Key Points:

The National Party has announced it will keep the interest-free student loan scheme despite vigorous opposition to the scheme when it was first introduced.

John Key announced the decision at the party's three day caucus retreat in Rotorua.

Mr Key said the National Party would also provide an extra incentive to encourage student-loan holders to pay off their loans faster.

He said the policy would offer a ten per cent bonus on top of any voluntary lump-sum payments of $500 or more. The bonus would apply for ten years after repayments began.

Mr Key's announcement effectively amounts to a u-turn. Interest-free student loans were one of Labour's key election planks in 2005 and National criticised the scheme as "irresponsible" and "an election year bribe".

However, yesterday Mr Key said 500,000 New Zealanders now had student loans and "many have made long-term financial decisions on the basis of the current policy and we want to ensure they can plan with certainty".

He said it was unfair to play "ping-pong" with interest rates from election to election.