Here are four rough scenarios for student loan borrowers. We assume that the amount borrowed is $60,000:
Scenario 1: the borrower remains in NZ and earns under the threshold (currently $19,136 per annum). Because interest is not currently an issue, no payments are required, and the debt stays the same unless voluntary payments are made. After 5 years the debt is still $60,000. After 10 years the debt is still $60,000.
Scenario 2: the borrower remains in NZ and pays back $3,703 per annum from their gross income of $50,000 (calculated at 12% of income over the threshold amount). After 5 years the debt is around $41,400. After 10 years the debt is around $23,000.
Scenario 3: the borrower moves overseas. Their minimum payments each year are $5,000 (no threshold applies) and they pay this. As a very rough calculation, based on an annual interest rate of 4.4%, after 5 years, their debt is around $48,000 and interest of around $13,000 has been charged. After 10 years their debt is about $36,400 and interest of around $26,400 has been charged.
Scenario 4: the borrower moves overseas. They pay nothing. As a very rough calculation based on an annual interest rate of 4.4%, and a monthly compounding penalty rate based on an annual rate of 8.4%, after 5 years their debt is around $82,000, and interest and penalties of around $22,000 have been charged. After 10 years their debt is about $125,000 and interest and penalties of around $65,000 have been charged. Not only that, because the debt comprises a substantial overdue arrears portion, the borrower is likely to be pursued by the IRD through debt enforcement action and possibly arrest.
In table form:
Scenario 1: the borrower remains in NZ and earns under the threshold (currently $19,136 per annum). Because interest is not currently an issue, no payments are required, and the debt stays the same unless voluntary payments are made. After 5 years the debt is still $60,000. After 10 years the debt is still $60,000.
Scenario 2: the borrower remains in NZ and pays back $3,703 per annum from their gross income of $50,000 (calculated at 12% of income over the threshold amount). After 5 years the debt is around $41,400. After 10 years the debt is around $23,000.
Scenario 3: the borrower moves overseas. Their minimum payments each year are $5,000 (no threshold applies) and they pay this. As a very rough calculation, based on an annual interest rate of 4.4%, after 5 years, their debt is around $48,000 and interest of around $13,000 has been charged. After 10 years their debt is about $36,400 and interest of around $26,400 has been charged.
Scenario 4: the borrower moves overseas. They pay nothing. As a very rough calculation based on an annual interest rate of 4.4%, and a monthly compounding penalty rate based on an annual rate of 8.4%, after 5 years their debt is around $82,000, and interest and penalties of around $22,000 have been charged. After 10 years their debt is about $125,000 and interest and penalties of around $65,000 have been charged. Not only that, because the debt comprises a substantial overdue arrears portion, the borrower is likely to be pursued by the IRD through debt enforcement action and possibly arrest.
In table form:
|
|
Debt balance: 5 years |
Debt balance: 10 years |
|
Scenario 1 |
$60,000 |
$60,000 |
|
Scenario 2 |
$41,400 |
$23,000 |
|
Scenario 3 |
$48,000 |
$36,400 |
|
Scenario 4 |
$82,000 |
$125,000 |