John Key MP
National Party Leader

31 January 2008

National offers bonus to student loan borrowers

National Party Leader John Key today announced a plan to help student loan holders get out of debt quicker.

The plan agreed to by the National Party caucus is aimed at encouraging people to make voluntary payments on their student loans - and therefore pay off their loan balances sooner - through an incentive.

"We will keep interest-free student loans for tertiary students. Half a million New Zealanders have a student loan. Many have made long-term financial decisions on the basis of the current policy and we want to ensure they can plan with certainty," Mr Key says.

"One of our concerns has been that the scheme offers no incentive for New Zealanders to repay any earlier. That means loan holders are likely to have their debt for longer, which has implications for other areas of their lives like buying a house or starting a family.

"When the interest-free student loan scheme was introduced, National said the scheme would encourage more students to take on debt and discourage them from repaying sooner. Official figures show this has turned out to be the case.

"The plan I'm announcing today is that the Government will offer a 10% bonus on a loan balance for voluntary lump-sum payments of $500 or more. The incentive would apply in the 10 years following the start of repayments by the borrower.

"For example, if a borrower pays $800 off their loan in a lump sum above and beyond the compulsory requirement, the Government would take $880 off their loan balance.

"What I've announced today is aimed at helping borrowers get out of debt sooner, and give them certainty so they can plan. National has no intention of doing anything that impedes people from realizing their own educational ambitions.

"The policy is also aimed at helping enhance New Zealand's overall performance. Education is a hugely important part of our pathway forward."

ENDS

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