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April 23, 2012 | by  | in News |
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Dunne Backflips on Policy

Loses what’s left of spine in process.

Graduates hoping to take a holiday from responsibility during their OE will no longer be able to leave the woes of student debt behind, following a reduction in the loan repayment holiday.

Led by Minister of Revenue, Peter Dunne, recent amendments to the current student loan legislation are the Government’s latest attempt to tighten the system, as they work to make the scheme more financially sustainable.

Major changes include travellers with student loans now being required to make repayments after only one year of being overseas. They must also provide Inland Revenue with a contact who can be used to track down the borrower should they default on payments.

The repayment holiday, introduced by Dunne in 2007 as part of the previous Labour-led Government, was originally three years as it was said to acknowledge that many graduates on their OE will travel with every expectation of returning to New Zealand.

However the amendment aims to bring obligations of borrowers on their OE in line with those who remain in New Zealand and have to make repayments throughout.

After initially supporting the Bill, Labour withdrew support when the Government refused to negotiate over the repayment holiday period. They proposed only reducing

it to two years in order to meet the usual travel patterns by graduates.

Labour Tertiary Education spokesperson, Grant Robertson criticised the reduction to one year, labelling it an “arbitrary decision” that “makes no sense at all.”

“The advice it has received from both Treasury and the Ministry of Education is that it will not improve student loan repayments. In fact, it is likely to increase debt held by overseas borrowers and therefore discourage them from returning overseas,” Robertson said.

Overseas borrowers currently owe about $2.5 billion—approximately 20 per cent of the current $12 billion student loan debt.

Dunne has received criticism for changing his stance on the repayment holiday, as he led the original legislation through in 2007.

At the time of its introduction, he told the House that “we needed to take a pragmatic way through this.”

“Being someone who places great virtue on pragmatism, it struck me that the logical course of action was to derive the solution that we have: to extend the holiday period for three years, recognising that young New Zealanders take that extended period overseas.”

The changes:

  • ▴  Student loan holders who go overseas long-term must start making repayments after one year.
  • ▴  They must apply for the repayment holiday as it is no longer automatic.
  • ▴  Those who underpay with have catch-up deductions taken from their pay.
  • ▴  Borrowers must provide IRD with a New Zealand-based contact, though they will not be liable for the loan.
  • ▴  From 2013 IRD will be able to obtain loan holders’ contact details from Studylink.
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