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New Zealand: Students loans – tickets to prison?

After the UK, another country to suffer the economic fragility of student loan schemes is New Zealand. However, it seems that the government has found a unique strategy to remedy the situation of high student loan debt in the country – intimidation.  

In order to increase repayments and personal responsibility for debt, the government of New Zealand seems ready for some strict measures. From 1 April 2014 the Inland Revenue Department, which deals with student loans, is entitled to request an arrest warrant for borrowers who live abroad and have evaded paying back a significant amount of their debt. The warrants can be executed when ‘black-listed’ debtors want to re-enter or leave the country. 

Thus, New Zealanders living abroad who are overdue with the repayment of their student loan debt risk going to prison if they decide to come visit the country. The move by the government may prevent many overseas-based debtors to return to New Zealand. The reported number of these people is around 61 000, and the amount they borrowed for student loans reaches a figure of NZD 3 billion (EUR 1.9 billion). Out of this amount, they are overdue NZD 544 million (EUR 338 million). 

According to the New Zealand Union of Students’ Associations (NZUSA), many people who owe substantial amounts may opt for declaring bankruptcy, a decision that would exempt them from paying back the loan. The country’s government has already written off some NZD 10 million (EUR 6.2 million) annually for the past three financial years on account of bankruptcy. 

Students have shown their disapproval of the loan scheme on several grounds, mostly related to inflexible repayment arrangements and very limited number of allowances (grants). Repaying the loan from abroad was apparently difficult and costly in the past, but it seems that the process has been recently facilitated, according to NZUSA. As NZUSA reports, the average student debt is NZD 30 000 (EUR 18 600) and it takes on average 11 years to pay it back. Between 22% and 23% of students receive allowances (grants) while the rest (77%) of the student population depends on student loans as a means of support during studies. 

Inland Revenue Department

NZUSA press release