StudyLink (MSD) administers the initial capital lending and issues student loans, which are then transferred to IR. IR holds the total nominal debt, administers the initial fair value write-down expense and any subsequent fair value adjustments, and is also responsible for the collection of debt.
Student loans are designated at fair value through surplus or deficit under PBE IPSAS 41 Financial Instruments because borrowers only start repayments if they earn an income above a certain threshold.
The difference between the nominal value of the student loan and its fair value at initial recognition is recognised as an expense. The initial fair value is lower than the nominal value for a number of reasons, including that:
- some borrowers will never earn enough to repay their loans
- some overseas-based borrowers will default on their payment obligations
- the time value of money will erode the value of future repayments because there is no interest charged on New Zealand-based borrowers’ balances.
After loans are issued, an adjustment is made each month to unwind the interest. This adjusts the present value of the write-down over time. IR also receives repayments from borrowers.
At the end of the year, actuarial models are used to compare the nominal value to the fair value of the student loan portfolio, and the difference is recognised in the surplus and deficit of the Financial Statements of the Government of New Zealand. The difference is also disclosed in the Schedule of Non-departmental Gains and Losses. Details of the models are provided later in this note.
IR uses the following key terms to define student loan values:
- Fair value: The market value of student loans if they could be exchanged between knowledgeable, willing parties in an arm’s-length transaction.
- Nominal value: The total amount owed by borrowers at a point in time, including loan principal, interest, fees and penalties.
The nominal and fair values of student loans are shown below.
| Fair and nominal values | Note | Actual 2024 ($000) | Actual 2025 ($000) |
|---|---|---|---|
| Opening fair value | - | $9,372,547 | $9,596,393 |
| Repayments | - | $(1,596,723)[1] | $(1,562,697) |
| Borrowings transferred from the Ministry of Social Development | - | $1,348,087 | $1,709,079 |
| Initial fair value write-down on new borrowings | - | $(544,076) | $(585,247) |
| Fair value remeasurements | - | $355,000 | $378,300 |
| Interest unwind | 2 | $661,558 | $518,433 |
| Closing fair value | - | $9,596,393 | $10,054,261 |
| Current and non-current apportionment |
|||
| Student loans—current | - | $1,572,000 | $1,500,000 |
| Student loans—non-current | - | $8,024,393 | $8,554,261 |
| Fair value student loans | - | $9,596,393 | $10,054,261 |
| Opening nominal value | - | $15,942,333 | $15,867,554 |
| Repayments | - | $(1,596,723)[1] | $(1,562,697) |
| Borrowings transferred from the Ministry of Social Development | - | $1,348,087 | $1,709,079 |
| Penalties | - | $129,744 | $147,744 |
| Interest on overseas-based borrowers | - | $61,757 | $86,083 |
| Administration and establishment fees | - | $20,628 | $20,019 |
| Death and bankruptcies | - | $(34,512) | $(35,675) |
| Other | - | $(3,760)[2] | $(9,712) |
| Closing nominal value | - | $15,867,554 | $16,222,395 |
[1] Repayments in 2023–24 has been restated to include an amount of $240,000 which was classified as Other in 2023–24.
[2] During the year, small balance write-offs, fraud and remissions have been reclassified from Penalties to Other. The 2023–24 balances have been restated to reflect this reclassification.
Financial instruments—fair value hierarchy disclosures
For those instruments recognised at fair value in the Schedule of Non-departmental Assets, fair values are determined according to the following hierarchy:
- quoted market price (level 1)—financial instruments with quoted prices for identical instruments in active markets
- valuation technique using observable inputs (level 2)—financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable
- valuation techniques with significant non-observable inputs (level 3)—financial instruments valued using models where 1 or more significant input is not observable.
Student loans as at 30 June 2025 are valued using significant non-observable inputs (level 3). There are no quoted market prices (level 1) and no observable inputs (level 2).
The next section provides details on the model, and the table below, outlines the significant assumptions and sensitivities for the level 3 valuation technique.
Student loan valuation model
At the end of the year, the student loan portfolio is revalued to fair value by an independent external valuer using actuarial models. Stats NZ collates most of the data for the actuarial valuation model from IR, the Ministry of Education and MSD. The data is made up of borrowings, repayments, income, educational factors and socioeconomic factors. It is current up to 31 March 2024. In addition, supplementary data from IR and the New Zealand Customs Service about loan transactions and borrowers’ cross-border movements for the period up to 31 March 2025, is also included.
The fair value movement, recognised in the Schedule of Non-departmental Gains and Losses, relates to changes in discount rates, data and modelling, macroeconomic assumptions, policy changes and a reassessment of actual and expected repayments of loans and changes in borrower status, income or numbers. The fair value movement at 30 June 2025 is an increase of $378 million (2023–24: $355 million increase). This increase incorporates the following changes to the fair value:
- The discount rate adjustments have increased the value of the scheme by $469 million (2023–24: $80 million increase). This is largely due to risk-free rate and risk adjustment changes. The discount rates used for determining the fair value are equal to the Treasury’s prescribed risk-free rates for accounting valuations plus a risk adjustment. Since 30 June 2024, risk-free rates have generally decreased, resulting in a $212 million increase in fair value. Differences in the discount rates applied to interest unwind and initial fair value write-down contributed a further $72 million increase in fair value. The risk adjustment decreased from 1.26% to 0.79%, increasing the fair value by $185 million.
- Data and modelling changes have decreased the value of the scheme by $122 million (2023–24: $308 million increase). This is due to:
- updated sub-models for state transitions, domestic incomes and domestic repayments which have decreased the fair value by $11 million, $107 million and $53 million respectively
- updated overseas repayments sub-models which have increased the fair value by $116 million
- rolling forward the data by 1 year, which has decreased the fair value by $83 million
- other minor changes which have increased the fair value by $16 million.
- Other expected repayment adjustments have increased the fair value of the scheme by $31 million (2023–24: $33 million increase). These include the following:
- Updated macroeconomic assumptions have decreased the fair value by $31 million (2023–24: $59 million decrease). This can be broken down into 3 components:
- a decrease of $43 million due to updated salary inflation assumptions
- an increase of $6 million due to a small decrease to CPI assumptions (before the impact of the policy change to freeze the repayment threshold) resulting in higher domestic repayment obligations
- an increase of $6 million due to increased loan and late payment interest rates.
- The experience variance has decreased the value by $9 million (2023–24: $7 million decrease), due to lower-than-expected repayments and lower-than-expected write-offs.
- Updates to the expense assumption have decreased the value by $6 million (2023–24: $7 million increase).
- A policy change announced in February 2025 fixed the repayment obligation threshold for domestic borrowers to $24,128 indefinitely. This has increased the fair value by $77 million.
- Updated macroeconomic assumptions have decreased the fair value by $31 million (2023–24: $59 million decrease). This can be broken down into 3 components:
A breakdown of the fair value remeasurement — student loans reported in the Schedule of Non-departmental Gains and Losses is set out below.
| Remeasurement | Actual 2024 ($000) | Actual 2025 ($000) |
|---|---|---|
| Risk-free rates | $(94,000) | $284,500 |
| Risk adjustment | $174,000 | $184,600 |
| Discount rate adjustment | $80,000 | $469,100 |
| Data and modelling changes | $308,000 | $(121,600) |
| Experience variance | $(7,000) | $(8,600) |
| Expense assumption | $7,000 | $(6,500) |
| Macroeconomic effects | $(59,000) | $(31,300) |
| Policy changes | $26,000 | $77,200 |
| Expected repayment adjustments | $275,000 | $(90,800) |
| Total fair value remeasurement–student loans | $355,000 | $378,300 |
The student loan valuation model reflects macroeconomic assumptions, current student loan policy and announced policy where relevant. The fair value is sensitive to changes in a number of underlying assumptions and judgements, including future income levels, repayment behaviour and macroeconomic factors such as inflation and discount rates. The valuation has a degree of inherent uncertainty and there is a risk of material adjustment to the fair value in future accounting periods. The key risks are:
- The proportion of overseas-based borrowers (OBBs) making a repayment is an important metric for the scheme as the value of the loans for these borrowers hinges on the level of their compliance. As part of Budget 2024, IR was allocated ongoing funding to administer initiatives aimed at further improving OBB compliance. The June 2025 valuation uses repayment data up to 31 March 2025. There is evidence of ongoing improvements in OBB compliance up to 30 June 2025. Consistent with the approach for previous years, the valuation reflects the expectation of improvements not yet shown in the data by retaining the adjustment to recognise the effect of future improvements in the models. However, the limited historical data for the period when these initiatives were in effect and uncertainty of continued improvement poses a risk.
- There is uncertainty in the domestic and global economy as economies around the world experience interest rate reductions. While the previous high interest rates were successful in reducing inflation, they have had an unfavourable effect on growth and unemployment. There has been no explicit provision to the valuation to account for this. However, the fair value includes a risk adjustment, part of which accounts for general uncertainty in the economic outlook. In addition, macroeconomic forecasts used in the valuation take into account the current economic outlook. There is a risk that the fair value of the scheme may decrease at future valuations if the economic outlook worsens.
- Employment outcomes for leaving study, as well as the ability for borrowers not in substantive employment to gain substantive employment, are key drivers of the scheme value. There is a risk that the selected assumptions may not accurately reflect the future outcomes for the borrowers. The selected assumptions used to predict employment outcomes for borrowers are based on the most recent 3 years of experience data. They also take labour market forecasts into consideration. If a significant unemployment event were to occur, this would have a major impact on the fair value of the scheme.
The significant assumptions and sensitivities behind the fair value are:
| Assumptions and sensitivities |
Actual 2024 |
Actual 2025 |
|---|---|---|
| Assumptions | ||
| Fair value ($000) | $9,596,393 | $10,054,261 |
| Discount rate including an allowance for expenses | 6.48% | 5.67% |
| Interest rate applied to loans for overseas-based borrowers | 2.90% to 6.60% | 4.80% to 6.70% |
| Consumer Price Index | 2.00% to 5.65% | 1.92% to 5.65% |
| Future salary inflation | 2.95% to 4.96% | 2.09% to 3.00% |
| Sensitivities ($000) |
||
| Impact on fair value of a 1% increase in average wage earnings inflation over 5 years | $83,000 | $85,000 |
| Impact on fair value of a 1% decrease in average wage earnings inflation over 5 years | $(87,000) | $(88,000) |
| Impact on fair value of a 2.5% increase in probability of overseas-based borrowers making repayments | $218,000 | $267,000 |
| Impact on fair value of a 2.5% decrease in probability of overseas-based borrowers making repayments | $(177,000) | $(202,000) |
| Impact on fair value of a 1% increase in discount rate | $(416,000) | $(466,000) |
| Impact on fair value of a 1% decrease in discount rate | $457,000 | $515,000 |
| Impact on fair value of a 1% increase in probability of borrowers going overseas | $68,000 | $100,000 |
| Impact on fair value of a 1% decrease in probability of borrowers going overseas | $(45,000) | $(67,000) |
| Impact on fair value of a 1% increase in probability of borrowers returning to New Zealand | $59,000 | $85,000 |
| Impact on fair value of a 1% decrease in probability of borrowers returning to New Zealand | $(63,000) | $(95,000) |
| Impact on fair value of a 1% increase in probability of borrowers moving from low earner to high earner | $52,000 | $57,000 |
| Impact on fair value of a 1% decrease in probability of borrowers moving from low earner to high earner | $(55,000) | $(65,000) |
The scheme is exposed to a variety of financial instrument risks, including credit risk and interest rate risk.
Credit risk
Credit risk is the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid, resulting in a loss to the scheme.
The Student Loan Scheme does not require borrowers to provide any collateral or security to support advances made. As the total sum advanced is widely dispersed over a large number of borrowers, the scheme does not have any material individual concentrations of credit risk.
The credit risk is reduced by the collection of compulsory repayments through the tax system. This is less effective with overseas-based borrowers. Many New Zealand-based borrowers earning above the income threshold have compulsory deductions from salary and wages to repay their loans. Overseas-based borrowers are required to make repayments twice a year based on their loan balance. IR uses a variety of communications and targeted campaigns to reduce the risk of non-payment of obligations.
Loans are written off in the event of death or bankruptcy.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in interest rates.
Changes in interest rates impact discount rates. There is a risk that, if interest rates rise, the value of the scheme will significantly decrease as the discount rates applied to the expected future repayments will be higher, decreasing their value. Changes in interest rates could also impact on the Government’s return on loans advanced. The interest rate and the interest write-off provisions attached to student loans are set by the Government.
Final-year Fees Free Policy
In November 2023, the Government announced the introduction of the Final-year Fees Free policy, in 1 January 2025. Payments of Final-year Fees Free entitlements commence from 1 January 2026. Some borrowers who did not access the First-year Fees Free entitlement may utilise the Final-year Fees Free support during the 2025 academic year. At this stage, whilst there has been an increase in the volume of new loans, the impact on the Student Loan Scheme fair value is expected to be immaterial and has not been separately modelled in the scheme valuation.
Performance of the scheme
A detailed explanation and insights into the performance of the scheme is available in the Student Loan Scheme Annual Report at:
Student Loan Scheme Annual Reports (educationcounts.govt.nz)