Kiwis go bankrupt to wipe student loans
At least 18 Kiwis living in Australia have gone bankrupt to wipe their student loans as the Government is accused of acting like a ‘‘dodgy loan shark’’ in its clampdown on defaulters.
New Inland Revenue Department (IRD) figures show the 10 biggest overseas student loan debts wiped due to bankruptcy over the past four years each exceeded $193,000.
The disclosure comes as the tax department ramps up its pursuit of overseas defaulters abroad, with a third arrest occurring in the past week of a graduate based in Australia.
Overseas-based debtors are responsible for just over $982 million of loans in default, and about 60 per cent of those are believed to be in Australia.
New Zealand Union of Students’ Associations president Linsey Higgins said young Kiwis viewed tertiary education and the traditional ‘‘OE’’ as rites of passage but struggled with interest and penalties added to their student loans once they left New Zealand.
‘‘Sometimes I consider the Government to be kind of like a dodgy loan shark,’’ she said. ‘‘If you went to buy a car and got a loan for it, you would look at your contract and make inquiries, sign it, and nothing would change.
‘‘But if you get a student loan, everything can change each year. Next year, they could add interest on your loan; they could raise to 19 per cent repayment thresholds, right? That uncertainty in any other financial agreement would be considered predatory.’’
IRD has applied for six arrest warrants so far, and New Zealand and Australia have increased information sharing as the department tries to contact Kiwi defaulters to rake back payments.
‘‘I think a lot of these people who make the decisions grew up when they got a free tertiary education and they are doing well now because they didn’t have to pay for their tertiary education. I think it’s hypocritical for them to say now we need to swallow the bitter pill.’’
Overall student loan debt hit $15 billion in recent months. About $16m in bad loans was written off because of bankruptcy in the year to June 2015.
Between 2009 and October 2014, Ministry for Business, Innovation and Employment figures show 55 people took bankruptcy, with their only debt being a student loan.
As of April this year, 18 Kiwi bankrupts living in Australia had become insolvent, despite their main or only debt being their student loan.
Labour education spokesman Chris Hipkins said he personally supported free tertiary education, but students knew the contract they were entering when they borrowed and should honour it.
‘‘To be honest, I’m surprised they are allowed to declare themselves bankrupt in situations where their student loan is their only debt. You can’t declare yourself bankrupt to avoid child support.’’
Tertiary Education Minister Steven Joyce said he had assurances from the official assignee that they did everything possible to recover debt before bankruptcy but he would ‘‘be keeping on eye on it’’.
‘‘If you look back 10 years, the number of people going bankrupt is now less than half what it was then.
‘‘We don’t know always know the final motivation for declaring bankruptcy, but the IRD aren’t in the business of running people into bankruptcy. They make arrangements with people who might be in hardship, and provide processes so those people pay what they can.’’