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Tighter rules for overseas-based student loan borrowers

Hon Todd McClay
Minister of Revenue

19 August 2013

Media Statement

Tighter rules for overseas-based student loan borrowers

A Bill introduced today by Revenue Minister Todd McClay proposes higher repayment obligations for overseas-based borrowers to encourage them to pay off their loans sooner, and tougher measures to deal with borrowers who persistently refuse to make repayments.

Mr McClay said changes proposed in the Student Loan Scheme Amendment Bill (No. 3) were a continuation of the Government’s focus on encouraging personal responsibility for loan repayments.

“Overseas-based borrowers are responsible for 80 percent of all overdue loan repayments, which amounted to $535 million as at 30 June 2013.

“In most cases these borrowers start to comply with their obligations once they are contacted by Inland Revenue, but a small minority continue to refuse to take responsibility despite having the ability to do so,” says Mr McClay.

“The proposed changes, which were well signalled by the Government in Budget 2013, will give Inland Revenue greater powers to help ensure this group of borrowers meet their obligations under the taxpayer-funded scheme.”

Under the proposed new rules, Inland Revenue, which administers the collection of student loans, will be given the ability to request an arrest warrant so that those with the most serious cases of non-repayment can be arrested at the border.

“The arrest power was intended to be used only for the most serious cases of non-compliance,” says Mr McClay

“The other major changes proposed in the bill would help to bring overseas-based borrowers’ repayment obligations into line with those of New Zealand-based borrowers, and speed up their repayment rate.”

Currently, overseas-based borrowers’ repayment obligations are based on their loan balance, while those of New Zealand-based borrowers are based on income. This means that the repayment obligation for overseas-based borrowers decreases as their loan balance decreases, while New Zealand-based borrowers’ repayments increase as their income increases.

To address this, the Bill proposes fixed repayment obligations for overseas-based borrowers, based on their loan balance. The bill also proposes to increase the repayment rate for overseas borrowers with loans over $45,000.

“These changes will reduce significantly the repayment time and the amount of interest borrowers must pay on their loans, and ensure that more borrowers make sufficient repayments that at least cover the interest on their student loan,”says Mr McClay.

The remaining measures in the bill are largely remedial in nature, and intended to clarify earlier law changes. The proposed changes come into effect from 1 April 2014 for the 2014–15 tax year.

For more information about the changes, see the commentary on the Student Loan Scheme Amendment Bill (No. 3) on Inland Revenue’s tax policy website at http://taxpolicy.ird.govt.nz/publications/2013-commentary-sls-3/overview

ENDS

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