The Government has scrapped a controversial change to the student loan scheme that would have forced university students working in their holidays to make repayments.

The move follows a public backlash against the proposal, which was one of several changes suggested by the Inland Revenue Department to simplify the management of loan repayments. Borrowers earning more than $19,084 a year must make repayments, but the changes would have extended the threshold to those on a weekly wage of more than $367.

Revenue Minister Peter Dunne said public consultation showed the change was unpopular. "There were several hundred written responses on the proposed changes and those that chose to comment on the issue were pretty strongly opposed to it.

"The maximum amount we might be asking students to repay might be $500 over the holiday period, but that's still a hell of a lot of money for students. They may well end up paying off the loan but borrowing more to recover."

New Zealand Union of Students' Associations co-president Jordan King said the Government had seen sense. "This would have really penalised the high percentage of students who use the holiday time to get the income they need for the rest of the year."

Victoria University student president Jasmine Freemantle said students would have been forced to make repayments on their loans when they could not afford to.

The change would have seen the threshold at which people must begin repayments shifted from an annual figure to one based on a weekly, fortnightly or monthly pay cycle.