Student Loan Scheme Annual Report 2009

Publication Details

The Annual Report for 2009 provides information on the scheme and those who borrowed from it in 2008, as well as the financial schedules for the fiscal year to 30 June 2009.

Key findings in the report are:

  • The nominal value of loan balances was $10.259 billion as at 30 June 2009
  • 179,000 students borrowed from the loan scheme in 2008 (69% of eligible students)
  • As at 30 June 2009 562,000 people had a student loan with Inland Revenue for collection
  • The median repayment time for those who left study in 2006 is forecast to be 7 years

Author(s): Ministry of Education

Date Published: November 2009

Please consider the environment before printing the contents of this report.

This report is available as a download (please refer to the 'Downloads' inset box).  To view the individual chapters please refer to the 'Sections' inset box.  For links to related publications/ information that may be of interest please refer to the 'Where to Find Out More' inset box.

Appendices

Appendix 1: Elements of the Student Loan Scheme

The legal structure and authority of the Student Loan Scheme

Students enter into a credit contract with the Crown under the Credit Contracts and Consumer Finance Act 2003.

All policy decisions on entitlements and eligibility criteria for a student loan are made by Cabinet and incorporated in the student loan contract. Lending under the Student Loan Scheme is administered by StudyLink.

The assessment of student loan repayment obligations and the collection of student loan repayments are set out in the Student Loan Scheme Act 1992 and are administered by Inland Revenue.

Eligibility

Only qualifications funded by the government can be approved for the purposes of a student loan – people who choose to do other courses are not eligible for a student loan.

Students younger than 18 years old need parental consent before they can borrow.

Undischarged bankrupts are not eligible to apply for a student loan. An insolvent debtor status, the 'no asset procedure', was put in place by the Insolvency Act 2006 as an alternative to bankruptcy. This procedure lasts for 12 months instead of the normal three-year term for bankruptcy. 'No asset procedure' debtors are able to access the loan scheme.49

When a student has entered into the 'no asset procedure', they must declare it on their loan application or complete a change of circumstances form if they are currently receiving a student loan. Failure to declare is both a breach of the loan contract and an offence under the Insolvency Act 2006.

To be eligible a student must:

  • be a New Zealand citizen or have been granted permanent residence in New Zealand, and
  • be enrolled in an approved qualification50 offered by a recognised tertiary education provider, and
  • be studying:
    • full-time for not less than 12 weeks, or
    • part-time for a full year (32 weeks or longer), or
    • part-time for part of the year (less than 32 weeks) with a course load of 0.25 equivalent full-time student units or more.

Loan components

A student loan has four components:

Compulsory fees

Students can borrow the full amount of their compulsory fees. These are direct-credited to the borrower's chosen tertiary education provider.

Where compulsory, students' association fees can be borrowed as part of the compulsory fees loan entitlement. Otherwise, students' association fees can be borrowed as part of a student's course-related costs entitlement.

Course-related costs

Students can borrow up to $1,000 each year to help cover expenses related to their studies such as equipment, textbooks and field trips. Students have to provide justification of their expenses. This can be either a statement from their provider listing the items needed for their course and an estimate of the cost, or receipts for expenditure incurred. Students studying part-time for part of the year are not able to access this component of the loan scheme.

Living costs

Only full-time students are eligible for the living costs entitlement for each week of the course, less any student allowances.51 The living costs entitlement is paid in weekly instalments in arrears. In 2009, living costs were indexed by inflation following a one-off increase from $150 to $155 per week. In 2009/10 students can borrow up to $160.24 per week.52

Students nominate the amount they wish to draw each week up to the maximum entitlement. If they nominate less than their full entitlement, the remainder cannot be claimed retrospectively at a later date.

Administration fee

When a new loan account is established, an administration fee of $50 is charged. This is added to the student's loan balance when the student first draws from the loan account, or when fees are transferred to the provider (on the student's instructions). The administration fee is charged only once in each 12-month period.

If a student cancels the loan within seven days of the account being established, and repays any money that has been drawn down, the $50 administration fee (and any interest on it) will be waived. Otherwise, the administration fee is always included in the loan balance.

Loan repayments

The collection of loan repayments is handled through the taxation system. Borrowers have different obligations depending on whether they are New Zealand-based borrowers or overseas-based borrowers.

New Zealand-based borrowers

The amount a New Zealand-based borrower is required to repay is based on income. Any borrower earning over the repayment threshold during a tax year is required to make repayments towards the loan. In the tax year from April 2008 to March 2009, the threshold was $18,148 (for the 2009/10 tax year the threshold is $19,084). Compulsory repayments are made at the rate of 10 cents for every dollar of income over the repayment threshold.

Where a borrower earns more than the repayment threshold (through salary, wages, student allowances, or income support), they are required to advise their employer(s) that they have a student loan, by nominating a student loan tax code. Repayment deductions are then made from their income by their employers, along with other PAYE (pay as you earn) deductions. Employers forward the repayment deductions to Inland Revenue, and they are then credited to borrowers' student loan accounts.

Self-employed borrowers

Self-employed borrowers earning income in excess of the repayment threshold are generally required to make repayments directly to Inland Revenue in three interim instalments. Interim instalments are required if the repayment obligation for the previous year, less any repayment deductions made by employers, was more than $1,000.

Overseas-based borrowers

Overseas-based borrowers have a different repayment obligation from those based in New Zealand, where repayment obligations are based on income. The repayment obligations are calculated as shown in Table 28.

Table 28: Overseas-based borrowers' repayment obligation from 1 April 2007
Note:
  1. Source: Inland Revenue.
Loan balance Amount due per year
Under $1,000 The whole loan balance
Over $1,000 and up to $15,000 $1,000
Over $15,000 and up to $30,000 $2,000
Over $30,000 $3,000


From 1 April 2007, some overseas-based borrowers are able to take a repayment holiday for three years. Borrowers do not have to make repayments, although their loans will still attract interest. Those entitled to the repayment holiday include those who went overseas after 1 April 2007 and those who were already overseas and had either kept up to date with their repayments or had been overseas for less than a year.

Voluntary repayments

By making voluntary repayments towards their student loan, borrowers can repay their loan faster. Borrowers are able to make voluntary repayments towards their student loan at any time; they don't have to wait until the end of the tax year.

Voluntary repayments can be made in a number of ways, including through a borrower's salary or wages, by automatic payment or online.

Borrowers who are overseas can also make voluntary repayments at any time. For these borrowers, making voluntary repayments may reduce the amount of interest they are charged and enable them to repay their loan faster. Repayments from overseas can be made by telegraphic transfer, MasterCard or Visa.

Overdue repayments

Collection of overdue loan repayments is achieved in the same way as for overdue taxes.

Interest is not charged on overdue repayments. However, from 1 April 2007, borrowers are charged a penalty of 1.5 percent (previously 2 percent) per month on outstanding amounts greater than $333 (previously $250). Penalties continue to be charged on the total outstanding (including penalties) until the amount is repaid in full.

Any borrower having difficulty repaying an overdue student loan debt is able to negotiate an arrangement for repayment. A borrower may also negotiate a lower repayment amount if the compulsory repayment obligation would cause serious financial hardship. In certain circumstances, a borrower may have an overdue amount added back to the loan principal.

Interest

Most borrowers no longer pay interest on student loans because they are New Zealand-based. To be eligible, student loan borrowers must be living in New Zealand for 183 consecutive days or more, or qualify for an exemption from being overseas-based borrowers.53 In the tax year from April 2006 to March 2007 the interest was written off after the end of the tax year. After 1 April 2007, the interest write-off on loans held by Inland Revenue has been concurrent with the interest charge.

Those borrowers who do not qualify for an interest-free student loan, defined as 'overseas-based borrowers', will continue to be charged interest at the rate set each year. Borrowers who have returned to New Zealand after being classified as overseas-based have interest charged for the first 183 days without the concurrent write-off. However, once 183 days have passed, the interest charged from the date they returned is written off and the daily concurrent interest write-off takes over.

Interest is made up of the base interest rate and an interest adjustment rate, which is sometimes called the inflation component. The total interest rate for the tax year from April 2007 to March 2008 was 6.8 percent. This was reduced to 6.7 percent for the tax year from April 2008 to March 2009.

Small balance write-offs

Small balance write-offs54 occur where a borrower has repaid most of the loan and only a minor balance (a few dollars and/or cents) is outstanding. These amounts are written off in accordance with sections 51 and 60 of the Student Loan Scheme Act 1992.

Appendix 2: Forecasting and costing

A stochastic model is used to forecast the value of the loan scheme and to cost policy options. The model starts with actual data and projects future trends in student loans, utilising the past behaviour of borrowers to model future events.

Student Loans Integrated Model (SLIM)

SLIM is built on the integrated dataset on student loans and allowances, so it draws on data about the actual behaviour of individual borrowers (including former loan borrowers). Actuaries engaged by the Ministry of Education have rebuilt the model each year, using the most up-to-date information. The experience of past borrowers forms the core of the model, and is used to predict what present and future borrowers will do in the future.

However, the loan scheme is in a far from steady state; policy changes such as the interest-free policy and a revised overseas repayment regime have affected borrowing and repayment behaviour and the full effects of those changes are not necessarily reflected in the data on which the model is built.

The administrative data upon which SLIM 2009 was built runs from the beginning of the loan scheme in 1992 to the end of March 2008, that is, after the second full year of the interest-free policy and after the first year of a new classification of overseas-based borrowers. Between that date and the valuation date there is a 'lag' of 15 months. To allow for changes during that period, the data-based models are adjusted by the most recent administrative data, in particular, data related to the reduction in the levels of underpayments due to recent measures by Inland Revenue, and the changes to the level of voluntary repayments due to the introduction of the voluntary repayment bonus.

SLIM benefits from a longitudinal dataset that becomes increasingly rich as further years of data are integrated each year. It gives agencies, researchers and the public a clearer understanding of the loan scheme's probable future status and outcomes. It enables more accurate assessments, for example, the likely effects of the loan scheme or of policy changes on different groups, such as ethnic groups or gender, and the borrowing and repayment behaviour of borrowers in different fields or levels of study.

SLIM is based on a large number of categorical and regression tree models developed from the integrated dataset. The 2009 version of SLIM has 28 sub-models comprising 44,000 lines of decision-tree code. Together, these sub-models encapsulate former borrowers' borrowing, repaying, income growth, travelling overseas and other characteristics. A number of borrower features, including residency, income, study duration, borrowing amounts and voluntary repayments, are modelled and projected into the future.

Each sub-model uses a number of predictive variables (for example, study-related fields such as the level of study undertaken and the completion status, or demographic fields such as age and gender, or loan-related data such as the loan balance, amount borrowed and so on). SLIM works out the probabilities that an individual is going to be enrolled or not enrolled, earning or not earning, or overseas. It then proceeds to model the income of the individual and their repayment obligations. From there the expected repayments in each year for each individual are calculated.

Table 29: Summary of SLIM model assumptions
Note:
  1. Source: Ministry of Education.
Area Assumption
Enrolment & student loan uptake assumptions As forecast for the Budget Economic and Fiscal Update 2009, using the most up-to-date enrolment and borrowing data available at that time.
Economic assumptions For valuation purposes, economic assumptions are set by the consulting actuaries in consultation with The Treasury, Inland Revenue, the Ministry of Social Development and the Ministry of Education. For example, annual CPI growth is assumed to be 1.5 percent in 2009 increasing to 2.5 percent from 2014 onwards, and the long-term Average Weekly Earnings growth is 1.5 percent in 2009 and increases to 3.5 percent from 2015 onwards.
Discount rates The carrying value of student loans is based on discount rates that are set for each cohort of new borrowers at the time they first borrow, as explained in chapter 5.
The fair value is based on discount rates that incorporate risk-free rates, derived for each year from the government bond market, plus a risk margin. These are equivalent to a single annual discount rate, which for this year's valuation is estimated to be 9.18 percent.
Income of borrowers Personal income growth from 'career advancement' is modelled from the experience of the loan scheme and from Census data for longer durations. Salary inflation is imposed on top of this 'career advancement' analysis as an economic assumption.
Transitions between being a student, employment & overseas Modelled from the experience of the loan scheme's participants.
Voluntary repayments The probability and amount of voluntary repayments are modelled from the integrated data relating to the first year following the introduction of the interest-free policy, i.e. the data from 1 April 2006 to 31 March 2007. It is assumed that the pattern from that year is representative of future years.
Threshold increases Assumed to follow CPI growth.
Resident under-payments The probability and amount of under payment by residents has been modelled from the second to last year of integrated data and adjusted for the expected effect of new measures being put in place by Inland Revenue to improve compliance.
Repayment holiday Data was available this year indicating, of those overseas, who is on a repayment holiday and how many years of repayment holiday entitlement they have remaining. This data was used as a starting point in the projections. Also, based on past experience, all those going overseas for the first time were assumed to go on a repayment holiday.
Overseas amnesty This was modelled based on figures supplied by Inland Revenue and only applies to the first year of projection. Of those randomly selected to represent those on the amnesty, 12.6 percent were assumed to become non-compliant in the first year of projection. For these borrowers, a one-off penalty was applied to their outstanding loan balance.
Bankruptcy Age-specific, graduated rates were constructed based on the experience of the loan scheme. For example, the rate of bankruptcy at age 40 is 2.28 per 1,000 borrowers each year.
Mortality Based on the experience of the loan scheme: males 57 percent and females 68 percent of the New Zealand Life Tables 2000-2002.


Appendix 3: Estimated administration cost

The cost of administering the loan scheme varies from year to year, depending on the number of borrowers, the number of transactions, and any system changes required for the implementation of new policies. Borrowers contribute to the cost of administering the loan scheme through an administration fee, which is charged to the borrower's account when it is first used.

Table 30 shows the estimated costs of the payment and collection agencies, the Ministry of Social Development and Inland Revenue respectively, and the total cost of operating the scheme after deduction of administration fees.

Table 30: Estimated administration cost 2004/05–2008/09
Note:
  1. Source: Ministry of Social Development and Inland Revenue.
  2. All amounts exclude GST.
  3. All figures for cost are estimates. They include estimated administrative cost and estimates of operating initiatives. For example, Inland Revenue made system changes to implement interest-free student loans and the amnesty, and the Ministry of Social Development madeimprovements to systems and support services. The figures do not  include costs of other agencies such as the Ministry of Education or education providers.
  4. Inland Revenue has revised and improved  its costing methodology. Some figures from earlier years have been revised and therefore differ from those previously published.
  5. Inland  Revenue administration costs for 2008/09 were lower than in 2007/08 mainly because of one-off funding for the Student Loan Overseas Borrowers Project in 2007/08.
 2004/05
$ million
2005/06
$ million
2006/07
$ million
2007/08
$ million
2008/09
$ million
Ministry of Social Development 11.8 13.3 17.5 17.0 17.0
Inland Revenue 9.6 18.3 22.7 26.4 22.2
Gross administration cost 21.4 31.6 40.2 43.4 39.2
Less loan administration fees 7.5 8.0 8.7 8.6 9.6
Net administration cost 13.9 23.6 31.5 34.8 29.6


Appendix 4: Glossary

Academic year
The academic year is from 1 January to 31 December.

Approved qualification
A formally assessed qualification approved by the New Zealand Vice-Chancellors' Committee or the New Zealand Qualifications Authority (NZQA) or bodies delegated by NZQA.

Borrower
Any person who has drawn from the Student Loan Scheme.

Borrowers overseas
Until 31 March 2007, a borrower living overseas was called a non-resident borrower and defined as a borrower not living in New Zealand in terms of section OE 1 of the Income Tax Act 1994.

From 1 April 2007, borrowers living overseas are referred to as overseas-based borrowers. An 'overseas-based borrower' now includes anyone not eligible for an interest-free student loan.

Cohort
A group of people with a common statistical factor. For example, a cohort could be a group of students for whom 2008 is their first year of tertiary education.

Compulsory fees or tuition fees

Compulsory fees charged for tuition by public and private tertiary education providers.

Compulsory repayments
Compulsory repayments are when a borrower has to start repaying his/her loan because his/her income has crossed the repayment threshold. When this happens, loan repayments must be made to Inland Revenue, even if the borrower is still studying. The repayments are 10 cents in every dollar earned over the repayment threshold.

Course
A course is a component of education encompassing teaching, learning, research and assessment. Papers, modules and unit standards are all terms that are sometimes applied to courses. A course or collection of courses forms a programme of study which, if completed successfully, results in the award of a qualification.

Course-related costs
These are the additional expenses associated with tertiary study that are not compulsory for all students. These can include such costs as equipment, textbooks, field trips, and transport to and from classes.

Equivalent full-time student
'Equivalent full-time student' is a measure used to count tertiary student numbers. A student taking a normal year's full-time study generates one 'equivalent full-time student' unit. Part-time or part-year students are fractions of a unit.

Fair value
The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Fee and Course Costs Maxima policy (FCCM)
This policy replaced the fee stabilisation policy from 2004. There are three dimensions to this policy: an increase in subsidy rates, an annual fee movement limit, and a set of maximum fee levels. The policy rationale was to provide certainty for students as to future costs, while allowing providers some flexibility in setting their fees.

Fee stabilisation policy
The fee stabilisation policy was introduced in 2001 to prevent increases in tuition fees before the FCCM policy was developed. The policy involved institutions agreeing not to increase their fees and the government increasing tuition fee subsidies.

Fiscal year
Government's accounting year – starting on 1 July and ending on 30 June.

Formal education/study
Learning opportunities within the New Zealand tertiary education system can be categorised as formal (that is, contributing towards a recognised qualification) and non-formal (that is, not contributing towards a recognised qualification).

Full-time
Any programme of study undertaken by a student that is either:

  • 32 weeks or more and at least 0.8 equivalent full-time student units is designated full-time, full-year, or
  • 12 weeks or more and at least 0.3 equivalent full-time student units or the equivalent on a pro rata basis (for example, 24 weeks and 0.6 equivalent full-time student units is designated full-time, part-year).

This definition is used to determine eligibility for the living costs component of the student loan and for student allowances. It was used in applying the student loan full interest write-off for full-time students, which has now been replaced by a full interest write-off for New Zealand-based borrowers (interest-free student loans).

Impairment
A decrease in the value of a long-term asset to an amount less than that shown.

Income year or tax year
From 1 April to 31 March.

Industry training organisations (ITOs)
These are organisations that develop high-quality, systematic training arrangements (through tertiary institutions, private training establishments and the workplace) for employees in their industry.

Institutes of technology
'Institutes of technology' is an alternative name for polytechnics. Institutes of technology and polytechnics are public tertiary education institutions characterised by diverse vocational and professional programmes.

Integrated dataset
The integrated dataset is managed by Statistics New Zealand.

It combines:

  • information collected by tertiary education providers on students, enrolments and courses
  • information collected by StudyLink on students' borrowings under the loan scheme and student allowances payments
  • data on student loan balances, repayments, income and tax status from Inland Revenue.

Interest-free student loans
From 1 April 2006, student loans for borrowers living in New Zealand for 183 consecutive days or more (about six months), and for borrowers who are exempt, are interest free. This is the 183-day requirement.

Interest rate setting
This is the annual process by which the Order in Council sets the loan scheme's interest rate.

Interest unwind
Refer to chapter 4.0.

Interest write-offs
In some previous years, interest has been charged on student loans. There were a number of provisions under which this interest was written off or cancelled. From 1 April 2007, interest write-offs ceased to exist due to the introduction of interest-free student loans. For more detail refer to previous years' reports and the web document Changes to the student support system to be found at www.educationcounts.govt.nz.

New borrowers
Borrowers who entered the loan scheme for the first time in a given year. For example, 2008 new borrowers are those that entered the loan scheme for the first time in 2008 and 2007 new borrowers are those that entered the loan scheme for the first time in 2007. A small number of new borrowers may have also borrowed during the 1990s.

New Zealand-based borrowers
All borrowers who qualify for an interest-free student loan.

Non-degree
Non-degree level applies to programmes of study and qualifications that are not at degree or postgraduate level.

Non-resident borrower
A borrower who is not living in New Zealand in terms of section OE 1 of the Income Tax Act 1994. From 1 April 2007, this definition has been replaced by 'overseas-based borrowers'. Overseas-based borrowers are all borrowers who are not eligible for an interest-free student loan.

Other tertiary education providers (OTEPs)
Providers recognised by the Minister of Education under section 321 of the Education Act 1989 as bodies that provide an educational or developmental service or facility.

Overseas-based borrowers
All borrowers who are not eligible for an interest-free student loan.

Part-time
A programme of study that is less than full-time.

Pasifika
This is a collective term for people of Samoan, Cook Islands, Tongan, Niuean, Tokelauan, Fijian and other Pasifika or mixed heritages. It includes a variety of combinations of ethnicities, recent migrants and third, fourth and fifth generation New Zealanders.

Private training establishments (PTEs)
These are private providers of tertiary education registered with the New Zealand Qualifications Authority.

Programme of study
A programme of study is a collection of courses, classes or work that lead to a qualification.

Qualification
An official award given in recognition of the successful completion of a programme of study that has been quality assured by a recognised quality assurance agency. All recognised qualifications must be registered on the New Zealand Qualifications Authority's Register of Quality Assured Qualifications.

Repayment deductions
Amounts deducted by employers from a borrower's salary or wages when a borrower's income exceeds the repayment threshold and where the borrower has notified their employer of their student loan repayment obligation, by using the appropriate tax code.

Repayment obligation
The amount a borrower is required to repay toward their loan in any given income year. For resident borrowers, this is calculated as the amount by which the borrower's net income exceeds the repayment threshold, multiplied by 10 percent. From 1 April 2007, the amount of repayment for overseas-based borrowers is based on the size of their loan.

Repayment threshold
The amount a person can earn in a year before they have to start paying back their loan ($18,148 before tax from 1 April 2008 to 31 March 2009). Once a person earns more than the threshold, they will have to pay 10 cents for every dollar earned over the threshold.

Resident borrower
Until 31 March 2007 this referred to a person who is resident in New Zealand in terms of section OE 1 of the Income Tax Act 1994. From 1 April 2007, we refer to New Zealand-based borrowers – this term includes all borrowers who qualify for an interest-free student loan.

Student allowances
Income-tested grants that provide living support while studying.

Student Loan Accounts Manager
Contracted by the Ministry of Education to manage loan accounts prior to the transfer of the loan scheme to Work and Income.

Student Loans Integrated Model (SLIM)
Refer to chapter 4 and appendix 2.

Study status
This refers to whether a person is studying full-time or part-time.

StudyLink
StudyLink is responsible for the delivery and administration of student loan payments, student allowances, Step Up Scholarships and the unemployment benefit (student hardship). StudyLink is part of the Ministry of Social Development.

Tax year
From 1 April to 31 March.

Tertiary education
Tertiary education comprises all involvement in post-school learning activities, including industry training and community education.

Tertiary education institutions (TEIs)
Tertiary education institutions are public providers of tertiary education. TEIs are universities, institutes of technology and polytechnics, and wānanga. On 1 January 2007, the last two remaining colleges of education merged with their local universities.

Tertiary education organisations (TEOs)
These are all institutions and organisations that provide or facilitate tertiary education. They include tertiary education providers and industry training organisations.

Tertiary educationproviders (TEPs)
Tertiary education providers are all the institutions and organisations that provide tertiary education. These include public tertiary education institutions, private training establishments, other tertiary education providers and government training establishments.

Tertiary Education Strategy (TES)
The Tertiary Education Strategy sets the Government's goals and priorities for New Zealand's tertiary education system so that it contributes to New Zealand's national goals and is closely connected to enterprise and local communities.

Total interest rate
This is the interest charged on loans. Interest is adjusted annually from 1 April. The total interest rate was 6.8 percent for 2007/08, 6.7 percent for 2008/09 and is 6.8 percent for 2009/10. From 1 April 2006, only overseas-based borrowers are liable for interest.

Tuition fees or compulsory fees
Compulsory fees charged for tuition by public and private tertiary education providers.

Voluntary repayments
Any student loan repayment that is made over and above a borrower's compulsory annual repayment obligation and is not an overpayment.

Wānanga
A public tertiary institution that provides programmes with an emphasis on the application of knowledge regarding ahuatanga Māori (Māori traditions) according to tikanga Māori (Māori custom).

Footnotes

  1. 'No asset procedure' debtors' loans cannot be written off as the loans of bankrupts are.
  2. Only qualifications that receive student component funding (or other government funding) can be recognised for student loan and student allowances purposes by the Tertiary Education Commission.
  3. Information on student allowances is available on the StudyLink website www.studylink.govt.nz.
  4. This component is indexed by inflation on 1 April each year.
  5. Some borrowers may qualify for exemption from interest charges if they are overseas and, for example, they are studying or working as a volunteer. Full details are available at www.ird.govt.nz/studentloans/.
  6. If a borrower has a loan balance of less than $20 as at the last day of any income year, the loan balance is written off.