Myth busters

What if I am made bankrupt?

Your Student Loan will be written off. However bankruptcy has serious personal and financial consequences:

• Your name is published in your local paper.
• As an undischarged bankrupt, you will not be able to run a business, be employed by a relative, or travel overseas without the consent of the Official Assignee appointed to administer your debts.
• You will not be able to take out a loan of more than $100 without declaring yourself an undischarged bankrupt.
• If you are working, you may have to make regular payments to your creditors.
• Even though you will normally be discharged from bankruptcy after 3 years, it can still be recorded on your credit rating and can severely limit your ability to gain credit in the future.

What happens if I go overseas?

Your loan doesn't go away if you leave the country. In fact, you will have to start paying interest on your loan of 6.7% if you leave the country for 184 or more consecutive days (about 6 months).

If you fail to make your repayments on time, you’ll incur a 1.5% penalty on the overdue amount, compounding by 1.5% every month. So on your return you'll have your debt, plus any interest plus penalties.

You need to let Inland Revenue know if you’re going overseas and it's a good idea to nominate another person to act on your behalf while you’re away.

Will it stop me from borrowing to buy a house?

Here's one of those annoying answers – it depends. When considering whether to approve a loan, the major banks look at your ability to service debt. On the face of it, the student loan does reduce your ability to repay the loan.

However banks look at other factors too. They consider the total amount of debt (student loan, personal loan, credit card etc.), your present income, your potential income (e.g. if borrowing to start up a business) as well as the value of the asset being borrowed against (e.g. a house). They also consider the type of debt. They are likely to be tougher on applicants with a large credit card or hire purchase debt, than a student loan.

It's worth remembering that having a qualification can go in your favour when the bank considers your potential income and employment prospects.

Many thousands of New Zealanders have student loans and many of them successfully borrow to buy property. A recent survey on the net worth of New Zealanders found that those with a student loan are only about 6% less likely to have a mortgage, than those without.

(Source: Individual net worth in New Zealand: a preliminary analysis based on a new survey. Grant Scobie and John Gibson. New Zealand Treasury. 13 – 15 November 2002).