Watch: PM announces new penalties on Kiwis overseas with student debt, as local grads get relief

Author: Tom Rose,
Publish Date: Sun, 30 Aug 2026, 10:10am

Vote 2026

National is promising to lower compulsory student loan repayment rates for university graduates who stay in New Zealand, while increasing annual interest and buffing up penalties for those who move overseas, if re-elected.

National’s finance spokesperson Nicola Willis said in a statement the party would campaign on reducing the compulsory student loan repayment rate to 10 cents on every dollar earned above $24,128, down from 12 cents currently.

Simultaneously, Willis said National would introduce harsher penalties on Kiwis who move overseas in an effort to discourage defaulting and encourage graduates to stay in New Zealand.

This would see annual interest on overseas-based balances increased by 1 percentage point to 5.6%, with tiered penalties for sustained default on top of existing late payment interest rates.

If re-elected, the party would also make it that Kiwis living overseas permanently can only access KiwiSaver once their student loan debt is cleared.

“National’s Back Pocket Boost for Graduates will reward young graduates who choose to stay in New Zealand, while pursuing those who leave and default,” National’s finance spokesperson Nicola Willis said in a statement.

“That is how we keep talent here, as part of our wider plan to fix the basics and build the future.”

Nicola Willis says the plan aims to keep talent in New Zealand. Photo / Mark Mitchell

New Zealand’s Student Loan Scheme (SLS) was introduced in 1992 by the Jim Bolger-led National government, replacing a long-standing system of near-free tertiary education.

Loans were initially interest-bearing for all borrowers until 2005, when Labour successfully tipped the election scales by campaigning to make student loans interest-free for those who remain in New Zealand for at least six months of the year.

In 2014, as offshore debt continued to balloon, National introduced “last resort” powers that made it easier for overseas-based defaulters to be arrested at the border.

The measure is still enforced, with arrests reported as recently as May, when a doctor living in Australia was arrested at Wellington Airport before flying home after defaulting on a decades-old student loan that had ballooned to about $180,000.

Data from Inland Revenue shows that more than 75% of the 114,347 Kiwis living abroad are behind on their repayments, owing $2.3 billion in overdue debt.

Nearly half of that default – approximately $1 billion – consists of accumulated interest and penalties.

In last year’s Budget, the Government confirmed an indefinite freeze on the repayment threshold at $24,128, effectively forcing 370,000 borrowers to pay more as inflation rises.

By not adjusting for inflation, the move is expected to save the Crown $65 million over four years by capturing more of borrowers’ income.

Earlier this year, the Government granted Inland Revenue the discretion to provide interest relief for overseas borrowers on a case-by-case basis, provided they commit to a lump-sum repayment or a short-term agreement.