Because your NZ student loan is interest-free while you live in New Zealand, the case for aggressively paying it off is different from most other debt. There’s no penalty for slow repayment (as long as you make mandatory PAYE deductions), but also no cost to paying it faster if you want to become debt-free sooner.
Because there's no interest, voluntarily paying extra on your student loan has no financial return — unlike paying off credit card debt (20% interest) or investing in term deposits (5%+ return). The case for voluntary repayments is psychological (debt-free peace of mind) rather than financial. However, if you plan to travel overseas, repaying before you go eliminates the 3.5% overseas interest.
Mandatory Repayments vs Voluntary Repayments
Mandatory repayments happen automatically through PAYE from your salary. You can’t opt out of these (unless granted a hardship repayment holiday by IRD).
Voluntary repayments are additional payments you choose to make. These:
- Directly reduce your loan balance
- Reduce the time until your loan is paid off
- Can be made at any time via online banking to IRD (using your IRD number as the reference)
How to Make Voluntary Repayments
- Log in to MyIR at ird.govt.nz — you can make direct payments from your bank account
- Via online banking: pay to IRD’s bank account with your IRD number as the reference and “Student Loan” as the reference code. IRD publishes their bank account number at ird.govt.nz.
- Contact IRD (0800 377 778) to confirm the correct account number and reference format
Should You Pay Off Your Student Loan or Invest?
The mathematical answer, if you’re living in NZ:
- NZ student loan interest rate: 0%
- High-interest savings account / term deposit return: 4–6% p.a. (as at 2026)
- KiwiSaver expected return: 5–8% p.a. over the long term
- Credit card interest (if carrying a balance): 20%+
Financially optimal order:
- Pay off credit card and high-interest debt first (highest rate)
- Build an emergency fund (3–6 months expenses)
- Contribute enough to KiwiSaver to get full employer matching
- Invest surplus in a diversified portfolio (InvestNow, Kernel, Sharesies ETFs)
- Let student loan be repaid automatically via PAYE
Student loan is last priority from a pure return-on-money perspective because it’s interest-free.
When Voluntary Repayment Makes Sense
Planning to move overseas: If you’re going to spend significant time overseas, the 3.5% overseas interest rate starts applying. Repaying before you leave avoids this cost.
Mortgage application: Lenders include student loan repayments in their income/expense assessment under CCCFA. A smaller loan balance = smaller mandatory repayment = better borrowing capacity for a mortgage.
Psychological well-being: Some people genuinely feel better without any debt, even interest-free debt. That’s a valid reason.
How Long Until Your Loan Is Repaid?
Automatic repayment estimate:
| Starting balance | Salary | Approximate years to repay |
|---|---|---|
| $15,000 | $50,000 | ~5 years |
| $25,000 | $55,000 | ~8 years |
| $35,000 | $60,000 | ~10 years |
| $40,000 | $70,000 | ~8 years |
Assumes 2% annual salary growth and no voluntary repayments.