KiwiSaver can't be used for loans

I finished university in 2014 and I've been working fulltime since then and paying off my student loan. I am planning to go overseas in August next year. By then I will still owe about $11,000 on my student loan. I don't know if I will be able to afford repayments once I leave New Zealand but I know I will have some minimum repayment obligations - plus interest will be charged. On the other hand, I have nearly $10,000 in my KiwiSaver. Is there any chance that I can apply to withdraw money from my KiwiSaver to pay off my student loan?

KiwiSaver is locked in to age 65 except in cases of first home purchase, permanent emigration, significant hardship, serious illness or death.

You can't withdraw your KiwiSaver to repay your student loan.

As student loans are interest-free while the borrower lives in New Zealand, there is usually no urgency to repay the loans at more than the required rate.

However, when you travel outside NZ for more than six months interest will be charged to the balance owing.

You should notify Inland Revenue as soon as you leave. You will then be classified as an overseas-based borrower.

The interest (currently 4.8 per cent per annum) won't be applied until you've been overseas for six months or more - but if you are away for longer than six months it is backdated to the day after you left New Zealand.

There are certain exemptions to this, for example if you are studying or working for the Government overseas, or volunteering.

To apply for an interest-free exemption your application must be in writing. You'll also need to provide evidence to support your application.

You can put your student loan repayments on hold with a repayment holiday. A repayment holiday lets you take a break from repaying your student loan for up to 12 months, but interest is still added to your loan during this time.

You must apply for a repayment holiday before you go overseas, or within six months of leaving New Zealand. All overseas borrowers not on a repayment holiday are required to make two minimum repayments (based on the size of their student loan) on or before September 30 and March 31 each year.

The Government provides incentives for students who have had the benefits of a taxpayer-subsidised tertiary education to stay in New Zealand and become taxpayers themselves.

Like many young people you may return to New Zealand within a few years, and perhaps apply for a First Home withdrawal.

You should let Inland Revenue know as soon as you return to New Zealand. In order for your student loan to be interest-free again, you will need to live in New Zealand for at least 183 consecutive days to become a New Zealand-based borrower.

Then all the interest applied to the loan since your return will be written off.

If you decide to stay overseas, after a year you can apply to cash up your KiwiSaver (you will need to provide proof that you have left permanently).

However, you will lose all the Member Tax Credits so you may choose to keep your KiwiSaver account active as a long term savings plan.

Even if you stay overseas for many years, you are not obliged to close your KiwiSaver account.

Under current rules if an overseas member leaves their fund to age 65 they can then withdraw all funds (including all government contributions) as long as they have an active New Zealand bank account.

- Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 06 870 3838 or go to www.peak.net.nz. The information in this article is general and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz