Significant injustice is often caused by the way that interest and penalties are charged on student loan debts when borrowers move overseas. Many of them have no choice but to move as jobs are not available in New Zealand, or the jobs that are available are poorly paid.

We believe that the way the system is administered should be reviewed and better incentives offered to borrowers who are doing their best to pay. Often the borrowers are in this situation because of no fault on their part. If there were fairer and more flexible ways to settle a cripplingly large debt, more people would pay instead of being forced into bankruptcy as their only realistic option. Although many people can come to a resolution with the IRD, and settle their debt by negotiation, there are also many cases where this is not possible. We know of cases where the borrower has offered to pay thousands more than they borrowed and this has been refused. In some cases offers have even been refused when the borrower has offered family money of close to $100,000. If a borrower can prove that their offer is the best that can be done and that their only other option is bankruptcy, it makes no sense to refuse that offer. If a borrower can prove that factors outside of their control have affected the debt and their ability to pay shouldn't that be taken into account? In the UK and US, borrowers who become disabled can have their debts cancelled. There is no possibility of this in New Zealand (unless they become bankrupt). We have had cases where the IRD failed to let clients know the details of their debt for 20 years, and then when they did, the debt had become monstrous. We have had clients who had to move out of New Zealand because of rape or serious domestic abuse, and others who have suffered extreme and unexpected hardship overseas affecting their ability to pay. Because of political decisions the IRD's ability to deal with tragic situations is often far too limited. 

If people are encouraged to pay because the IRD has more options available to it to settle debts then the New Zealand taxpayer wins.

In our opinion there is a financial and human benefit in having a better system for dealing with overseas based borrowers. We had hoped to see change with the new government but this seems unlikely. A concerned parent of an overseas based borrower has shared with us a letter from the Minister for Education. In that letter Mr Hipkins states that there are no changes planned and that the charging of interest to overseas based borrowers "motivates" them to return to New Zealand. We disagree. Many of the borrowers who went overseas felt that they had no choice but to move if they wanted to work in their field or for a fair rate of pay. Returning to New Zealand with unpaid debt arrears may mean that their wages will be garnished. 

Because there is little hope of an improvement in the way that overseas based debts are dealt with, there is no point in holding out and hoping that if you delay dealing with the debt that things will get better. The best time to deal with it is now before it grows larger and so that you can get on with your life after debt.

Overseas based debtors are currently charged an interest rate of 4.4% per annum. According to the IRD, if your debt is greater than $90,000 it will increase faster than you can pay, assuming that you do not pay more than the highest compulsory payment rate of $5,000 per year. The main categories of borrowers that we see with plain debt this high are recent graduates in the medical and air transport fields, and people who had high arrears but who have been granted hardship.

The example assumes that none of your debt is overdue arrears. If your debt includes overdue arrears it will increase much faster as a greater interest rate is used. Currently, the rate is 8.4% but as this is compounded monthly this is equivalent to a rate of around 8.7% per year. At this rate, and if your debt is almost all overdue arrears (common if your debt is large and you have made no payments over several years), it will increase by more than $5,000 per year if your debt is around $57,000 or more. To complicate the situation, arrears are repayable in full immediately (unless you are granted hardship, have a payment arrangement, or become bankrupt), and the interest rate applied to your debt will be different as it changes every year. 

With interest rates expected to rise, the situation is likely to worsen for overseas based borrowers. The interest rates charged by the IRD (especially if you have overdue arrears) are higher than many people would pay on overseas, or family, borrowings. You may be better off to borrow elsewhere and repay the IRD debt. 

The cost related to living overseas with a New Zealand student loan debt is very high, and the debt and stress levels often increase rapidly. Regardless of how the debt is dealt with, dealing with it sooner rather than later is the best option for most people. If you would like advice on the best option for you, please contact us.

The IRD student loans team and MyIR will be unavailable from the afternoon of 12 April until early on 17 April 2018, NZ time. 

Interest and penalties will continue to accrue even if the IRD is closed. If you need information about your student loan we recommend seeking this now so that the closure doesn't slow down progress towards a resolution.

Overseas based borrowers are required, by the IRD, to pay their compulsory  payment by  31 March. The amount payable is up to $5,000. Overdue arrears are in addition.

If you do not know how much you need to pay, you can get this information by various means, including:

• Ask us to obtain this for you. You will need your IRD number and there will be a form to complete but this option allows you to obtain the details of your debt, and information about your options, without having direct contact with the IRD. Please email us to start this process and please note that a fee applies.
• Register for MyIR (www.ird.govt.nz) and obtain the details online.
• Contact the IRD's overseas based borrower unit: 
  • Phone 1 800 559 653 (Toll free from Australia).
  • Phone 0808 2340 098 (Toll free from UK).
  • Phone 0800 600 012 (from New Zealand).
  • Email: obbteam@ird.govt.nz 

We know that finding out the facts about your debt may be shocking and stressful, but the best thing to do is to start the process. If you don't do that now you face the risk that your future options will be more limited as the debt increases and if the New Zealand government removes the bankruptcy option.

In a recent article financial advisor Hannah McQueen makes some good points about New Zealand student loan debts. We agree with her when she says:

Students have been sleepwalking into university, and huge debt, for years – but it's time they snapped out of it. They should be using the opportunity provided by the taxpayers' largesse to ensure they leave university with as little debt as possible, with a qualification that's actually useful – and that requires careful planning.

The lure of one year free tertiary education will pull in students who might not otherwise have studied. Some of the study options are not a good choice. In addition, if those students end up with an unmanageable debt from studying beyond the free first year, or are forced to drop out because they cannot afford to study beyond one year, they will probably be worse off. If the free year leads to a good financial return in terms of your future career, and you manage your debt carefully, then you could be better off.

Ms McQueen believes that all tertiary students should have a part time job so that their borrowings are kept as low as possible. We agree with the idea that students should do all things possible to keep debt as low as possible, but if having a part time job interferes with your study achievements and progress then we don't agree that this is the best option. Being in debt for a partial degree, because work pressure caused you to drop out, is a worst case scenario for most people. Other options for keeping debt down are to live at home while studying (if at all possible), applying for scholarships, working and saving before studying, or embarking on an accelerated repayment plan as soon as you are working after you graduate.

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The Simple Dollar blog has a good article today which reminds us of some of the possible ways that people can avoid getting into a large amount of student debt in the first place. This will be too late for many of the decent and lovely people we work with who are crushed by their debt, but if it can help the next generation of borrowers to not end up in the same position that is a wonderful thing.

The suggestions include: studying overseas, applying for scholarships, and reconsidering your career before you start studying. If you want more suggestions please look back through our blog posts.

There is no limitation period for New Zealand student loan debt collection. This can be a problem in itself as the debt can follow someone for the rest of their life.

It is also sometimes a problem for people who paid the debt off a long time ago but who have not kept proof of this thinking it was not necessary. Already this year we have had several cases where the person was adamant that they, or their family member, paid the debt in full more than 7 years ago. The IRD says that they have no record of the payment. The limitation problem affects these people in two ways. Not only is there still a debt to the IRD, but they cannot obtain proof of payment from their bank as most banks destroy records after 7 years. This is one of the reasons why we advise that you keep records of all dealings with the IRD indefinitely (including proof of all payments).

If you are unsure about the details of your student loan debt, there is documentation that can help:

• Student loan statement: This is sent out to all borrowers with debt if the IRD has their current address. It contains every single transaction including every single interest charge and payment. In some cases it can be over a hundred pages long. The student loan statement states your total debt, how much of this is overdue arrears, and your annual obligations. We don't find it useful if we are looking at issues like total interest or total penalties. If you have any debt but you are not receiving this statement then something is wrong.
• MyIR student loan summary: This states your original debt borrowed, total penalties, total interest, total payments, and adjustments. Most adjustments relate to an amnesty in around 2008 but this should be checked if you are unsure.  It does not state how much of your debt is overdue arrears. You can obtain your MyIR by logging in to the IRD system. It is a one page document that is useful in quickly evaluating your best options (in combination with details about your circumstances).
• Student Loan Statement: This is a one page spreadsheet provided by the IRD. It is similar to the MyIR information, but it has details of charges and payments on a yearly basis.
• Original loan documentation and details of original amounts charged to the student loan account. Sometimes, for example, people are unsure if the original debt amount stated by the IRD is correct, or they were owed a credit by the tertiary institution and need to check if this has been applied to their account. Requesting the full original documentation will assist in checking this. The documentation can usually be requested through the IRD, but in some cases the request needs to go through Study Link.
• Travel records: If the IRD has wrong travel dates for you your debt amount is probably wrong. It needs to be correct so that you know what you are dealing with. The IRD can advise the travel dates that they hold for you. A detailed break down can be requested from Customs.

Our general experience is that the agencies involved will provide the documentation upon request, but if there is an issue you can make a formal request under the Official Information Act and/or Privacy Act. 

Please let us know if you have any questions or feedback about your experiences in obtaining documents.