap the extra money into my bank account... it was just that I could really use the extra money now...

There are some very dodgy people out there who have done some very dodgy things with their student loans - some unlawful and some just unethical. But I am not one of those people.

I have only borrowed the loan because I didn't have any other way to fund my education and I have paid it back when required - a total now of almost $26k. The education has been used to good effect also to get me a good job and a career. It wasnt a choice for me - it was a neccessity to get me to where I want to be in my life.

To me Student loans are like cigarettes, - until you've had one you don' t really know what its like!

Most of us that take out Student loans are not bludgers and certainly do not benefit greatly over those that pay for their own education... indeed our "suffering" goes on long after the education is finished...

Doing your best is much more important than being the best.

mudguard

2067 posts

Uber Geek

#487820 30-Jun-2011 13:08

Stolen from a Mary Holm column awhile back
Number crunching shows that in many circumstances you would still be better off saving spare money in a bank account and continuing just the compulsory repayments on your student loan. While your bank account after-tax return will be less than 10 per cent, if the money sits in the account for years, compounding can make this the better option.
Consulting actuary Michael Chamberlain of MCA has come up with a formula to help student loan borrowers living in New Zealand work out where they stand. Subtract $20,000 - the approximate student loan repayment threshold over the next few years - from your salary. Take 30 per cent of the remaining amount.
If the answer is more than your student loan, pay the loan off as quickly as you can, making use of the 10 per cent bonus. If the answer is less than your loan, keep making just the compulsory loan repayments. Recalculate each year. Your time will come!
For example: You earn $50,000. Subtract $20,000 to get $30,000. Thirty per cent of that is $9000. If that is more than your loan, pay it off using the bonus.
Another way to look at it: If you figure that your compulsory payments will repay the loan in full within the next three years, make use of the bonus. If not, don't.
These calculations assume a before-tax bank account interest rate of 5.5 per cent over the remaining period of your loan. That's higher than current rates, but lower than a few years ago. If rates rise above 5.5 per cent, paying the loan off fast will be less attractive. If they stay lower, it will be more attractive. But the rule of thumb is a good guide.
There are, of course, other issues at stake too:
If you are living overseas, you pay interest on your student loan, currently 6.8 per cent. You should definitely use the bonus scheme, paying off as much as possible as fast as possible.
You might simply dislike being in debt. Fair enough. Make use of the bonus.
You might want to repay the loan fast to make it easier to apply for a mortgage or other loan - although the fact that you also have money in a savings account should at least in theory cancel that out.
Nobody knows if a future government could remove the scheme. If you are a "bird in the hand" person, grab the chance while it's going.

1 | 2