The Answer: A part finished degree with a student loan debt.

​Figures released this week show that 36% of bachelor degree students do not complete their degree. Some students find that the quality of the degree, or teaching institution, is not worth spending more time and money on, others find that tertiary education is not for them. For some it is the realisation that the jobs will not be there for them when they graduate. Lachlan Maclean, a biology and computer science student stated that:​

Our view is that the system is deeply flawed. Nevertheless, we have what we have, for now. Our advice to people thinking about spending tens of thousands of dollars on tertiary education is to be sure that this is what you want, to be sure that the cost is going to be worth the anticipated future return, and that the quality is acceptable.

We are often asked what is the "ball park" amount that the IRD will write off if you offer to pay off your student loan debt. The answer is that there is no ball park, and the likely write off varies from case to case. Some of the relevant factors include the break down of the debt, how much you are offering to pay, how the offer is being funded, your personal circumstances, and why the debt got behind.

In some cases significant write offs are possible, but it will depend on the circumstances.

The IRD is supposed to respond to communications within 10 working days, in most cases. You would think that getting things resolved quickly would be good for business. We have had many clients who say that even though the IRD knew their contact details, they received no information about their debt for many years. During the time that the IRD made no contact, enormous interest was added to the debt. Another example is a case, we know of, where contact was made with the IRD, in March, to try to resolve the student loan debt. It is now 7 months later and the IRD has still not provided a real response. Of course, interest has continued to build.

Often clients have told us that they believe that the IRD's delays are deliberate so that more interest can be charged. We were sceptical, but this year we have seen a deterioration in IRD time frames and then we came across this information.

In the 2016/17 year, interest of $120 million was charged, and penalties of $72 million. Total ordinary and penalty interest for one year was $192 million, or $526,027 every single day. Every day that resolution is delayed, the IRD is potentially better off by more than $500,000. Naturally, this amount is spread over a large number of cases, and the longer the delay the greater the chance that the IRD receives zero because the borrower becomes bankrupt or dies, but these figures show that there is  a huge benefit to the IRD in delay. 

Once again, student loan borrowers are facing shabby, discriminatory treatment. The Government has announced tough new measures to deal with loan sharks. Many people, that we work with, feel that the IRD is the worst loan shark around. 

Prime Minister Jacinda Ardern and Commerce and Consumer Affairs Minister Kris Faafoi say that new laws are needed because:

In addition: ​

Lenders will have to be responsible, they will face penalties if they misbehave, borrowing costs will be transparent, and there will be access to help during the debt collection process. Shouldn't student loan borrowers also have those protections? Don't they also deserve to be protected from a spiral of debt and poverty? Shouldn't their children also matter?  Why are they not protected from irresponsible lending?  

We have many student loan borrower clients where the amount demanded by the New Zealand government/IRD is more than 7 times the amount borrowed, not the maximum of double referred to in this legislation. Shouldn't the government have to abide by the same standards as other lenders? Failing to so drives many borrowers to the brink of despair, and the relief of bankruptcy, things that could have been avoided if they were treated with compassion.

Recently we experienced an IRD officer who refused to provide information about a client account to which we (and the client) were legally entitled. In this case it was information about penalty interest. 

It is rare that the IRD can withhold information about your debt, including the original loan contracts and charges (note that, in some cases, this information is held by Study Link). Normally the IRD respects its disclosure obligations but there are times when people have to deal with someone who makes things difficult. If this happens to you, we can help, or you can make a formal demand for your information under the Privacy Act and the Official Information Act, make a formal complaint against the IRD, or ask the Ombudsman to help you.

Don't let the process get you down. You do have rights and you also have the right to have your rights honoured.

Contact Kristina today if you want to talk about putting an end to your debt nightmare.

The IRD is deliberately targeting student loan debtors compared to other tax debtors. It has a large team of 64 people chasing student loan debtors. It has no team dedicated to chasing unpaid tax on property deals even though it was expected that this could yield the IRD $50 million a year.

So single minded is the IRD's pursuit of student loan debtors, that it is collecting 170 times more from Australian resident student loan debtors than from Australian resident income tax debtors. It appears that student loan debtors are treated far more aggressively because they are seen as low hanging fruit and easy targets. Terry Baucher, Accountant, states that the IRD:

​We know that many of you had hoped for a more compassionate attitude, and a greater variety of resolution options, following the change in government. It appears that this will not be the case.

Students are leaving tertiary education with increasing amounts of debt. The chart shows that the class of 2016 was the most indebted group yet, and that average leaving debt has doubled in less than 20 years. Student loan debt is a growth industry in New Zealand.

​(Source: Ministry of Education, Ministry of Social Development, Statistics New Zealand IDI and Ministry of Education Student Loans Integrated Model.)

Questions that you should know the answers to:

• 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?
• How much better off, psychologically and financially, would you be if the realistic, expected repayment date was sooner?

If you don't like your answers, or you don't have a realistic idea of your answers, what positive steps could you start taking now to change this?

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. 
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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:

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:​

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:

• What is your current debt balance and breakdown?
• What are your available options.
• What can you afford.

Once you know the truth, you can move forward knowing that you have made the best, most realistic, decision on the basis of reality.

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:

• Kate is 25 years old and living overseas. Her student loan debt is $25,000 and she has not paid anything since she moved to Australia 3 years ago. Kate intended to pay when she got on her feet but since being in Australia she has only been able to find casual work and she finds it hard to get by.
• William is in his late 40s. He moved to Australia 20 years ago, after graduating with a student loan debt of $15,000. He is a well paid professional, with a mortgaged home. He lives a lavish lifestyle and he has built up debt in Australia. Despite having a good income, he never seems to have spare money. In the last 20 years he forgot about his student loan debt as he heard nothing from the IRD. Two weeks ago, the IRD contacted William and told him that his debt was $90,000 and that the arrears portion of $60,000 needed to be paid immediately, or else.

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:

• Under some circumstances, the IRD can write off penalty interest and/or ordinary interest. You need to find out how much of each has been charged to your account and whether you have grounds for a write off.
• Some people can get large write offs.
• If you have grounds, and if there is a potentially available write off, the IRD usually has some leeway in how much they will grant you within the leeway zone. "How much" can be affected by your circumstances and other aspects of the case.
• In some cases, ongoing negotiations produce improved results, but generally the IRD has a limit to how often they will engage with a particular debtor before they refuse to engage further and escalate the case to legal.
• If you don't have grounds, don't waste your time by asking for something the IRD can't give. If you don't like the limits that the IRD has for write offs, complain to the politicians who created the system. The IRD is the collection agency for the New Zealand government. It is the New Zealand government that has made the laws that have created enormous debts, bloated with billions of dollars of interest.
• Your debt probably took years to reach the level it is at now and it usually can't be resolved in an instant. Although it is often possible to resolve things with the IRD within 2-3 weeks, sometimes it takes much longer. 

​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.

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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.