Hazel, who owns a house in South Dunedin and is now living in Melbourne, has a New Zealand student loan of just over $100,000 built up through studying for a master’s degree and PhD.
She is now self-employed, making about $44,000 a year. Her partner, at 64, is on a benefit because he has not been able to find work.
Hazel, whom RNZ has agreed not to identify, said she was required to pay $5000 a year on her student loan, but that did not even cover the interest that was accruing.
When someone is overseas, interest is charged on their student loan, currently at a rate of 4.9%. There can also be late payment interest applied, at a rate of 8.9%.
Annual repayment obligations are set according to the size of the loan, up to $5000 a year.
“I just applied for hardship to cover $2600 of it for the last tax year and they rejected it,” Hazel said.
“They rejected it on the grounds that I have too many assets. We have a very modest house in South Dunedin. We have some equity in it, but we can’t borrow against it because our incomes are too low.
“I’m going to appeal because they may have misunderstood our current living situation in Melbourne. I said we were living rent-free in a family apartment which is true, but we have no ownership stake in the apartment. We are essentially couch surfing in a spare flat.”
Inland Revenue is currently taking a much harder line on student loan debt to overseas borrowers.
It said in May that a 43% year-on-year increase in repayments from offshore borrowers was largely due to an increase in funding in last year’s budget.
In a briefing note to ministerial advisers in June, it said overseas borrower student loan debt had hit $2.3 billion. There were just under 115,000 student loan borrowers overseas and 69% had defaulted on their repayment obligations.
It warned that if the status quo remained, the debt would pass $3 billion by 2028 and $5 billion by 2032.
It was targeting overseas borrowers with advertising and had sent 200,000 emails, 20,000 letters and 50,000 text messages.
There had been one arrest at the border and 142 people were on its watchlist.
“Our experience is that the actual arrest does not resolve significant debt but the threat of arrest does.”
Hazel said it was something that was always in the back of her mind.
“I’ve always tried to talk to the IRD and make sure I have an arrangement with them because I’m so worried about that happening. I have family in New Zealand and I want to be able to come home when I can afford it.”
IRD is also using overseas collection agencies to help chase debt.
Hazel said her sister had been contacted by Baycorp about her loan, which had increased from $3000 to $40,000 because she had ignored it while living in Australia.
Hazel said she was going to rely on the appeal process but in the meantime was applying for jobs and trying to market her business to increase her income.
“I have thought about moving back to NZ but I do a lot of work with the Victorian government that I couldn’t do from there. Plus I have built up a bit of a business. My partner can’t get a pension in NZ when he gets to the right age, either.”
Robyn Walker, a tax partner at Deloitte, said the IRD’s work appeared to be paying off.
“The data suggests that there has been an improvement in the compliance levels of overseas borrowers. Given the financial climate globally, it doesn’t seem an unreasonable assumption that Inland Revenue taking action to remind overseas borrowers of their obligations is making a difference to the level of compliance.
“The most recent statistics available indicate that 31.3% of overseas borrowers are meeting their obligations. While this is still a low percentage, it is up from an all-time low which started around about the time of the Covid-19 pandemic.”
Another Australian-based borrower, who also asked not to be identified, said he felt that the IRD’s approach was overly punitive, particularly when people were overseas because they had not been able to find work in New Zealand.
“They’ve looked at the job market and decided they’re better off going overseas.”
He said he engaged an Auckland accounting firm that negotiated with IRD to reduce what he owed.
When he went back to study in Australia, he did so without a loan. Hew said he would encourage people to weigh up their options and see if they could study without a loan where possible, through scholarships or savings. “That’s not an option for everyone.”
IRD customer segment leader Jane Elley said the department could only forgive penalties, not the initial interest charged.
