The much-celebrated wiping of interest on student loans is due take effect this Saturday.

The legislation passed late last year, which was labelled a “wonderful win for the student movement” by the New Zealand Students’ Association, wipes interest on student loans from 1 April for graduates living in New Zealand.

Promised by the Labour Government during last year’s general election campaign, the changes to the scheme have been labeled a ‘bribe’ and as ‘irresponsible’ by opposition parties. Critics say the changes are open to exploitation by financially savvy students.

Michael Cullen, Minister for both Finance and Tertiary Education, says although he expects “some reductions on voluntary repayments”, he does not believe the new system is “going to be open to significantly greater exploitation than the previous system.”

While the number of students drawing their full loan entitlements are expected to grow – to as high as 95% of full time students by 2009, Cullen says preliminary data reveals the uptake this year is not as high as expected. However, he says it is possible for the numbers to change.

To be eligible for the interest write off, you must have lived in New Zealand for six months, and must not leave the country for longer than six months. Although interest will still be charged, it will be automatically wiped at the end of the year.

Borrowers living away from New Zealand will still be charged interest at a rate of 7% per annum.

NZUSA Co-President Conor Roberts says the implementation of the interest-free policy is the “biggest attack on the student debt monster in a decade.” Student debt reached a total of eight billion dollars at the end of last year.

More information can be found on the Inland Revenue website at www.ird.govt.nz.