New Zealand First made some thoughtful comments on the new student loan law powers:
"New Zealand First is of the view that such measure are draconian and are entirely disproportionate to the nature of the offence. The measures in this bill must be viewed in context. Finance company directors virtually stole billions of dollars in recent years and ruined the lives of many, yet in many cases avoided prosecution or serious penalty. The student loan scheme has already had many unintended adverse consequences; this bill will create more.
We urge the Government to reconsider the excessive measures proposed in this bill. New Zealand First believes that other measures must be explored to create real incentives for repayment. The real solution to the student debt issues is ensuring that there are decent paying jobs for students to go to after they graduate so that they can repay their loans without having to go to Australia or elsewhere.
In New Zealand First’s view making a group of young New Zealanders outcasts from their own country is not the solution to the problem of outstanding student debt."
Under the proposed new student loan arrest law, it will be a criminal offence for an overseas borrower who has been notified by the IRD that they are in default to either fail to pay or fail to make arrangements to pay. Being notified by the IRD will be an important step in creating the criminal offence.
Student loan borrowers have an obligation to notify the IRD of their contact details. If you do not do so, the fact that the IRD sent you letters but you didn't receive them because they didn't have your correct address won't save you from arrest.
But what about the many student loan borrowers who do tell the IRD where they have moved to, but the IRD fails to update their records? You can bet that if it is your word against the IRD, you will lose. This means that if you move, and you tell the IRD that you have moved, but you don't know that there is a problem with your student loan account because the IRD sent your mail to the wrong address, that you will be at risk of arrest and all the consequences that will flow from that. It will now be very important that you keep written records of all communications with the IRD and that you have written acknowledgement from them of any important communications, like a change in your address. One way that you can do this is by signing up for an online account with the IRD. When you change your address, advise them through secure mail and make sure you print and keep the receipt. This way if the IRD's mistake exposes you to arrest, you will have proof that should help you.
Sometimes student loan borrowers feel that their student loan debt should be in dispute because they did not receive what they expected from their course of study. Perhaps the course content was different from what was represented, or they were promised that the qualification would lead to jobs that turned out not to exist, or the course was generally of poor quality. One thing that is not usually looked at, but which should be in appropriate cases, is suing the course provider for your loss. This could include the fees charged, and possibly the interest and penalties on the student loan.
This type of solution could be considered if your claim is within the limitation period that applies to civil claims. If the claim is below $15,000 (or $20,000 if the parties agree) the claim could be taken to the Disputes Tribunal in order to keep your costs low. If your claim succeeds you could end up with a zero debt.
Please don't hesitate to contact us if you would like to discuss your own situation.
One of the effects of the Student Loan Scheme Amendment Bill (No 3) is that many newly overseas based borrowers will face larger repayment obligations than is currently the case. The repayment obligation will be based on their highest obligation prior to leaving New Zealand. For example if your loan balance is between $45,000 - $60,000 you will be required to repay a minimum of $4,000 per year, even when your loan balance reduces below $45,000.
What is interesting is that Treasury is of the opinion that these changes may actually make the debt level worse, leaving both borrowers and the government worse off.
As at 31 January 2013 overseas based borrowers had arrears of $423 million. This is expected to increase to $769 million by 2015. Treasury itself says:
"...the rate at which the default amounts of overseas borrowers is growing is
faster than the rate at which compliance is increasing. Increasing the repayment obligations of these borrowers will mean that it will take longer to slow and eventually reverse the rate of growth of overseas default amounts... there is a risk that some previously compliant borrowers with balances greater than $45,000 will stop repaying or repay less than their obligation because of the higher repayment rate"
In other words, the government has proceeded even though its own officials have warned that the debt situation is likely to be made worse. Who wins out of all of this? Not the taxpayers, and not the student loan debtors that's for sure.
Check any letters from the IRD very carefully. We have one in front of us which concerns our client Mr H. The letter says it is about Mr H's student loan, but then the IRD officer has referred to another taxpayer by his full name (Mr K), and then, to make matters worse, on page two of the letter the IRD has referred to a Mr D. This is a clear breach of the IRD's taxpayer confidentiality obligations. We have seen several examples in the last few days. In addition to the obvious privacy issues, the muddling of various taxpayers' information means that the IRD's letters cannot be relied on as being correct.
If you receive a letter from the IRD, check carefully that the financial details actually relate to your case, and not to another taxpayer. You also need to check carefully that any settlement offer is really for the full amount of your student loan debt as the IRD's letters often imply, wrongly, that payment of a smaller amount will repay your loan in full.
The so called "arrest" law for student loan debtors was passed today by a committee of the whole House (of Parliament). ACT, National and United Future voted in favour, all other parties voted against. No amendments were made to the Bill.
Once a Bill reaches this stage it is usually a little more than a rubber stamp for it to become law. We will keep you informed when we know more.
Many student loan debtors will have received letters from the IRD which sets out an arrangement to catch up on "arrears". The letter is reassuring and implies that with some moderate payments, over a short period of time, that the whole student loan debt will be paid off. Be very careful, as what is really on offer, is just an arrangement to pay off the overdue part of the debt - and not the whole debt. By the time you have paid the overdue part off, the rest of the debt will have increased and you will still have a mountain of debt. If you then decide that you have no option but to go bankrupt, your arrears payments will have been wasted.
The Student Loan Scheme Amendment Bill (No 3) passed its second reading in the New Zealand Parliament this week. The third reading is likely to be a formality and new law, with its powers of arrest, will come into force shortly afterwards.
Right now is the time to sort out your student loan debt if it is in arrears and you have no payment arrangement in place with the IRD.