- There are 262,000 New Zealand based student loan borrowers who are not actively repaying their loans. Most of these people have no obligation to pay because their income is below the threshold. We believe that New Zealand based borrowers should try to pay their loans off as soon as possible. As long as you have the debt you will be vulnerable. A future government could increase the required repayment percentage, reinstitute interest for New Zealand residents, or sell the debt to a private company. Having the debt hanging over you may also restrict your ability, to borrow to buy a house, or to move overseas.
- Almost 74,000 overseas debtors are in arrears. The overdue amount was $683,300,000, an increase of 27.7% over the previous year. $214,000,000 of this is more than 5 years overdue.
- The number of people with very large debts has increased. For example, at 30 June 2013, 967 people had debt balances greater than $139,000. This had increased to 1,169 at 30 June 2014.
- In 2013/14, 685 student loan debtors became bankrupt. The average size of the debt was $22,000.
The most recent Student Loan Scheme Annual Report is interesting. Some facts:
These are real examples of people's student loan problems:
If you are in a similar situation, or have any issues with your student loan debt, we can help. We can advise you on the options, including the best options for you in your situation, and we also act for many people in negotiating with the IRD and for those who need to apply for a New Zealand bankruptcy. Please contact us if you need help.
This interesting article from Thomas Frank in Salon discusses the US tertiary education system. Some of the issues are relevant to New Zealand.
Young people see university education as their ticket to the good life. They know this is so because this is what they have been told and they see that many people with university educations do indeed have a sweet life. What they don’t see, at that stage, is all the university graduates who can’t get jobs in their chosen field or who struggle financially for the rest of their lives - plus they have an enormous debt. The kids who left school and worked in minimum wage jobs, but with no debt, may in fact end up better off. Frank refers to students as cash cows to be exploited by predatory universities. There is an enormous power imbalance between a 17 year old student, on the one hand, and, on the other, a tertiary institution pushing its own agenda and a system pushing what will grow to become an unfathomably large student loan debt. There are obviously many cases where this is not the case, but need to be aware that these issues happen. Frank says:
Now, consider the seventeen-year-old customer against whom this predatory institution squares off. He comes loping to the bargaining table armed with about the same amount of guile that, a few years earlier, he brought to Santa’s lap in the happy holiday shopping center. You can be sure that he knows all about the imperative of achieving his dreams, and the status that will surely flow from the beloved institution. Either he goes to college like the rest of his friends, or he goes to work.
How much thought does society give to other examples of how students are ripped off? In the last 35 years, textbook prices have risen 812% in the US. More hardship for (mainly) young students. More debt on the loan. There is no reason why New Zealand’s results would be better.
The explanation is simple. The textbook publishers use every trick known to the marketing mind to obsolete their products year after year, thus closing off the possibility of second-hand sales. What’s more, textbook publishing is a highly concentrated industry—an oligopoly—which means they can drive prices pretty much as high as they feel like driving them. Meanwhile, the professors who assign the textbooks and who might do something about the problem don’t have to pay for them.
As a general rule, education is a good thing and something to be encouraged as it tends to improve things for both the individual, and society as a whole, but that doesn’t mean that everything that goes on within education is good. It also doesn’t mean that we should not know about and debate educational business practices or the impact of a student loan. In New Zealand there is not enough discussion about financial matters. This hurts us all.
Recent research shows that a majority of Americans believe that university is out of reach financially. They believe this because fees have increased by 250% in the last 30 years, and the average graduate leaves with $25,000 in student loan debt.
In New Zealand, the figures are worse. The average university student is charged fees of around $5,000 - $7,500 each year (some courses like medicine cost much more). Thirty years ago, in New Zealand, university was more or less free. In 1990, a standard fee of $1,250 was introduced. That’s an increase of at least 400% in 25 years. In New Zealand, the average student loan debt is also around $25,000 at the time of leaving university. It’s time for us as a country to have a debate on fairness in tertiary education and to stop treating students as cash cows who can fund higher and higher costs without question.
The University of Canterbury is offering cash scholarships of up to $6,000 for school leavers. The better your school results, the more you can get. The number of scholarships is unlimited. This is a great offer that will help students and, hopefully, reduce the amount of student loan debt they need to borrow. We would love to see other tertiary institutions making similar offers to encourage study and lessen the financial burden.
On 17 April 2015 the Court of Appeal released its judgment stating that bankrupts will be allowed to keep their Kiwisaver accounts. This is great news. You can read more at this Herald page.
Prior to the Court of Appeal judgment, the Official Assignee believed that it could take bankrupts' Kiwisaver accounts. The Official Assignee's current position is that in most cases it is not able to claim a bankrupt's Kiwisaver account, however, if the bankrupt becomes eligible to withdraw the funds during the bankruptcy, or has made lump sum deposits, the Kiwisave account may not be safe. Please contact us if you are concerned about your situation.
We were interviewed by Wallace Chapman, from Radio New Zealand, about student loan debtors going bankrupt. The link to the interview is here. We act for many student loan bankrupts. But that's not the only solution in all cases. We also have many clients who repay large student loans, often after we have obtained a write off, payment arrangement, or hardship approval.
Our typical client is someone who left New Zealand 5-15 years ago. At that stage their student loan debt was $20,000. They were very young when they took out the debt and didn't understand the details, or they were misinformed and told that they didn't have to repay the debt unless their earnings were above a threshold. They gave the IRD their contact details but the first they heard from them was years later when they were contacted and told that, not only is their student loan debt now $120,000 (through interest and penalties), but that they have to pay $40,000 within 7 days. Their lives are destroyed. Many people say that the IRD refuses to give them options for dealing with their debt, gives them misinformation, or treats them rudely. When they contact us we advise them of all of the available options for dealing with the debt, and the advantages and disadvantages for them of each option. With some clients we can arrange a resolution with the IRD that may include a partial write off, a time payment arrangement or hardship. Sadly, many people do not have the funds to pay the IRD, or they find that even if they can manage the annual compulsory payments the debt will grow faster than they can pay it off. For many reasons, some people may find that bankruptcy is their only option. Not only does bankruptcy bring an end to the debt, it also stops harassment. In the right circumstances, bankruptcy can provide enormous relief from stress and provide a path forward for the rest of your life.
Dave Ramsey is a US based finance guru. He has a useful article on how to help your kids not to get in deeper than necessary with student loan debt. Student loans are funded and dealt with differently in New Zealand, compared to the US, but many of the points made are worth considering:
We came across this defaced University of Auckland billboard via the Poke website. We're not targeting Auckland University but we do think that the graffiti raises serious questions for people to think about.
Education is a good thing. Having a student loan debt can be a good strategy, perhaps because it will give you a good career and be worth it financially, or you just really love the subject you're studying and you've thought through the financial implications of taking on a large loan. Student loan debts start off large ($20,000 + by the time you graduate would be the low end of the range) and then they grow like metastasised cancer if you go overseas. Student loan debt require your serious attention before you decide to take one out. Make sure that you understand what you are getting yourself in to, that your course is worth it, and that your tertiary institution is worth it. We have heard horror stories about poor quality courses that cost students thousands of dollars. In other cases, students have been charged fees, fraudulently, including for time periods when they were not studying.
We aren't saying don't take out a student loan. What we are saying is make sure you make a decision with your eyes wide open.