NZ Student Loan Repayment: How It Works

New Zealand’s student loan scheme is one of the most generous in the world when it comes to interest — NZ-based borrowers pay no interest at all. But repayments can take a significant slice of your income, and the rules differ substantially if you move overseas. This guide explains exactly how repayments work for the 2025-26 tax year.

The Repayment Rate and Threshold

Student loan repayments are calculated at a flat rate of 12% on every dollar of income above the repayment threshold.

For 2025-26 (and 2024-25), the annual repayment threshold is:

• $24,128 per year
• $464 per week (for employees paid weekly)
• $928 per fortnight (for fortnightly-paid employees)

This means if your income is below $24,128 per year, you make no compulsory repayments. Once your income exceeds this threshold, you repay 12% of the income above it.

How Repayments Are Deducted

For employees, student loan repayments are collected by your employer through PAYE — the same system that collects income tax. When you provide your tax code to your employer, you add “SL” to indicate you have a student loan. Common codes include:

• M SL — primary employment, with student loan
• S SL — secondary employment, with student loan

Your employer then automatically deducts repayments each pay period, based on your pay frequency.

Worked Example: $55,000 Salary

Let’s calculate annual student loan repayments for someone earning $55,000 per year:

Income above threshold: $55,000 − $24,128 = $30,872

Annual repayment: $30,872 × 12% = $3,704.64 per year

That’s approximately:

• $71.24 per week
• $142.49 per fortnight
• $308.72 per month

Combined with income tax and ACC, the total deductions from a $55,000 salary would be:

Deduction	Annual Amount
Income tax	~$9,520
ACC Earner’s Levy	$919
Student loan repayment	$3,705
Total deductions	~$14,144
Take-home pay	~$40,856

Interest-Free for NZ-Based Borrowers

One of the most valuable features of the NZ student loan is that it is completely interest-free while you remain a New Zealand tax resident. This has been the case since 2006.

This means:

• Your loan balance does not grow while you’re in NZ
• Every dollar of repayment reduces your principal directly
• There’s no penalty for taking longer to repay

The “interest-free” status is linked to your tax residency, not your citizenship. If you are living and working in New Zealand and filing NZ tax returns, your loan is interest-free.

Voluntary Repayments

In addition to compulsory repayments, you can make voluntary repayments at any time. This allows you to pay off your loan faster, which reduces the total time you spend making compulsory deductions.

Since the loan is interest-free for NZ-based borrowers, there’s no financial “cost” to paying it off slowly versus quickly — unlike a mortgage or credit card. Some people choose to invest spare money rather than make voluntary repayments, on the reasoning that investment returns will likely exceed the 0% interest on the loan.

However, voluntary repayments make sense if:

• You’re planning to move overseas (where interest applies)
• You want to simplify your finances by clearing the debt
• You want to reduce ongoing deductions so you have more take-home pay

Note: Until 2012, IRD offered a 10% bonus for lump sum voluntary repayments of $500 or more. This bonus was removed and no longer applies.

Overseas Borrowers: Interest Does Apply

If you move overseas and are no longer a New Zealand tax resident, your student loan is no longer interest-free. Interest applies from the day you stop being a NZ tax resident.

The interest rate for overseas borrowers is set annually. For 2025-26, the interest rate is 4.8% per annum (compounding daily).

Overseas repayment obligations are based on your loan balance, not your income:

• Loan balance under $1,000: a flat amount applies
• Larger balances: repayments are set at a percentage of the loan balance, paid in instalments (typically twice a year)

IRD actively pursues overseas borrowers and can impose late payment penalties. If you move overseas, you must:

1. Notify IRD of your departure
2. Update your contact details
3. Set up an overseas repayment arrangement

Important: Making repayments while overseas doesn’t automatically stop interest accruing — interest is charged until the full balance is paid.

Part-Year Situations

If your income fluctuates significantly or you only work part of the year, your compulsory deductions may not match what you actually owe at year end.

Under-deductions can occur if:

• You receive a bonus or lump sum payment
• You have multiple income sources
• Your income is higher than PAYE projected

In this case, you may owe additional repayments when IRD calculates your end-of-year assessment.

Over-deductions can occur if:

• You change jobs partway through the year
• You have a period without income
• You took unpaid leave

Over-deducted amounts are refunded through your end-of-year tax assessment.

Repayment Exemption for Low Earners

If your income will be below the $24,128 threshold for the full year, you can apply to IRD for a repayment exemption. This prevents your employer from deducting student loan repayments throughout the year, rather than waiting for a year-end refund.

This is useful for part-time workers, students with low-hours jobs, or people who know they’ll have a low-income year.

Estimated Repayment Time

How long it takes to repay your loan depends on:

• Your current balance
• Your income level
• Whether you make voluntary repayments

As a rough guide, someone with a $30,000 loan earning $55,000 per year would repay it in about 8 years through compulsory deductions alone (since deductions are ~$3,705/year and the balance reduces without interest).

Summary

• Student loan repayments are 12% of income above $24,128 (2025-26 threshold, $464/week)
• Deducted automatically through PAYE for employees — add “SL” to your tax code
• NZ-based borrowers pay no interest — the loan doesn’t grow while you’re in New Zealand
• Overseas borrowers pay interest (4.8% in 2025-26) and must make scheduled repayments
• Voluntary repayments are allowed at any time; the 10% bonus was removed in 2012
• Income below the threshold? Apply for a repayment exemption to avoid over-deductions

Use the Student Loan Calculator to calculate your exact weekly and annual repayments based on your salary.