What happens to your student loan when you move overseas

Due to NZ’s size and geographical location, Kiwis have always had a thirst for travel. With the promise of life-changing experiences on offer, it’s no surprise tens of thousands of New Zealanders are thinking about a move overseas. 

For many young people, this is an opportunity to use their newly-earned skills and qualifications – to live away from family, see the world and start building their future.

It’s also a time of increased responsibility. As fun as it is to live and work overseas, some home-related pressures remain, such as supporting family or whānau, maintaining friendships from afar and repaying your student loan.

When you make the move overseas, the way you manage your New Zealand student loan will change. Knowing how it will change for you, and what you need to do about it, means there will be no surprises later. 

Here are answers to frequently asked questions about having student loans when you’re overseas.

When will I be considered overseas-based?

Once you’re away from NZ long enough to be considered ‘overseas-based’, your student loan changes from something that happens automatically to something that requires your active management. It’s important to know when this might happen for you.

The first thing to figure out is how long you plan to be away. 

If you’re away for less than 153 days, you will still be considered ‘NZ-based’. More than 184 days, you’ll become ‘overseas-based’. Away between 153 and 184 days? It depends on your situation. If you travel a lot, it can get a little tricky.

The best way to figure this out is to use the ‘Overseas travel calculator’ available in myIR. Don’t have a myIR account? Register now at ird.govt.nz.

What happens when I become overseas-based?

When you become overseas-based, there are some big changes you need to be aware of: 

-Your student loan payments will no longer be automatically taken from your salary or wages. 

When you’re based in NZ, if you have an employer, your payments are taken directly from your salary or wages. When living overseas, you’re responsible to make these payments yourself to Inland Revenue (IR)

This means you’ll need to find which payment method works best for you and ensure these payments are made on time. Find out more about how IR calculates repayment terms for your overseas-based loan.

-The amount you owe each year will be based on the size of your loan, not what you earn.

This means that no matter what you earn while you’re away, your loan repayments will be a set amount.

Each year you’ll receive a student loan assessment outlining how much you need to pay and when. You’ll have two repayment obligations, due by 30 September and 31 March. While not required, it is recommended that you plan for smaller, more regular payments throughout the year, if you can. Making fortnightly or monthly payments, for example, will likely save you interest and help you pay off your loan faster.  

Check this table to see how much you’d need to pay each year based on the size of your loan 

-Interest will now be applied to your loan.

Your student loan will stop being interest-free from the day after you leave NZ. This interest is currently applied at a rate of 2.8%. Interest is calculated daily and added to your loan balance at the end of the tax year. This is backdated once you become ‘overseas-based’. 

This will impact the total amount of the loan and how long it will take you to pay it back. If you miss a repayment due date, late payment interest will be applied to the overdue amount at a rate of 6.8% (made up of 2.8% base interest and 4% penalty interest). 

You may be able to keep your student loan interest-free depending on the reason you are overseas. Find more details here.

How can I stay on top of my loan when overseas?

Register for a myIR account before you leave and set up notifications so you don’t miss important updates from IR. We also recommend adding your overseas contact details. 

Setting up regular repayments will make it easier to stay on top of your loan, rather than waiting for the six-monthly due dates. 

If you need help to manage your student loan while you’re away, you can nominate someone to liaise with IR on your behalf. You will still receive all loan-related communication, but your nominated person can manage payments and contact  IR with questions. You’re still responsible to ensure your loan is paid on time. For more about nominating someone, see here.

How can I take a break from repaying my loan?

You can choose to take a break from repaying your student loan for up to 12 months while you travel overseas. If you want to take up a ‘temporary repayment suspension’ you need to let IR know either before you leave NZ or within 6 months of leaving. During a temporary repayment suspension, interest is still charged to your loan (2.8%) but repayments are not required. A temporary repayment suspension works best when you only intend to be out of the country for a shorter period of time (up to around 18 months).

What happens if I can’t make a repayment?

When you’re away starting the latest chapter in your life, we know your student loan probably isn’t going to be top of mind. This doesn’t change your responsibilities as a student loan borrower. The result of not managing your loan can impact you in real ways when you return to NZ. That’s why knowing your responsibilities and planning ahead is so important. 

But, even with the best planning and best of intentions, there are some situations you can’t avoid. If you think you might not be able to make a repayment, reach out to IR as soon as you can. The team can work with you to discuss options like setting up an instalment arrangement or applying for hardship relief. 

Know what to expect before you take off to foreign lands or what you need to do to stay on top of your student loan payments if you’re already overseas, so you’ll be in the best position to start the next chapter of your future. 

Visit Inland Revenue for more information on living overseas with a student loan.