Student loan defaulters worried

After a student loan defaulter was arrested trying to leave New Zealand NZ Herald reports Worried borrowers swamp IRD lines:

Inland Revenue has received a surge of inquiries from student loan defaulters worried they could be arrested if they return to New Zealand.

This isn’t a surprising reaction to the arrest. Up until now people with student loans have been able to leave New Zealand and ignore their loans with impunity.

One man who ignored his repayment obligations contacted the Weekend Herald from Australia and said he would now be scared to return for funerals or weddings.

Was he not concerned about defaulting on his loan until now? Obviously the threat of arrest is more of a worry but he should have had some feelings of concern about ignoring his responsibilities.

Unpaid student loans is a big problem. People who are overseas account for 90% of overdue loans.

The arrest policy, passed in March 2014, is the harshest in a range of measures to recoup debt from the 110,600 borrowers living overseas. Last year those based overseas made up 15 per cent of all borrowers, but 74 per cent of borrowers with overdue payments, and had 90 per cent of the amount overdue.

There were 5735 borrowers who each owed more than $100,000 last year. Those statistics do not indicate whether they are overseas, but in 2012 the IRD said most of the top 10 debtors were overseas – and each owed more than $290,000.

There’s some big money involved. I wonder about why people would clock up such large loans in the first place, and then think they can leave the country and ignore their debts.

Tertiary Education, Skills and Employment Minister Steven Joyce said if more money could be recouped from overseas borrowers, the cost of the scheme would be reduced significantly.

“The net cash cost of the scheme in the last year was down to $400 million – that is cash out, less repayments. In 2009/10, it was $771m.

“If we can get this overseas-based borrower stuff going, I can see us getting to a point where there is very little more going out [in loans] than what is coming back in [in repayments].”

The cost of unpaid loans impacts on New Zealand taxpayers, and it’s not fair on those who take out loans and are responsible enough to repay them.

Student unions criticised the border arrest policy as draconian and likely to make overseas Kiwis “student loan refugees” – unable to return home for weddings, funerals or other important events.

I think many had effectively already made themselves “student loan refugees”. This only really impacts on those who ignored their loans and kept returning to New Zealand.

The IRD has previously considered overdue borrowers for arrest if they re-entered New Zealand, but in each case the individual has agreed to repayments.

A simple solution – meet your obligations.

Accurate contact information is crucial – an arrest warrant can only be issued if a district court is satisfied a person is knowingly avoiding student loan repayment obligations.

Another simple way to avoid arrest, keep in touch with the IRD, which anyone should do if they owe them (us, the country) money.

If people who are overseas are worried about their student loans they should do what should have done all along, deal with them responsibly.

Should student loan defaulter have been arrested?

The person arrested for not paying his student loan is Ngatokotoru Puna, nephew of Cook Islands Prime Minister.

NZ Herald reported: Man arrested at airport over student loan debt is Cook Island Prime Minister’s nephew

He had been given a $40,000 loan while studying a Bachelor of Arts at Auckland University 20 years ago but said interest had seen it balloon to around $130,000.

He described his ordeal as “unbelievable” after an appearance at Manukau District Court today.

He described the day he got arrested as the worst of his life, “if you don’t count deaths”.

It would be highly embarrassing for him.

His wife, Diane, told the Herald from the Cook Islands that the IRD sent reminder letters to the wrong address.

She was audibly upset when speaking with the Herald, and said the arrest had come as a huge shock to the family.

Puna has lived in the Cook Islands for 13 years, she said. “We never had any contact from IRD about the whole thing,” she said. “They were sending reminders to the wrong address.”

It’s possible they were sending letters to the wrong address. But how does she know that?

Puna, who said he came from a family of “high achievers” said he was pulled aside by Customs staff and initially thought it was about his emergency passport, which he had obtained after losing his original passport.

The father of five daughters said his salary was about $35,000 and his mistake was that he had not contacted IRD when a payrise took him over the repayment threshold five years ago.

He said his plan was never to rack up a huge debt and then ignore it after graduating but accepted he was in the wrong for not keeping in touch with the IRD.

Anyone, especially ‘high achievers’, should know exactly what their responsibilities are if they have a $35,000 loan. They should also be aware of interest and changing balances.

It is tough on Puna to be in the spotlight as the first person arrested for defaulting on his loan, but it had to be someone.

But there are questions about how IRD has dealt with this, and how the law allows them to deal with it. Debts are usually civil matters, not criminal.

Graeme Edgler pointed out some things of concern:

Imprisonment for non-payment of debts is breach of international human rights laws. It is one of very few absolute rights.

Non-imprisonment for debt is one of the ICCPR rights left out of BOR.

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If a loan from the Government is unpaid, they should sue just like every other unpaid creditor.

And:

Who knew? People working in New Zealand’s bases on Antarctica are overseas for student loan purposes and will* be charged interest.

We arrested a Cook Islander for trying to leave New Zealand while in default on student loan obligations? The Cooks are part of New Zealand!

If anyone you know lives in the Cook Islands (or Niue, Tokelau, or Antarctica), and is being charged NZ student loan interest, please tell them that they can apply to be treated as being in New Zealand for loan purposes, so that they won’t be charged interest.

Puna stuffed up by ignoring his loan and his repayment obligations.

But has the Government stuffed up with the law that enabled his arrest?

And has the IRD stuffed up charging him interest, and for getting him arrested when leaving Auckland for the Cook Islands?

This is Wikipedia’s description of the status of the Cook Islands and Cook Islanders.

The Cook Islands is a representative democracy with a parliamentary system in an associated state relationship with New Zealand. Executive power is exercised by the government, with the Chief Minister as head of government. Legislative power is vested in both the government and the Parliament of the Cook Islands. There is a pluriform multi-party system. The Judiciary is independent of the executive and the legislature. The Head of State is the Queen of New Zealand, who is represented in the Cook Islands by the Queen’s Representative.

The islands are self-governing in “free association” with New Zealand. New Zealand retains primary responsibility for external affairs, with consultation with the Cook Islands government. Cook Islands nationals are citizens of New Zealand and can receive New Zealand government services

I guess it depends on the letter of the law.

Student loan defaulter arrested

A student loan defaulter has been arrested when trying to leave New Zealand after a visit here. They have lived overseas since 2004 and are reported to have ignored requests to repay their student loan.

If people living in New Zealand have student loans and earn money they are compelled to repay their loan via Inland Revenue, it is deducted from their earnings.

But many ex-students have left the country and some have avoided paying their loans back. Regardless of views on the student loan system they have taken on a loan that they know they have a responsibility and legal requirement to pay it back.

NZ Herald reports Airport arrest for student debt.

Kiwi living overseas who ignored requests to repay his student loan has been arrested at the New Zealand border after returning home for a visit – the first time the hardline sanction has been used.

The man was detained on Monday while trying to leave the country. He has lived overseas since 2004 and has student debt of more than $20,000.

A law change in March 2014 means student loan borrowers who are well behind on repayments and ignore requests from Inland Revenue may have an arrest warrant issued, stopping them from leaving New Zealand until they resolve their arrears.

This is the first time someone has been arrested under this law.

An IRD spokesman said its powers to arrest at the border were used as “a very last resort”, and followed strenuous efforts to contact the borrower and make repayment arrangements.

Serious defaulters are first contacted to discuss repayment options and are given time to repay some of their loan. Relief from repayments can be granted for hardship reasons, but the man arrested had not made any such application.

IRD generally uses the courts as a last resort when trying to recover tax owed as well.

An arrest warrant can be issued if a court is satisfied that the person has committed the offence of knowingly avoiding student loan repayment obligations, and is about to leave NZ.

A district court can then make subsequent orders that include paying the amount in default, making arrangements for payment, providing security for the payment, not leaving the country without permission, and surrendering travel documents or tickets.

I presume the person arrested was aware of these possibilities, but they chose to return to New Zealand for a visit. If news of their arrest becomes known to other student loan defaulters overseas they are likely to not come back here. But it is also likely them to reconsider their refusal to repay their loans.

The hardline arrest policy has been criticised by the University Students’ Association as likely to make “student loan refugee” into a permanent status, rather than encouraging people to meet their obligations.

But is sounds like they are already ‘encouraged’ to ‘meet their obligations’. If they refuse to do that surely there should be the possibility of consequences.

The option of arrest at the border was modelled on a law that is used to capture people who default on child-support payments. It was designed to target the worst offenders and act as a deterrent to others.

Criminals and alleged criminals can also be arrested if trying to leave the country.

An information-sharing agreement with Australia, expected to start this year, will allow for the exchange of contact details of Kiwi borrowers living in Australia.

Loan defaulters living in Australia will have more difficulty avoiding repayment.

According to the latest student loan scheme annual report, produced by the Ministry of Education, the amount repaid directly by overseas-based borrowers was $184.7 million in 2014/15, up from $158.1 million the previous year.

So many people with student loans living overseas are repaying their loans. And an increasing number of them are repaying their loans. As they should.

Perhaps University should have a compulsory paper – Student Loan Responsibilities 101.