Student Loans in New Zealand — Repayments, Thresholds and Interest

Student Loans in New Zealand — Repayments, Thresholds and Interest

A student loan is repaid through the same PAYE system that collects income tax, which makes it almost invisible once you start working. Most borrowers notice a slightly smaller pay packet and little else, and the balance quietly shrinks in the background.

The mechanism is worth understanding anyway because two of its features surprise people. The first is that repayment is measured against each pay period rather than the year as a whole. The second is that a second job is treated quite differently from a first one.

This guide explains how the deduction is calculated, why a secondary job repays from the first dollar, and what happens to borrowers whose income does not arrive as salary or wages.

How We Researched This Guide

The rules and figures come from Inland Revenue's page on repaying a student loan when you earn salary or wages, which sets out the pay-period thresholds and the standard deduction. The rules on when a tax credit applies came from its page on the independent earner tax credit.

We have deliberately limited this guide to the position for borrowers living in New Zealand. The rules change for people who move overseas, and mixing the two positions would create more confusion than it resolves. Nothing here describes the overseas rules.

The Quick Summary (60-Second Version)

The essentials, in six lines.

• You repay 12 per cent of every dollar you earn above the repayment threshold.
• The annual threshold is $24,128 for both the 2025 and the 2026 tax year.
• The pay-period thresholds are $464 a week, $928 a fortnight, $1,856 every four weeks and $2,010.66 a month.
• A second job has no threshold of its own, so it repays 12 per cent from the first dollar earned.
• Income that is not salary or wages can create an end-of-year repayment obligation instead.
• While you live in New Zealand, the loan does not attract interest.

The Two Thresholds That Govern Repayment

Repayment is built on one idea: the first slice of your income is free of the loan, and everything above it is charged at 12 per cent. That slice is expressed in two ways, and which one applies depends on how your income arrives.

The annual figure is the repayment threshold, set at $24,128 for the 2026 tax year, which runs from 1 April 2025 to 31 March 2026. The same figure applies to the 2025 tax year. Earn less than that across the year from salary and wages and, in general, no repayment is due.

Salary and wages are not assessed once a year, though. Employers deduct the loan as they pay you, so Inland Revenue publishes pay-period thresholds that scale the annual figure down to each payday.

Those figures do the work on an ordinary payday. Anything you earn in the period above the relevant threshold carries the 12 per cent deduction, and anything below it does not. There is no annual averaging step in between.

How the Deduction Works on an Ordinary Payday

The arithmetic is deliberately simple. Take the pay for the period, subtract the threshold for that period, and apply 12 per cent to what is left. If the pay is at or below the threshold, the deduction is nothing at all.

A worked example makes it concrete. Suppose you are paid $600 a week. The weekly threshold is $464, so the amount above it is $136. Twelve per cent of $136 is $16.32, and that is the deduction for the week.

Two consequences follow from working it out this way. The deduction rises and falls with each pay packet rather than settling at a steady annual figure, and a week of unpaid leave reduces it because a week with no pay has nothing above the threshold to charge.

It also means the deduction is calculated on gross pay, before PAYE comes off. The student loan deduction is a repayment rather than a tax, and it does not reduce the income on which income tax is worked out.

What About Interest?

While you are living in New Zealand, your loan does not attract interest. That is why a balance can sit for years while a borrower studies and then falls only gradually once repayments start — what grows the balance is borrowing, not interest.

The position changes for borrowers who go overseas. Those rules use a different set of thresholds and obligations and sit outside this guide. If you are planning to leave New Zealand, that is the material to read before you go.

Why a Second Job Repays From the First Dollar

The threshold is not a personal allowance, and it is not refreshed when you take on another job. It is used up by the main job, which is why a second job carries the deduction from the very first dollar earned.

In practice that means a part-time evening job can generate a loan deduction even though total weekly earnings across both jobs are modest. The main employer has already applied the $464 weekly threshold, so the second employer has none left to apply.

This is the single most common surprise in the whole system. It is neither a penalty nor an error — it is what follows from measuring the threshold per pay period rather than per person.

If total income for the year ends up under the annual threshold anyway, the over-deduction is not lost. It shows up in the end-of-year position and is worked out then.

One Case Where an Exemption Helps

There is a separate mechanism for a short burst of earnings such as a holiday job: a repayment deduction exemption. It may suit someone who earns over the pay-period threshold in that period but stays under the annual threshold across the whole year.

It is aimed at the mismatch between the two ways of measuring the threshold rather than at steady earners, and it has to be applied for rather than granted automatically. Borrowers should also know that the independent earner tax credit is worth up to $520 a year, or $10 a week, at incomes between $24,000 and $66,000.

When Your Income Is Not Salary or Wages

Not everyone's income arrives as regular pay, and the pay-period mechanism has nothing to work on when it does not. For that group, there is an end-of-year obligation instead, assessed on adjusted net income.

You have a repayment obligation if your adjusted net income is $500 or more and your total income, including any salary and wages, is over the annual repayment threshold. Both tests have to be met before the obligation arises.

Self-employment, rental income and investment income are the usual sources that push someone into this position. The practical difference is timing rather than amount — nothing is deducted during the year, so the obligation arrives after the year ends instead of in small pieces.

The Threshold Has Been Frozen Since 2024

Repayment thresholds are normally adjusted as incomes rise, so it is worth knowing that this one has not moved. The annual threshold has been fixed at $24,128 since 1 April 2024, and in January 2025, the government agreed to hold it there indefinitely by suspending the usual inflation adjustment.

The effect is gradual and easy to miss. When the threshold is held steady and wages rise, more of each pay packet sits above the line, so a borrower repays slightly more each year without any rate having changed.

Read down that table and the freeze is plain. The threshold rose every year up to 2025 and then stopped, which makes the 2026 tax year the first in some time in which a borrower on an unchanged wage saw no improvement in their position.

Questions You Might Have

Do I have to do anything to start repaying?

Not whether you are earning salary or wages. The deduction is tied to your tax code, and where a loan is involved that code reads M SL or ME SL — 'SL' is simply added to your main code. You do still need to tell your employer that you have a loan.

Will my loan deduction reduce my take-home pay?

Yes. The deduction comes off your pay alongside PAYE, so a student loan lowers take-home pay even though it is not a tax. It also does not reduce your taxable income, so it does not lower the income tax you pay.

Why is my part-time job deducting the loan when my main job pays so little?

Because the threshold belongs to the pay period rather than to you. Your main employer has already used the weekly threshold, so the second employer has none left and deducts from the first dollar. The full-year position is settled later.

What if my pay is always below the threshold?

Then no deduction is made and nothing is owed for that period. If your annual income from salary and wages stays under $24,128 you are generally outside the repayment obligation altogether, even if a single busy week briefly crosses the weekly threshold.

Does interest mean my balance grows while I am studying?

No, not while you are living in New Zealand. With no interest added, the amount you owe changes mainly through what you borrow and what you repay. The interest-free position changes if you move overseas, which is a separate set of rules.

What Matters Most

Student loan repayment is simpler than its reputation suggests, and the two things worth remembering both come from the same design. The threshold is measured per pay period, and it is used up by your main job.

Everything else follows from that. A weekly threshold of $464 means the first $464 of a week's pay is free of the loan and the rest is charged at 12 per cent, a second job has no threshold of its own, and income that does not arrive as pay is assessed after the year ends instead.

The one figure that has not moved is the annual threshold, held at $24,128 since 1 April 2024. Every number here is Inland Revenue's, and anything we could not source we have left out rather than estimated.