Budget 2011: Govt to chase hundreds of millions from OE student loan dodgers

by Pattrick Smellie

April 17 (BusinessDesk) – Measures in next month’s Budget will cut down the three year holiday on student loan repayments extended to former students who leave the country.

There will also be crackdowns on Australian and UK resident New Zealand student loan dodgers, whose repayment record compared to locally resident borrowers is woeful, Tertiary Education Minister Steven Joyce told TVNZ’s Q&A current affairs programme.

However, he strongly defended the current policy of giving students interest-free loans while they study, saying it had trebled participation in tertiary education, and was contributing strongly to the better qualified, higher earning economy the Government seeks.

“New Zealand has a very generous student-support system. It’s acknowledged as that. I’m actually pretty proud of it overall.”

There will be “grand-fathering” arrangements for students who have borrowed under the current rules, but debt collection efforts will be stepped against the 35,000,out of 85,000 Kiwi student borrowers who are currently offshore, who are behind in their payments.

They collectively owe more than $2 billion and “those that have gone off on their OE and stayed … represent roughly 15% of all the people who owe money, but they have about 55% of the overdue debt”, Joyce said.

However, some ex-students are reacting angrily to being contacted, Joyce said.

“We had a doctor in Australia who was highly offended – very well-paid doctor – highly offended that we should deign to contact her about very large sums of money owed on her loan,” he said. “We’ve had people in the UK say: ‘no, we should never have had to borrow this money in the first place. We don’t want to pay it back and frankly New Zealand can go take a running jump’.”

Debt collection efforts in Australia were yielding a $4.50 return for every $1 spent, and the Government was considering “enforcing some contracts” in Australia.

The Budget would contain savings over the next four to five years of “several hundred million” dollars from collecting overdue student debt, which stands at above $11 billion in total.

“We’re writing off about 45 cents in the dollar for every student loan because of the interest-free policy. That’s down from about 48c,” said Joyce. “We want to get it down to 43c-odd in this Budget and then I’d love to see it down below 40c.”

Legislation already before Parliament proposes allowing the Government to recall a whole loan immediately, where the borrower wilfully ignores requests for repayment, and in future more personal information would be included in loan contracts to allow lost lenders to be traced.

Also on the cards are exchange agreements with other countries to allow court action against New Zealanders resident in those countries and behind on their payments.

“Most jurisdictions haven’t shown a lot of interest in chasing student debt, but suddenly with the state of the world, they’re a lot more interested than they used to be,” said Joyce.

He said the three year loan holiday for overseas students “sends the wrong message that somebody can sit overseas for three years and not make any commitment at all towards repayment.

“Now, when you go on your OE, perhaps you go six months or a year without getting an income, but, actually, once you’re over there for about a year, you’ve got to be living on something, and we’re thinking that we might change the length of that repayment holiday.”

Also high among non-payers is the over-55 year-old student group, 70% of whose loans were currently tending to be written off since qualifications and lending were occurring towards the end of the person’s income-producing years. Lending to older students may be limited to course costs alone, said Joyce.

Some specialty courses were also under review. For example, the Government was spending $30 million a year on loans for student pilots, most of whom did not go on to careers in flying.

(BusinessDesk) 16:40:57

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