Overseas based debtors are currently charged an interest rate of 4.4% per annum. According to the IRD, if your debt is greater than $90,000 it will increase faster than you can pay, assuming that you do not pay more than the highest compulsory payment rate of $5,000 per year. The main categories of borrowers that we see with plain debt this high are recent graduates in the medical and air transport fields, and people who had high arrears but who have been granted hardship.
The example assumes that none of your debt is overdue arrears. If your debt includes overdue arrears it will increase much faster as a greater interest rate is used. Currently, the rate is 8.4% but as this is compounded monthly this is equivalent to a rate of around 8.7% per year. At this rate, and if your debt is almost all overdue arrears (common if your debt is large and you have made no payments over several years), it will increase by more than $5,000 per year if your debt is around $57,000 or more. To complicate the situation, arrears are repayable in full immediately (unless you are granted hardship, have a payment arrangement, or become bankrupt), and the interest rate applied to your debt will be different as it changes every year.
With interest rates expected to rise, the situation is likely to worsen for overseas based borrowers. The interest rates charged by the IRD (especially if you have overdue arrears) are higher than many people would pay on overseas, or family, borrowings. You may be better off to borrow elsewhere and repay the IRD debt.
The cost related to living overseas with a New Zealand student loan debt is very high, and the debt and stress levels often increase rapidly. Regardless of how the debt is dealt with, dealing with it sooner rather than later is the best option for most people. If you would like advice on the best option for you, please contact us.
The example assumes that none of your debt is overdue arrears. If your debt includes overdue arrears it will increase much faster as a greater interest rate is used. Currently, the rate is 8.4% but as this is compounded monthly this is equivalent to a rate of around 8.7% per year. At this rate, and if your debt is almost all overdue arrears (common if your debt is large and you have made no payments over several years), it will increase by more than $5,000 per year if your debt is around $57,000 or more. To complicate the situation, arrears are repayable in full immediately (unless you are granted hardship, have a payment arrangement, or become bankrupt), and the interest rate applied to your debt will be different as it changes every year.
With interest rates expected to rise, the situation is likely to worsen for overseas based borrowers. The interest rates charged by the IRD (especially if you have overdue arrears) are higher than many people would pay on overseas, or family, borrowings. You may be better off to borrow elsewhere and repay the IRD debt.
The cost related to living overseas with a New Zealand student loan debt is very high, and the debt and stress levels often increase rapidly. Regardless of how the debt is dealt with, dealing with it sooner rather than later is the best option for most people. If you would like advice on the best option for you, please contact us.
