- How old will you be when you pay your student loan debt off?
- How much interest and penalties will you have paid by then?
- What about if interest is reintroduced for New Zealand resident student loan borrowers?
- What about if interest rates increase by, say, 5%?
- What about if the bankruptcy option was removed?
- What about if interest is reintroduced for New Zealand resident student loan borrowers?
- How much better off, psychologically and financially, would you be if the realistic, expected repayment date was sooner?
Questions that you should know the answers to:
It's the time of year when people start thinking about a Christmas visit to family and friends in New Zealand. Many of you with substantial overdue arrears will be at risk of arrest if you return to New Zealand. You can remove this risk by sorting things with the IRD, or by becoming bankrupt under New Zealand law. If you become bankrupt you will then need to apply for travel permission to safely leave the country. When do you need to get things under way?
Assuming that it will be slower and more difficult to get things done after around 15 December, this should be the final date by which everything is done. You cannot apply for bankruptcy travel permission until you are actually bankrupt and this process typically takes about two weeks. To be safe, you should allow three weeks as it is a busy time of year. Ideally you would apply for travel permission earlier, and before buying tickets. If we assume that you need to apply for travel permission by three weeks prior to 15 December this gives us a date of 24 November.
You then need to allow time to draft your bankruptcy application (between one day and around two weeks, in most circumstances), and for the Official Assignee to process your application and make the bankruptcy order (usually 2-3 weeks). Taking 5 weeks to be safe, the bankruptcy process should begin in earnest before 20 October if you want to have a trouble free visit to New Zealand. Ideally you would start the process now so that there is plenty of time and you know that everything is sorted before buying tickets.
If you need assistance to get matters resolved we can help. At the moment we have some special packages available. Please ask if this is of interest
In a recent Guardian article, MH Miller discusses the impact of living with a $100,000 student loan debt and of being incapacitated by that debt for many years:
Now 30, I have been incapacitated by debt for a decade. The delicate balancing act that my family and I perform in order to make a payment each month has become the organising principle of our lives...
In many cases, student loan debt allows people to borrow money they have no hope of repaying, transforms the post graduation years into an economic wasteland, and defers, for many decades, the borrower's ability to participate personally in the normal milestones of life like buying a home, starting a family, starting a business, or retiring. Economist Steve Keen states that student loan debt:
[W]ill doom the [country] to stagnation: a generation with too much debt and no prospect of using credit like the previous generation.
As one commentator stated, student loan debts are a place where nightmares are real.
The purpose of laws like the Credit Contracts Act 1981 and the Credit Contracts and Consumer Finance Act 2003, is to protect people when they are taking out a loan, by ensuring that the borrower has sufficient information about the debt and their rights (including interest rates), and by providing protection to the borrower if they get into financial difficulties before the debt is paid off.
Student loans are excluded from the protections offered by credit legislation. Student loans are often taken out by our most vulnerable young people and few of them really understand the massive implications of that debt. Shouldn't they have the same protection as other kinds of borrowers?
To resolve your student loan debt problem you need to start with the truth:
We can obtain your current debt details and advise you on your available options. Then in our ongoing discussions, with you, about affordability, the best answer will usually emerge.
Let's consider two scenarios:
Both William and Kate could apply for hardship which would mean that they were no longer behind on the debt arrears (capitalised on to the core debt with an interest adjusted) and give them an opportunity to have a fresh start with payments. In Kate's case, her minimum payments would then be around $40 per week ($2,000 per year - payable in two instalments) and the IRD states that the debt should be paid off in about 18 years. Kate could try to get a second job and crush the debt by throwing every spare dollar at it. This path won't necessarily be easy, but many people do hit debt hard, and at this level of debt, it wouldn't take long to get rid of it in full forever. In William's case, even if hardship is granted, he will still have a massive debt. If he hasn't managed to deal with his debt in the last 20 years, when it was smaller, is it realistic to hope that he can deal with it now? Some people do manage to resolve a debt at this level but that is rare. For William, a hardship application may take the immediate pressure off but it just means that he still has a debt headache to deal with in the future. William is middle aged and he doesn't have many working years left, compared to Kate. If his arrears are capitalised, and he pays the IRD's minimum of $5,000 per annum, the IRD's calculator suggests that the debt will never be repaid. How will he pay off his mortgage, and save for retirement, with a huge student loan debt millstone?
Both Kate and William could consider a payment arrangement with the IRD for the arrears. If this is accepted, they will have to pay their minimum annual payments in addition. Under this scenario, Kate is also much better off than William as both her arrangement payments and annual obligations are likely to be far less and, therefore, more manageable. The IRD may also look more favourably on Kate as she has come to them at an early stage.
If bankruptcy needs to be considered, Kate is also in a much better position than William. Bankruptcy usually lasts three years and Kate will still be young when she comes out of it. Kate is used to managing on a small budget and being bankrupt won't make much difference to her lifestyle. She has no assets to lose. She will have plenty of time to rebuild her life financially. William owns a home and he may lose it if he becomes bankrupt (this outcome is not certain but it is possible and will be affected by various factors). William's lifestyle expenses are likely to be curtailed while he is bankrupt, and he may face having to restart financially when he is around 50 years old. William's bankruptcy option is more difficult than Kate's, but if bankruptcy is William's best option he is probably better to do it now when he is in his late 40s, rather than when he is even older.
We deal with people like Kate and William all the time. It is much better to deal with your debt sooner rather than later. Not only is there less debt to deal with, there are better resolution options, and the impact of resolution on your life, now or in the future, may be significantly less. If you are a William, please don't let that get you down. You can still deal with the debt knowing that it is better to do this now rather than to put it off even longer.
Bankruptcy in New Zealand is generally a civil matter. It is a clinical remedy that gives people, with overwhelming debt, a fresh start in life. Most people who find themselves in this situation have been affected by factors beyond their control like unexpected unemployment or illness. In the case of student loan debt, a common scenario is a demand for payment of an enormous amount by the IRD, after many years of silence during which the debt has grown to an unmanageable size.
Most bankrupts find the process relatively smooth and wish they had done it sooner. Unfortunately a small minority end up crossing the line and becoming bankruptcy criminals. Bankruptcy criminality can attract severe punishment, including prison time. There are a number of ways that a bankruptcy can become criminalised, mostly revolving around dishonest information or dealing with assets, however, the most common one may be leaving New Zealand without prior permission. It is a criminal offence to leave New Zealand without permission if you are a New Zealand bankrupt. It is an offence that can be easily detected by the Official Assignee and which could cause serious consequences for you during the bankruptcy, or many years later. There is no need to be in this situation as the permission application process is straight forward, and bankrupts who live overseas, but wish to visit New Zealand, are rarely declined. It is best to apply for permission before you travel to New Zealand, but if you've had to come here urgently because a family member is sick you can apply while you are here.
Bankruptcy is an effective remedy that can resolve overwhelming debt stress and give you a fresh start. Don't let it become a problem.
A recent media article highlighted New Zealand's longest bankrupts: one person has been bankrupt since 1998, three since 2000, and one since 2001.
For the vast majority of bankrupts, who file a debtor petition, discharge from bankruptcy occurs automatically at exactly the three year mark with no fuss. For bankrupts who have had a creditor petition filed, it is likely that they will be bankrupt for more than three years, and there is no upper limit if those people do not complete the correct paperwork.
If you need to become bankrupt it is worth making sure that it is done right so that there is light at the end of the tunnel.
Official Information Act figures show that, in one recent month, the IRD hung up on 45% of callers before they could get through. That was 286,392 calls. Callers often face long waits, that is if they get through. If you email, the response period can be 2-3 weeks, but in some cases it takes up to a year.
The IRD charges interest and the longer it takes for you to get through and resolve your debt, the more the IRD earns. We believe that this is an unacceptable conflict of interest.
Now is the best time to negotiate with the IRD about your student loan debt. In September the IRD becomes super busy and this may mean delays in dealing with your case and that it does not get the attention it deserves. Here are some general principles:
Whatever the details of your case, we will have seen many similar fact and debt situations before because we deal with so many student loan debtors. This means that we can quickly tell you what your realistic options are. Being fully informed can make a big difference.
Financial stress is hard on relationships, so it can't be much of a surprise that student loan debt destroys marriages. According to a recent survey, 13% of people with a student loan debt blamed the debt for the ending of their marriage. To make matters worse, if a couple separate, debt borrowed by one partner can be shared.
Student loan debt causes many people unbearable stress. Not only does it destroy relationships, it causes people to be unable to buy a home, start a business, plan for retirement, or start a family.
The longer you have toxic debt, the worse the potential impact on you and way of life. It needs to be dealt with.
The New Zealand government body, the Tertiary Education Commission, has highlighted that many polytechnics and institutes of technology are at financial risk and their viability is under threat due to falling enrolments and income. Today we have reports that proposed changes to student visas will cause a loss of $486 million, or 17,425 students, per year. Many tertiary providers say this will have a serious impact on their financial viability, and some will have to close their doors.
How is this relevant to student loans? The answer is that, even worse than having a large student loan debt, is having a large student loan debt that you incurred for poor quality tuition, or for a course that you couldn't finish because the provider failed or closed your course part way through. This is another reason to be very careful before you agree to sign up for a life changing amount of debt.
In Australia, the IRD uses BayCorp as a debt collector. BayCorp is an Equifax company. In 2017 Equifax was hacked and data for more than 140 million people was stolen. Those people will be at risk of identity theft and loan fraud indefinitely.
There are media reports that Australian credit information could be at risk. We recommend that people check the data held on them by credit reporting agencies. If you are contacted about your student loan debt, we believe that it is safer to deal directly with the IRD, or through us, and not through a third party debt collector. We believe that doing so is more secure, and you will be more sure that you have accurate data about your full debt and the full resolution options.
There are some interesting details reported in this Official Information Act response about student loan bankruptcies:
Michelle Singletary is a reporter for the Washington Post. While there are some differences between the New Zealand and US student loan systems, the impact on struggling young people is the same.
Michelle's advice is to accelerate the repayment of student loan debt, and prioritise this over retirement savings (except to the extent that you receive some kind of employer or government subsidy for some of the retirement savings). If moving back home, for a while, will allow you to accelerate debt payments, and build a good nest egg then that could be the best option to avoid a lifetime of debt.
If you have to have debt to fund your studies, then getting rid of it as soon as you can should be a high priority.
Here's another interesting article from Kiwi Blog, concerning Winston Peters' $158,000 debt. The point made is that:
Winston owes the taxpayer $158,000 from 2005.
If you apply IRD interest rates to the debt over 13 years you get $983,000.
Winston's debt didn't increase over 13 years. We bet that there are thousands of student loan debtors who would line up to repay their debt if enormous interest hadn't spun them out of control.
We are not criticising Winston, just a system that makes it hard for people who genuinely want to repay their student loan debt to do so.
Kiwi Blog reports today about growing frustration with the IRD's MyIR computer system. One accountant was quoted as stating that:
"he believed the integrity of the whole tax system was under threat"
Even if these issues haven't affected you, it is a reminder of the benefit of getting things done before the IRD's deadlines, and of keeping copies of everything.
If you are an overseas resident NZ student loan borrower, and you are not on a repayment holiday, you are likely to need to pay half of your annual obligation payment by 30 September. The maximum obligatory payment is NZ$2,500 (assuming you have no arrears). For many people this is a lot of money. In order to avoid budget problems one option is to make regular, smaller payments in advance. For example, if you had $2,500 due, you could instead make 3 x monthly payments of around $833, before the due date, in order to spread the load. If this is still too much, it may be possible to negotiate with the IRD for smaller regular payments to be made so that you are up to date by a future deadline (for example 31 March 2019).
If you do have any overdue arrears, and they are not under some kind of formal arrangement with the IRD, these must all be dealt with ASAP. Not only are you at great risk if the arrears are not paid, or formally dealt with, if you leave dealing with it until late September the IRD will be very busy, making it more difficult and stressful to get things sorted.
Please ask us if you have any questions.
In the past, it was unusual for the Official Assignee to pursue overseas property owned by someone who had become bankrupt in New Zealand. This has changed. The change was gradual at first. The situation now is that if you become bankrupt in New Zealand, and you own a property in certain other countries, that it may be at risk. Not all at risk properties are pursued and this may depend on the amount of equity, which country the property is in, the amount of your debt, degree of cooperation, proposals put forward for dealing with the claim, your circumstances, and the general features of the case.
In situations where the Official Assignee decides that the bankrupt may be uncooperative or may try to defeat the Official Assignee's potential claim, legal proceedings to pursue the property can be issued in some foreign countries without prior notice to the bankrupt.
If your debt is much larger than your home equity, you may be willing to take the risk with your home. In some cases, for example, where there is not much equity, or there are difficult personal circumstances, this may increase the likelihood of a mutually agreeable resolution as long as there is a sensible and cooperative strategy for dealing with the Official Assignee. There may also be resolution options that involve payment over time or at a later date.
If you are trying to negotiate with the Official Assignee it is best to have one line of communication, to respond on time to all requests, and to try to be pro active in anticipating their requirements.
We are seeing increasing numbers of cases where the IRD is taking Court action to recover student loan debt.
It is extremely dangerous if your debt gets to this level, as it removes many of the resolution options and may allow the IRD to bankrupt you in New Zealand as well as overseas. Please contact us for help if you are worried about your situation.
Our office will be closed from 6-13 July. If you need student loan debt advice, or assistance with bankruptcy or an IRD negotiation, before the end of this month, we can help at a special reduced rate. If you need help please contact us now.
We received another lovely testimonial on 11 June, this time from a client who we had successfully negotiated an IRD write off for. She no longer has any student loan debt. Our client had this to say about our work:
YES! Thank you, that is such a relief. Please feel welcome to use the following in your reviews.
I am so glad I found this service online. You have been nothing but prompt, clear and concise in your communications with me. I have greatly appreciated your assistance over the previous 3 months. After getting
nowhere fast with my interactions with the IRD, through your knowlege and expertise I was so happy to have all of my late penalties deleted, which reduced my loan payout amount by over a third. My balance is now officially $0. Thanks so much!
This morning we received an amazing email from a client who we had been working with for a few years. We provided her with lots of assistance before she made the decision to become bankrupt and then helped her with the bankruptcy process and during the time of the bankruptcy. Our client is now discharged from bankruptcy and free of her debt and the enormous stress that came with it. This is what her email said:
Good morning Kristina,
I am a former client of yours and I am now automatically discharged from my bankruptcy :) The date of my bankruptcy started June .., 2015 and was completed June .., 2018.
Just wanted to write a testimonial and to thank you for everything !
Because of Kristina's help, I am now automatically discharged from my bankruptcy ! Three years ago I had a hefty amount of student loans with the interest steadily increasing. I was (and still am) living overseas and didn't know where to begin. I begin researching online and came across the studentloan.org.nz website. The fees were affordable, the website showed steps to bankruptcy as well as the choices that are available so I contacted Kristina and asked for her help.
I found Kristina to be extremely knowledgeable, understanding and knew exactly what options were available to me and where to start. If I had questions she was able to answer each one. She was also able to help me file the necessary paperwork to travel back to New Zealand for my mother's funeral. From the very beginning to the end Kristina made the whole process of a bankruptcy a lot less scary than I had anticipated. My stress was kept to a minimum due to Kristina's expertise and service. I'm so glad I made the decision to use Kristina's services !! I would thoroughly recommend her to anyone thinking about declaring bankruptcy. Thank you Kristina !!!
Thanks again for everything !
All the best supporting others in their financial concerns !
The overseas based borrowers unit of the IRD has several times of the year when it is much busier than usual. This includes the run up to the compulsory payment due dates of 30 September and 31 March, and around the times when high numbers of overseas resident New Zealanders travel home, like Easter and Christmas. Right now is not a particularly busy time which means that applications and questions should be able to be dealt with faster.
If you have a student loan debt that is starting to get out of control, or which you are not paying, we recommend that this is dealt with now, instead of doing nothing and hoping that your life will improve so that you can cover the shortfall in the future. Not only does postponing dealing with the problem for the future not usually work out, but the debt will have grown much faster than most people can imagine. If you deal with the problem, when it is small, you will have more options for resolving it, and the IRD is also likely to be able to offer you more flexibility.
We are here if you need assistance with your situation.
Student loan debt has a significant impact on young people's ability to get on with the normal milestones of life, including owning a home, starting a family, launching a business, or saving for retirement.
A leading financial commentator notes the overwhelming impact of student loans on house ownership: "the fact is that 83 percent of people age 22 to 35 with student loan debt who have not bought a house blame it squarely on their overwhelming loans – not their age, and not their careers"
Jennifer Beeston, a leading mortgage broker states that: “I think student loans are our next big financial crisis as a nation. Student loans are the largest issue I’m currently seeing in potential homeowners. In many cases their student loan payments are as much or more than mortgage payments.”
Although the commentators are speaking from a US perspective, New Zealand student loan borrowers are in many ways in a worse position, as at least, in the US, there are government schemes that allow people with disabilities, long term debt, or government service to have their loans forgiven. There are also many, quality, universities that charge no or low fees, giving young people the chance to start their professional lives without crippling debt.