How to prevent a student loan arrest

The arrest of a woman over her student loan debt would only have been carried out after multiple attempts by Inland Revenue to contact her, a lawyer says.

She was arrested at Auckland International Airport last Friday. Her case has been described as a result of student loan debt reaching ‘‘crisis levels’’ nationwide.

So when can a person be arrested over their student loan debt, and what happens to them afterwards?

Inland Revenue has the power to issue arrest warrants when overseas-based debtors are in default of their payments, have been informed of that fact by the Commissioner of Inland Revenue, have made no steps to remedy the breach, and are attempting to leave New Zealand.

Lawyer Graeme Edgeler said the arrest was a way to get the person in front of a court to address their unpaid debt.

Technically, there is no ‘‘threshold’’ or a total of how much money has to be owed before an arrest is warranted.

‘‘However, it wouldn’t be done for something like 50 bucks,’’ he said.

‘‘Nine arrests in four or five years show this is rare.’’

Three alleged student loan defaulters were arrested in 2016, one in 2017, two in 2018 and two in 2019.

Inland Revenue has said arresting someone over their student loan debt is a ‘‘last resort’’.

It would not disclose any details about the woman who was arrested due to secrecy obligations under the Tax Administration Act.

However, Edgeler said he could gauge a rough idea about what steps were undertaken prior to her arrest, based on another arrest over student loan debt in 2016.

Court documents, requested by Edgeler, detailed the sequence of events undertaken by Inland Revenue before the eventual arrest.

The student became classified as an overseas-based borrower in April 2007, after leaving New Zealand for a period of more than 184 days.

First, he was issued eight letters, or notices of assessment, detailing his outstanding debt every year from 2007 to 2014.

He had made no payments or arrangements, Edgeler said.

Second, Inland Revenue tried to contact the student after he re-entered New Zealand three times in 2015.

Each time it attempted to contact him via the telephone number, email address, and address provided on his arrival card.

Inland Revenue also tried to contact the man via his previous employers and left several voice messages.

Finally, in September 2015, Inland Revenue sent a final demand letter to the borrower, saying he must either make a full payment of the arrears or enter into a payment arrangement. He was warned that if he didn’t, he would face arrest.

The student arrived in New Zealand in January 2016 and Inland Revenue once again tried to contact him through three different channels, Edgeler said.

When there was still no response, he was arrested at Auckland International Airport.

Legislation introduced in 2014 gave Inland Revenue the authority to apply for arrest warrants for student loan defaulters leaving the country.

Arrests are warranted under the Student Loan Scheme Act 2011, section 162a, and are determined on whether that person is about to leave, or is attempting to leave New Zealand.

A person is determined to have committed an offence under this section if they knowingly fail, or refuse, by an agreed date to make a reasonable effort to pay.

A district court can then determine the likelihood of the person trying to leave the country without making attempts to pay Inland Revenue.

If the court thinks the person is a flight risk, it can order that person to either pay the amount, surrender travel documents, or ask for written permission to leave the country.

The maximum sentence for conviction is three months jail or a fine of $2000.

Inland Revenue also has the power to arrest in the case of unpaid child support, if the paying parent was planning to leave New Zealand for an extended period without addressing the arrears.

The Student Loans Act and Child Support Act contain the conditions by which a warrant may be issued in each situation.

Interest is not applied to the student loans of people living in New Zealand.

People need to be in the country for at least 32 days in any 183-day (six-month) period to be considered a New Zealandbased borrower.

Student loans start to accumulate interest once a person has left the country for more than 183 days.

The interest rate changes on April 1 every year. It is currently 4 per cent.

Borrowers overseas are required to make minimum repayments – based on their student loan balance – to avoid late penalties.

For loans between $1000 and $15,000, two payments of $500 must be made each year.

The total value of all student loans was $16 billion at the end of 2018/2019, according to the Student Loan Scheme Annual Report

2019.

In 2018, overdue student loan debt was

$1.5b, with overseas-based borrowers owing 91 per cent of that.

The number of borrowers with overdue payments increased by 2.7 per cent in that year.