Student loan holders are about to be hit with a $40 administration fee for every year they don't repay their loan.

The move, to be introduced next year, will affect around 500,000 people and is designed to generate $20 million a year for Inland Revenue.

It also comes on top of increased fees for 200,000 students who take out loans while they are studying each year.

Students pay $50 each time they draw down money on their loan but from next year, that will increase to $60, generating $12 million a year for the Ministry of Social Development, which administers the loans.

The $40 administration fee will kick in once a student has finished studying and the loan is transferred to Inland Revenue to be repaid.

Tertiary Education Minister Steven Joyce said there had been some "pushback" from certain groups as to whether the fees should be there.

"But, I think it's pretty straightforward. Since the loans have been interest-free, there has been literally no recovery of the costs of loans.

"Even if you accept the view, which we have, that interest-free is appropriate, that still means the costs of running a loan system should be recovered - and they are not cheap."

Mr Joyce said the administration fee was similar to a bank fee.

"This administration cost will cover the cost of maintaining a loan account, collecting a loan, all those sorts of things.

"I think it's entirely fair. The reality is that the taxpayers currently pay 75 per cent on average of domestic students' tuition fees.

"They pay 45 cents in the dollar, even after these changes for the student loans that students take out, and in many cases they also pay student allowances."

Mr Joyce said the student loan system was "easily the most generous system in the OECD if not the whole world".

"I think it's entirely reasonable that the administration cost of running the scheme be paid for by the students."

However, David Do, co-president of the Union of Students Associations, said the new fee was unfair as it effectively negated a 10 per cent bonus the Government had given students who voluntarily repaid an extra $500 off their loan.

"If a borrower pays $500 to get the 10 per cent bonus, this account fee will snatch that away.

"This is a backward step that will affect hundreds of thousands of New Zealanders, and make it harder for them to pay off their loans."

Mr Do said moves by IRD to increasingly put loan management systems online should have reduced administration costs.

"Hence, we question the purpose of the admin fee if admin costs go down due to greater efficiency through online management."