Student loan debtors hiding overseas

Overseas-based student-loan borrowers are in arrears for close to the amount the scheme lends each year. How did this happen? Martin van Beynen reports.

If the Government was a bank and 75,000 of its borrowers were behind on their repayments, pointed questions would be asked.

If much of the debt was more than five years overdue and the bank had no contact details for about a third of those borrowers, panic would be justified.

Essentially this is the situation with overseas-based student loan borrowers (OBB) who, at June 30, were $1.2 billion in arrears. Although they made up about three-quarters of all overdue student-loan borrowers, OBBs were responsible for 91 per cent of all distressed student debt. The scheme lent out $1.57b in the last financial year.

Student loans impose obvious obligations. Holders must notify Inland Revenue, the department responsible for collecting repayments, when they leave New Zealand so a minimum annual repayment can be worked out. A student loan of between $30,000 and $45,000 requires repayment of about $3000 a year.

Borrowers pay interest (currently 4.3 per cent) on their student loans only if they are overseas for more than 183 days and the interest is backdated to the date they left New Zealand.

Inland Revenue (IRD) says it’s making good progress in getting on top of the debt, with payments by OBBs 40 per cent higher than four years ago, increasing from $158 million to $221m, and the rate of default slowed by half.

‘‘The eagerness to do the right thing is slowing the rise of debt in default,’’ it says.

Yet, although the number of overdue OBBs has decreased by about 2 per cent compared with last year, the sum overdue has increased by nearly 10 per cent. IRD says the increase is due to interest being charged on noncompliant loans. Latest figures show that, of the 108,758 OBBs, only 22 per cent made the correct payment by the due date of March 31 this year.

Revenue Minister Stuart Nash says the $1.2b in arrears is a major concern, but he appears happy with the way his department is tackling the issue.

He is worried student-loan holders leave New Zealand not thinking much about their obligations and then ‘‘bury their heads in the sand’’.

‘‘It’s the worst thing people can do. If you have a problem, give Inland Revenue a call.’’