Thousands of New Zealanders living overseas are struggling to pay their student debt, and bankruptcy is increasingly becoming an option for some.
There are reportedly 9000 overseas-based individuals with serious debt problems, while many others are struggling.
Kristina Anderson, tax advisor at Auckland Tax Hub Limited, said many people overseas are in denial about the severity of their debt.
Anderson said students often “don’t know what they’re getting into or how horribly a debt can multiply out of control… there’s an awful lot of misinformation unfortunately.”
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People “might have had an original student loan debt of $20,000 and then received contact from the IRD out of the blue and now their debt is in the six figures,” Anderson said.
Interest on student debt for overseas borrowers recently dropped from 5.5% to 5.3% and late payment interest from 9.5% to 9.3%—but compounding debt is still a problem faced by many.
Overseas borrowers are required to make two repayments each year in March and September. For example, a person with a loan of $50,000 would have to pay $4,000 each year—half in March and half in September. If payments are late they incur penalty fees.
Ciara, a former Victoria student, pointed out that because her job in England only provided her with a modest salary she cannot afford to pay more than the minimum in interest repayments. “IRD seemed to want to discourage the whole idea of leaving, rather than encouraging it as a difficult but worthwhile process,” Ciara said.
As a result of growing pressures Anderson sees “quite a number of clients” with no option but to seek bankruptcy in order to move forward with their lives. While some people have options such as entering a payment plan to pay back IRD back over a period of time, for those with limited income and assets this is not possible.
In the past five years, Inland Revenue has written off student loan balances due to bankruptcy for 258 overseas-based borrowers.
A person who has previously filed for bankruptcy cannot be in business without permission and risks having their assets taken or being blocked from entering, or leaving, New Zealand.
However, Tertiary Education Minister Steven Joyce insisted that most cases of student loan borrowers facing bankruptcy “have been due to other debts owed” and the loan was not the main driver.
Any overseas debtor in “serious default” can be arrested if they return to New Zealand and try to leave again, but it is understood that this has not happened yet.
IRD Collections Manager for Student Loans Stuart Duff warned “ignoring your student loan will not make it go away—even if you have gone away your student loan has not.”
Duff said people struggling to meet their obligations should contact IRD immediately “so we can help set up a repayment plan and discuss their options.”
Former Massey University student Lauren told Salient that although IRD wasn’t overly clear about what would happen to her payments before she moved to London she didn’t regret relocating. “It’s just one of those things that you know is going to happen, you can’t change it so you just deal with it.”
Both Lauren and Ciara admitted it would be nice to be debt free but advised that students “didn’t leave straight away”.
IRD encourages anyone going overseas with a student loan to call them and get it sorted sooner rather than later.