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Graduates face loan repayment hike

13:45 Thu May 3 2012
AAP
Changes to the repayment scheme for student loans and restrictions on who gets student allowances have been revealed by the government
Changes to the repayment scheme for student loans and restrictions on who gets student allowances have been revealed by the government (Getty)

Graduates will have to pay two per cent more from their pay packets toward their student loans, while student allowances will be restricted, under government moves to cut billions of dollars in outstanding student debt.

Tertiary Education Minister Steven Joyce announced the changes on Thursday, ahead of the May 24 budget.

Currently, the loan repayment rate is set at 10 per cent on income over $19,084.

That will increase to 12 per cent from next year, while the government is "looking very closely" at scrapping bonuses for graduates who make voluntary repayments over and above the repayment threshold.

The incentive - where borrowers making a voluntary repayment of $500 or more receive a 10 per cent bonus on that amount - was introduced by the government just three years ago.

"This has not created the increase in repayments that we'd hoped. It has created a number of repayments but we suspect from the analysis that most of those would have occurred anyway," Mr Joyce said.

The bonus costs $12 million annually to administer - money that the government believes could be better spent on education.

Mr Joyce says the changes will encourage loan holders to pay back their debt faster, with the money to be reinvested in tertiary institutions.

There will also be changes to student allowances, which will be restricted to students in their first four years of study - scrapping exceptions for students studying at post-graduate level or in longer courses.

The parental income threshold, which applies to students under 25, will be frozen at its current level for the next four years.

Mr Joyce says several thousand fewer students will receive allowances.

He says there'll be a one-off revaluation of the student loan scheme of about $250m, while the government expects to save $60-70m a year from the allowance changes, "most of which we'll reinvest into the (education) system".