According to Sam Blackmore, co-vice-president of the Union of Student Associations, the approximately 77,500 people abroad who are behind on student loan payments should be offered more incentives to return home.
Delinquent debtors owed just under $1.9 billion in overdue repayments and penalty interest at the end of June, and Inland Revenue Te Tari Take believes it knows where less than half is, according to data published under the Official Information Act.
But their debts are increasing as late payment interest is being added at the rate of 6.8% on the unpaid portion of their loans, and the threat of arrest at the border remains in place.
“I don’t blame them for not coming back,” Blackmore said.
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With labor shortages in many industries, Blackmore said he wants the government to rethink its attitude towards failing overseas students.
“The stupid thing is that they cut off their noses to spite their faces,” he said.
“If we allowed these people to come back to the country, they would contribute to taxation, productivity and development.”
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A package to encourage more to return would include an agreement to clear their backlogs, he said.
“You agree to come back, you sign your form, you agree to work for five years, or whatever, and off you go,” Blackmore said.
Revenue Minister David Parker said the Inland Revenue (IR) Commissioner may already be offering relief to overseas-based borrowers, which could include waiving some or all of the added late payment interest to their loans.
Arrears have accumulated because people who go abroad with debt are obligated to make annual repayments, but must take active steps to make those payments.
People with student loans who stay in the country have their repayments automatically deducted from their salaries.
Just under three-quarters of foreign student loan debtors are in arrears, information from StudyLink and IR.
While 10% of student loan debtors in New Zealand owe $50,000 or more, 20% of foreign borrowers owe that amount.
The 10 largest foreign student loan debtors owe an average of $474,000, an IR spokesperson said.
When people leave the country, they have a legal duty to keep IR informed of their contact details, but Parker said he was “aware that collecting student loans from borrowers overseas and maintaining contact with these borrowers are difficult”.
IR did not know the whereabouts of 43,071 foreign debtors with combined arrears of $1.13 billion.
Its records show that at least 29,366 borrowers in arrears were in Australia, with combined arrears of $610 million.
While penalty interest continued to mount, border arrests were rare and IR said only 13 people had been arrested for overdue student debts in the past eight years, with just one this year and two in each of the past two years.
IR was alerted when an overseas-based borrower returned to the country and attempted to contact them while they were there, Parker said.
“Arrest is a measure of last resort and comes when returnees fail to engage with the department while they are here,” he said.
IR had to ask the courts for an arrest warrant, and a border stop could only happen when he thought they were about to leave the country, he said.
Blackmore said the small number of arrests seemed to indicate a decision had been made not to arrest people at the border as it would create bad publicity.
Blackmore said he understands forgiveness of loan arrears for returning debtors might not sit well with everyone.
“If we do any debt forgiveness, there will always be a disgruntled population, who will feel like they missed something,” he said.
He also called for new rules extending the time people with student loans could spend abroad without triggering overseas repayment obligations from 185 days to 12 months or even two years.
“We want people to be able to go out, learn, explore and come back,” Blackmore said.
IR planned to intensify its efforts to find debtors abroad.
“Additional work is also planned to locate debtors residing overseas, including those residing in Australia,” the spokesperson said.
He had an information-sharing memorandum of understanding with the Australian Revenue Authority to help find debtors there.
IR had also engaged collection agencies to trace overseas-based debtors and collect arrears.
“Interventions will range from locating customers and helping them get their repayments back on track, to more robust collection activities for those who continue to fail to meet their obligations,” he said.