If you studied in New Zealand and borrowed through the Student Loan Scheme, you are probably making repayments from your pay right now — or you soon will be. The good news is that New Zealand student loans are interest-free as long as you live in New Zealand. The less good news is that repayments are compulsory once you earn above a certain threshold, and they can take a noticeable chunk out of your take-home pay.
In this guide, we will explain how student loan repayments work, what the current thresholds and rates are, and what happens if you go overseas.
How Student Loan Repayments Work
Student loan repayments in New Zealand are managed through the tax system. If you are an employee, your employer deducts the repayment from your pay along with PAYE and other deductions. If you are self-employed, you make repayments as part of your annual tax return.
The repayment rate is 12% of every dollar you earn above the repayment threshold. For the 2025-26 tax year, the annual repayment threshold is $22,828 (equivalent to $439 per week).
This means you do not start making repayments until your income exceeds $22,828 per year. Once you earn above that, you pay 12 cents for every dollar above the threshold. For example, if you earn $50,000 per year, your annual student loan repayment would be 12% of ($50,000 minus $22,828) = 12% of $27,172 = $3,260.64 per year, or about $125 per fortnight.
The Repayment Threshold Explained
The repayment threshold is the level of income below which you do not have to make any repayments. It is set by the government and adjusted periodically. At $22,828 per year, it works out to about $439 per week before tax.
If you earn less than the threshold, you do not make any repayments. Your loan balance simply stays where it is (and does not accrue interest, assuming you are a New Zealand resident). There is no penalty for not repaying while you are below the threshold.
If you earn just above the threshold, your repayments will be small. Someone earning $25,000 would repay 12% of $2,172 = about $260 per year. It scales up as your income increases.
Tax Codes and Student Loans
To ensure your employer deducts the correct student loan repayment, you need to use the right tax code. The standard tax code for someone with one job and a student loan is M SL. If you have a second job, you would use S SL for the secondary employment.
If you do not use the SL suffix on your tax code, your employer will not deduct student loan repayments from your pay. This does not mean you avoid the repayment — IRD will catch up with you at the end of the tax year and you will get a bill for the full amount owed, potentially plus late payment interest.
It is much better to have the repayments taken out gradually throughout the year than to face a lump sum bill at year end.
Interest-Free — But Only If You Stay
One of the biggest advantages of the New Zealand student loan system is that loans are interest-free for borrowers who are New Zealand-based. As long as you live in New Zealand for 183 days or more in a tax year, no interest is charged on your loan.
However, if you move overseas, interest starts accruing from the day you leave. The current interest rate for overseas-based borrowers is set annually by the government and has historically been around 2-3%. While that might sound low, on a $30,000 loan, that is $600 to $900 per year in interest being added to your balance.
If you go overseas, you also have to make compulsory repayments based on your loan balance, not your income. The repayment obligations for overseas-based borrowers are:
- $1,000 if your loan balance is under $1,000
- $2,000 if your loan balance is $1,000 to $15,000
- $4,000 if your loan balance is $15,001 to $30,000
- $5,000 if your loan balance is over $30,000
These repayments are per year and are in addition to the interest that is accruing. Missing overseas-based repayments can result in penalties and late payment interest, which can cause your loan balance to grow quickly.
Voluntary Repayments
You can make extra voluntary repayments on top of your compulsory deductions at any time. There is no penalty for paying off your loan early, and every extra dollar you pay goes straight to reducing your balance.
Some people choose to make voluntary repayments to get rid of their loan faster, even though it is interest-free. The argument for doing so is that once the loan is gone, you keep the extra 12% of your income above the threshold. The argument against is that because the loan is interest-free, your money might work harder for you if invested elsewhere (for example, in KiwiSaver or other investments that earn a return).
There is no right or wrong answer here — it depends on your personal financial situation and priorities. But it is worth doing the maths before making a decision.
Student Loan and Multiple Jobs
If you have more than one job, student loan repayments are deducted from each job separately based on the earnings from that job. This can sometimes result in over-deduction because each employer applies the threshold independently.
If you are over-deducted during the year, IRD will refund the excess when they process your end-of-year income tax assessment. It is annoying but it does get sorted out eventually.
To minimise over-deduction, make sure you are using the correct tax codes: M SL for your primary job and S SL for secondary jobs.
What Happens When Your Loan Is Paid Off?
When your student loan is fully repaid, IRD will notify you and your employer. Your tax code will change (removing the SL component), and the 12% deduction will stop. You will see an immediate increase in your take-home pay.
If your final repayments result in an overpayment, IRD will refund the excess to you. This usually happens automatically within a few weeks of your loan reaching zero.
How Student Loan Repayments Affect Your Take-Home Pay
Student loan repayments are one of the biggest deductions for young workers in New Zealand. Combined with PAYE, ACC, and KiwiSaver, they can significantly reduce your take-home pay.
For someone earning $55,000 with a 3% KiwiSaver contribution and a student loan, the annual student loan repayment is about $3,861. That is roughly $148 per fortnight — money that would otherwise be in your pocket.
Use our New Zealand salary calculator to see exactly how your student loan repayment affects your take-home pay. You can toggle the student loan option on and off to see the difference.
Tips for Managing Your Student Loan
- Use the correct tax code — M SL for your primary job, S SL for secondary jobs. This avoids end-of-year surprises.
- Think carefully before going overseas — the interest-free status is a huge benefit. If you are planning to travel or work abroad, factor in the loan interest and compulsory overseas repayments.
- Check your balance regularly — log in to myIR to see your current balance and repayment history.
- Consider voluntary repayments strategically — if you are staying in New Zealand and your loan is interest-free, consider whether extra repayments or investing elsewhere gives you a better outcome.
Final Thoughts
New Zealand's student loan scheme is one of the most generous in the world thanks to its interest-free status for residents. However, the 12% repayment rate above the threshold is a meaningful deduction from your pay. Understanding how the system works helps you plan your finances, avoid surprises, and make smart decisions about voluntary repayments and overseas travel.