Two recent cases show that the student loan scheme needs an overhaul. Some details have been changed to protect client confidentiality.

• Case 1: Client was forced out of New Zealand because they were gang raped here. Being in New Zealand triggers their PTSD. The IRD charges them interest and penalties on their student loan. The client's life circumstances make it impossible for them to get an ordinary job that would generate enough to pay what the IRD demands. This person feels duty bound to pay their debts and not use bankruptcy as a solution. Money from prostitution is being used to pay the IRD's demands.
• Case 2: In the early 1990s, the original debt was for $35,000. The client paid $30,000 in the mid 1990s and went overseas believing that that the IRD would be in contact with them if there were ongoing obligations. At that stage the original debt should have been $5,000.  The IRD made no contact until 20 years later when they demanded $80,000. Even if this person now offers $50,000 to settle, it will be refused by the IRD. The likely result is that the person will feel that there is no way out other than by becoming bankrupt. The IRD will miss out to the tune of $50,000 and get nothing.

In our opinion, the IRD needs better tools and flexibility to negotiate with people who genuinely want to settle. They also need to be accountable if their actions or inactions have contributed to a person's debt.  Although there are many cases that can be resolved through negotiation with the IRD, there are also many where the IRD ends up with nothing where a different approach could have produced a win/win solution for both the IRD and the borrower.

Yesterday we published comments on our Facebook page, from the ACT Party, calling for an end to interest free students loans for New Zealand resident students. Today, the New Zealand Herald is asking the same question. One of the right wing's most prominent bloggers has also recently called for interest free loans to end.

There is a definite trend here. Calling interest free loans "middle class welfare" makes it easier to sell the removal of this benefit, because how can the left wing effectively oppose this since doing so makes them look like they favour the middle classes over the poor?

We expect that interest free loans will come to an end. The issue is when, and this is something that will be affected by how much this becomes an election issue, and who wins next year.

We deal with a very large number of tragic cases of overseas based borrowers who are financially ruined by student loan interest and penalties. Most New Zealand based borrowers are unaware of the impact this can have, having not personally experienced the destructive power of compounding student loan interest. Our opinion is that the media items are a warning and that you should take steps to minimise your risk. These steps could include:

• Not studying courses that will not generate good future income (unless you feel really passionate about a subject and are willing to pay the cost for this).
• Ensuring that the course, and where you plan to study, are of good enough quality. It needs to be value for money.
• Finishing your course in the shortest possible time. If you drop out, you will have the debt but no qualification.
• Understanding the loan contract, that it can change at any time without your input, and the power of compounding interest and what this can do to the debt. If you don't understand, get help before you commit to a debt.
• Looking at other options to fund your study: working before studying, going to an institution with low or no fees (some South Island institutions offer good deals, or perhaps you are eligible to study overseas in a  country where tuition is free), and scholarships.
• If your student loan debt has errors, or you are unhappy with your educational purchase, you should deal with this at the time, as delay affects people's rights.
• Keep copies of everything. 
• When you graduate, make it a top priority to pay the debt off ASAP and pay more than the minimum. Debt is like cancer. It can grow and take over your life. It's much better to kill it before it metastasises out of control.
• If you are in an unfortunate situation where bankruptcy may be the only option, it is better to face facts and get on with it rather than delaying. Delaying could mean that the government changes the law and student loan debts are no longer covered. Delaying also means that you may have built up more assets that could be lost by becoming bankrupt, and that you will have fewer earning years ahead of you, when you come out of bankruptcy, to get back on your feet.

​Please talk to us if you have any concerns about your situation.