New Zealand Gets Its Pound Of Flesh From Overseas Graduates

If you are thinking about emigrating to New Zealand now The Battle of the Student Loans should be enough in itself to stop you from going.

Of course if you have children with no aspirations involving higher or further education this won’t be an issue, you can probably stop reading now.

However, the chances are that you won’t. You’re not in the minority either because  immigrants attracted to New Zealand are skilled and well educated, much like you.

The Expression of Interest (EOI) points system is geared to reward those who have higher qualifications. It is reasonable to suppose that we’d want the same, or better, qualifications for our offspring. We also want them to be able to chose to travel at will, rather like we did

We’re worldly-wise enough to know that as post grads they have a better future outside of New Zealand than they do in it. Furthermore, if they were to stay they would be impoverished by a combination of  massive student loans and low salaries (loan repayments start as soon as the debtor earns $19,084) It will take years for them to repay the debt.

The ‘Hotel California’ clause

The New Zealand government government is shooting itself in the foot in its dogged determination to hunt down and bankrupt every kid who ‘defaults’ on his/her student loan just because they’re working abroad.

It would help to clarify the motives for this witch hunt if the government of NZ could agree about exactly how much these overseas graduates actually owe.

When the government was trying to attract overseas graduates home overdue debt was only £183 million, however now the economy is on its uppers that figure has mysteriously  jumped to $2 billion.

What’s more, onshore grads owe almost as much as their offshore cousins, yet it is only the overseas defaulters that are being chased and threatened.

Steven Joyce, Minister for Tertiary Education said recently

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”…

However, another source says it is only $183 million; quoting a MoE  report:

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.

Is this really about the money, or is this a wider issue about people made to feel guilty about leaving New Zealand in these days of declining net immigration and austerity measures?

The amount of overdue money owed by NZ expats is nothing like as much as the government has just blown on the new IT system for Auckland supercity $576 million dollars.

Even Amish kids are allowed a Rumschpringe, no pressure.

The witch hunt was given fresh impetus with a patriotic, if cynical, campaign aimed at getting expat Kiwi grads to ‘contribute towards to the rebuild of Christchurch’ by paying off their student debt. (Heke)

However claw-back and strong arm tactics were firmly on the agenda, long before the Christchurch earthquakes.

In August last year the government was threatening to use debt collectors to recover more from borrowers overseas, but not long before that New Zealand was trying to attract its graduates home by giving them repayment holidays. Read Govt may use student loan debt collectors abroad, NZ Herald 27 August 2010:

“The group (of overdue overseas-based debtors) represented less than 15 per cent of borrowers but 20 per cent of the $11 billion owed…Some students were registered under the three-year holiday period, while others were avoiding coming home because they had not made repayments and now faced very high loans because of interest and penalties; “to some extent they are like refugees“, Mr Dunne said.

This is from the NZ Herald in August of last year.

…(The) Government’s been trying to get the money out of this particular group for years – in 2007, Michael Cullen and Peter Dunne announced a series of measures, including a three-year holiday on repayments and an amnesty for overseas students.

By making it easier for them to repay their student loans, we removed a disincentive for them to return to New Zealand when they were ready, said Dr Cullen, which was benevolent but ultimately futile.

A couple of years earlier, Trevor Mallard and Helen Clark announced an amnesty on penalties on overdue payments for any returning students who entered into repayment schedules – and that didn’t work either.

Now Peter Dunne is back, quoting from the same script, promising to reduce penalties for overseas student loan borrowers.

But by using carrots rather than sticks, the incentive to stay in New Zealand and pay back the money owed to the taxpayer isn’t terribly strong either.

Loan defaulters should be stopped at the border and made to pay back their loan or enter into a repayment schedule before they can leave…”

But even though graduates were given repayment holidays interest was still accruing on their loans, forcing them deeper and deeper into debt. There are also additional fees and penalties imposed after three years which means returning graduates have far larger debts than they left with.

There is another inequality too: the way in which students are charged interest

On 26 July 2005 the Labour Party announced that they would abolish interest on Student Loans, if re-elected at the September election, which they were. From April 2006, the interest component on Student Loans was abolished for students who live in New Zealand.

This has eased pressure on the government from current students. However it has caused resentment from past students many of whom have accumulated large interest loan portions in the years 1992-2006. As stated before many have reluctantly been forced to seek employment overseas in order to pay back their loans, with the UK and Australia gaining benefit from young, educated diaspora

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

It it from those two countries that New Zealand is trying the hardest to reclaim the money.

You can see why making it ‘easier to repay’ had the opposite effect and why New Zealand is now picking up the big stick: They’ve given up all hope of ever attracting these people back, so why not make it harder for other people to leave in future.

For background read

NZ IRD: You may need to start repaying your loan if you earn over the repayment threshold of $19,084. If you’re overseas the interest rate is 6.6%

No Escape for Student Loan Expats: – today’s NZ Herald

“Legal action is about to begin against hundreds of New Zealand expats who have not made any effort to repay millions of dollars in outstanding student loans.

From today, authorities will start sending letters to Australia-based defaulters warning that legal action is being taken as a result of their ongoing refusal to pay up.

The letters will be the first step in what will eventually end in court proceedings – and a possible bad credit rating – if repayments are not made…

defaulters could be ordered to repay or face the consequences, which could include being given a bad credit rating or in a worst case scenario, bankruptcy.

At the moment defaulters only have to pay back outstanding debt, but Mr Joyce said a bill was currently going through the House which would for the first time allow IRD to recall the whole loan.”

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9 thoughts on “New Zealand Gets Its Pound Of Flesh From Overseas Graduates

  1. Was it illegal for the govt to change the repayment rules in 2006? I am pretty sure that my student loan contract stated I was interest free while overseas.

    • One of the reasons why many on their OE after graduation with their BA in foreign languages and nothing else (doesn’t even have an interest in the films in those languages, nor can cook or understand that culture or how it developed) …
      do “cash-in-hand” jobs like au pair along with low-hours-per-week duties like “assistant language teacher” or “English teacher”.
      They’re certainly not taking the free time in the day off their official hours, to understand the people around them or gain a job on the books.
      This rorting of the system is endemic, I knew someone who went back to his home in Tauranga, while claiming the student accommodation allowance.

  2. It’s even worse than implied, because the online system the NZ IRD has set up makes it very difficult to actually pay … I paid for years while abroad, but on moving again, found I could not get the address changed for my statement. Hence, no idea how much to pay. NZ sucks… stay away. Anyway It didn’t seem to matter how much I paid; the loan didn’t go down. The 6.6pc interest doesn’t sound bad, but it is compounded DAILY.

    • For domestic NZ students … you only have to repay the student loan IF YOU EXCEED THE SALARY THRESHOLD.
      I wonder why that fact is always ignored!
      http://www.studylink.govt.nz/about-studylink/glossary/repayment-threshold.html
      “Student Loan definition for the repayment threshold.

      This is the amount you can earn in a year before you have to start paying back your loan. Once you start earning more than the repayment threshold amount you’ll have to pay 10 cents (10%) for every dollar over the amount.

      The repayment threshold is currently $19,084.00 a year and will remain at this until 31 March 2015.”
      I knew a 70 year old woman … who hadn’t finished paying off her student loans, and was adamant about not doing so.

  3. Because the overseas defaulters are the ones most likely to be uninvested in NZ and hence don’t drum up PR for NZ.
    If a person tells you the NZ lifestyle is so fantastic, but they are living and working in a foreign country… what message does it send?
    On the other hand, if you go to NZ and are breathlessly told about NZ lifestyle and you tell others about that through social media… what message does that send?

  4. It is about high time something needs to be done. Target those who take advantage of the student loan system in New Zealand by deliberately not paying it all back.

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