Let’s say you have a student loan debt of $100,000 which includes overdue debt of $50,000, penalties of $20,000, and interest of $70,000. The break down might look something like this:
Original borrowings $25,000
Interest charged $70,000
Total balance due: $105,000
Of this $105,000, let’s say that $50,000 is overdue because you have not paid your compulsory overseas payments for a long time. Until that overdue amount is dealt with, the IRD will probably already be chasing you, or they will be doing so soon. If you deal with the overdue amount, and keep up with at least your minimum annual compulsory payments, the IRD will leave you alone. Paying your minimum annual compulsory payments won’t necessarily stop your debt increasing as this will depend on your debt level and interest rates charged by the IRD. Also be aware that there are many reports of the IRD’s debt collectors referring to the overdue debt portion as being the full amount owed, leading many to believe that this is “all” they have to pay. Always check what you are being told and get it in writing. If you pay “just” the arrears you will still have student loan debt remaining to be paid.
Back to the hardship example. If you are granted full financial hardship, the IRD deducts the penalties from your debt, but interest increases. In most cases, the overall debt decreases because of these adjustments. In some cases the overall decrease can be a 5 figure amount. This is good, but usually of greater potential benefit is the fact that the part of your debt that was previously deemed overdue is no longer overdue. It is still due, but you will not be chased for it as it is not overdue. The example above might now look something like this:
Original borrowings $25,000
Interest charged $80,000
Total student loan debt balance: $95,000, of which nothing is overdue. As long as you pay at least your minimum annual payments the IRD will leave you alone.
The IRD talks about arrears being capitalised. Basically this means that what was overdue is no longer called “overdue” and is just part of the overall debt (after penalty and interest adjustments).
Applying for hardship can feel harsh and intrusive. Although the IRD has the power to accept a verbal application for hardship, in most cases a form has to be completed and you will have to provide several months of statements for all kinds of accounts including bank accounts, credit cards, car loans, and mortgages (depending on your individual situation) etc etc. Payslips, and details of your partner’s finances, are also required. If you refuse to provide all requested details the IRD will probably decline the application without further consideration. In our experience, it won’t matter how detailed the information you initially provided was, the IRD will find something else to ask for. The process can feel difficult and like the IRD is looking for ways to fail you, but if you are genuinely in severe financial hardship, and persevere with the IRD’s requests, the chance of success is reasonable. You must also ensure that your responses are honest and timely. If you apply and are turned down but your circumstances have, in the meantime, become even worse, or you were turned down because you didn’t get the documents to the IRD on time, our experience is that the IRD may give you another chance.
The focus of the hardship application is on current severe financial hardship. If you were in financial hardship in the past, this can provide helpful supporting background information, but it is the present that has the greatest focus.
Do you have any general questions about the hardship application process? If you post them on our Facebook page, we will do our best to answer. If you need specific help, please email us.