Overseas student loan holders flock back to NZ

Inland Revenue can only arrest overdue student loan borrowers when they try to leave New Zealand. Photo / Janna Dixon

More than 5500 overseas-based student loan borrowers have returned to New Zealand since April but IRD won't be tracking those with an overdue bill down in managed isolation.

Inland Revenue data shows the total value of all student loans on the government's books is $16 billion – and $3.5b or 20 per cent of all loans are held by people living overseas.

Of the $1.5b worth of debt that IRD considers overdue, more than 90 per cent is owed by those living outside New Zealand - mostly in Australia.

It has been working with the Australian Tax Office to try and track down Kiwis who owe money and since 2014 it has also had the ability to arrest overdue borrowers at the border when they try to leave New Zealand.

In the year to June 30, six applications for arrest warrants were submitted, with four of those resulting in arrests. That was up from two arrests in the prior year.

Very few New Zealanders are leaving the country at the moment but plenty are flocking back in and must stay two weeks in a managed isolation hotel facility.

An IRD spokeswoman said it had not been approaching people who owed money while in managed isolation.

"Applying for a warrant to arrest someone at the border is a measure of last resort when we have tried all other means to help people meet their loan obligations. The law only allows for us to apply for a warrant when we believe someone with debt is about to leave the country."

But it had seen an increase in the amount being paid back.

In the six months to June 30 this year, $209.5 million was paid back, up from $197.2m in the same period last year - a rise of $12.3m.

The IRD spokeswoman said its policy was to wait around four months to send a letter to borrowers returning from overseas.

"When someone who has student loan debt and has been living overseas returns to New Zealand, Inland Revenue sends them a letter around four months after they arrive here advising them that once they've been back in the country 183 days they will be regarded as NZ-based borrowers."

She said IRD was aware that 5570 overseas-based borrowers had returned to New Zealand between April 16, 2020, and September 1, 2020.

During the same dates, the tax department sent more than 12,400 letters to returning Kiwis about the change in status.

She said many of those who had returned since March 25 were only just starting to hit that 183-day mark, which triggered the letter.

New Zealand-based borrowers who are salary and wage earners and earn over $20,020 have compulsory deductions from salary and wages to repay their loans.

They must repay 12 per cent of every dollar they earn over the repayment threshold. Self-employed earners must also pay 12 per cent of every dollar earned over the threshold but must organise payment themselves.

New Zealand-based tax resident borrowers don't pay interest on their loans.

Overseas-based borrowers are required to make repayments twice a year based on their loan balance and are charged interest.