The government is losing millions of dollars each year because of the large numbers of student loan debtors feeling that they have no choice but to choose bankruptcy. In many cases, student loan bankrupts have been hit with enormous interest, decades of repaying far more than the original borrowing amount with no end in sight, and an inflexible response from the IRD.
In the financial year 2016/17 the government lost $19.9 million of student loan debt because of bankruptcy. In the financial year 2017/18 the amount was $32.2 million.
Being able to get rid of a student loan debt through bankruptcy is relatively unusual compared to other countries. Australian and UK student loan debtors continue to be stuck with their debts even if they become bankrupt (i.e. it is not discharged in bankruptcy). US borrowers have the theoretical option of bankruptcy, but the reality is that it is so hard to get that for most people it's a waste of time trying. In Canada, student loans can be covered by bankruptcy, but only if the debtor files more than 7 years after the end of their education (in some limited cases this may be reduced to 5 years). In New Zealand becoming bankrupt usually takes 1-3 weeks and is straight forward and stress free in most cases.
From 1 April 2020 it is expected that there will be slightly more scope for the IRD to help some types borrowers than is currently the case. It's not hard to see that the government could make the argument that because a small amount of additional help is being provided, that the bankruptcy option is no longer needed. The Minister of Education is on record as opposing student loan bankruptcies and there is public and official concern at the large number of people who have been able to get rid of their student loan debt burden through a New Zealand bankruptcy. Our view is that student loan bankruptcy provides an important safety valve for when people have become overwhelmed with impossible debt, usually through no fault of their own, or because they were never told what would happen to their debt if they moved overseas, however, because New Zealand is out of step with comparable countries, and given the large amounts at stake, our view is that a change could be expected. If the government did change the law and abolish, or restrict, student loan bankruptcies it would probably do so without much notice in order to avoid a surge of applicants.
In the financial year 2016/17 the government lost $19.9 million of student loan debt because of bankruptcy. In the financial year 2017/18 the amount was $32.2 million.
Being able to get rid of a student loan debt through bankruptcy is relatively unusual compared to other countries. Australian and UK student loan debtors continue to be stuck with their debts even if they become bankrupt (i.e. it is not discharged in bankruptcy). US borrowers have the theoretical option of bankruptcy, but the reality is that it is so hard to get that for most people it's a waste of time trying. In Canada, student loans can be covered by bankruptcy, but only if the debtor files more than 7 years after the end of their education (in some limited cases this may be reduced to 5 years). In New Zealand becoming bankrupt usually takes 1-3 weeks and is straight forward and stress free in most cases.
From 1 April 2020 it is expected that there will be slightly more scope for the IRD to help some types borrowers than is currently the case. It's not hard to see that the government could make the argument that because a small amount of additional help is being provided, that the bankruptcy option is no longer needed. The Minister of Education is on record as opposing student loan bankruptcies and there is public and official concern at the large number of people who have been able to get rid of their student loan debt burden through a New Zealand bankruptcy. Our view is that student loan bankruptcy provides an important safety valve for when people have become overwhelmed with impossible debt, usually through no fault of their own, or because they were never told what would happen to their debt if they moved overseas, however, because New Zealand is out of step with comparable countries, and given the large amounts at stake, our view is that a change could be expected. If the government did change the law and abolish, or restrict, student loan bankruptcies it would probably do so without much notice in order to avoid a surge of applicants.