Government seeks ways to claw back student loans

The government is looking at ways to encourage repayment of student loans, as it emerged that nearly two-thirds of students loans issued since the scheme started had not been fully repaid.

Loans had been issued to more than 900,000 people since 1992, according to a MoE report, which said only NZ$6.4 billion of the NZ$13.9 billion borrowed had been paid back.

The government was now considering new initiatives to get outstanding loans repaid.
Policy changes over the life of the scheme, such as the introduction of interest-free loans in 2006, had not necessarily encouraged people to repay the money.

Another problem area was the number of NZ students living overseas not repaying loans.

The report said Inland Revenue had NZ$325 million in overdue loan payments in the year to June, more than half of it owed by nearly 35,000 Kiwis overseas.

The 3,500 New Zealand debtors in Australia owed NZ$15.2 million. Overall, overdue overseas student loan debt had increased from NZ$114 million in June 2009 to NZ$183 million in June, 2010.

It was this increase that had prompted the government to look at new ways to recoup the money.

NZers  living in Australia would be traced and spoken to about their debt, the NZ Herald reported.

Loan holders could expect phone calls and letters from Inland Revenue asking them to get up-to-date on their obligations.

Those who did not comply could end up facing debt collectors and legal action. The government preferred to use incentives to encourage overseas debtors, or “debt refugees” who might wish to return home one day, to pay up.

Student loan holders would also be hit with an NZ$40 administration fee for every year they did not repay their loan once they had finished studying. The move, starting next year, would affect around 500,000 people and could generate $20 million a year for Inland Revenue.

An online repayments system was also planned to make it easier to make repayments. A 10 per cent bonus for voluntary repayments of more than NZ$500 had already been introduced.

The average student loan balance was currently $16,700. The Inland Revenue had written off millions of the debt because of death and bankruptcy.

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