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Government Holds Student Loan Interest Rate Again

The government will hold the ‘headline’ interest rate for the student loan scheme at 7 percent for the third consecutive year, Revenue Minister Michael Cullen and Associate Education (Tertiary Education) Minister Steve Maharey announced today.

The headline rate is made up of the base interest rate, which will change from 3.1 percent to 5.1 percent, and the interest adjustment rate, which reduces from 3.9 percent to 1.9 percent. The interest adjustment rate is based on the CPI for the December 2001 quarter and reflects the decrease in the CPI between the December 2001 and December 2000 quarters.

"The headline interest rate is the highest rate that borrowers can possibly pay. Under changes introduced by this Government, however, most borrowers qualify for full or partial interest write offs and do not actually face the headline rate. The average interest rate actually faced by borrowers is estimated at 3.0%.

"Last year the government brought in changes to make the student loan scheme fairer to borrowers by wiping the interest charged to full-time, full-year students and low-income students.

"Other current students and former students have their base interest capped at 50 percent of their compulsory repayment obligation. Former borrowers continue to have all their base interest written off if their income is under the repayment threshold.

"By December last year Inland Revenue had written off $163 million in interest for the 2000-01 income year. It estimates that about 70 percent of borrowers have received a full or base interest write-off, or had their base interest capped at 50 percent of their repayment obligation,” the Ministers said.


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