Govt targets student loan defaulters

NZUSA President David Do. Photo / Paul Estcourt

Students who default on repayments may have their entire Government loan recalled by Inland Revenue under rules introduced today.

Revenue Minister Peter Dunne says the provision introduced as part of the Student Loan Scheme Bill will only be used in cases of "serious non-compliance".

It clarifies that the IRD is responsible to recall the balance of student loans in certain circumstances, he says.

"It's a fairness issue. The vast majority of borrowers are doing the right thing and repay on time. However others don't and they can't be allowed to get away with it," said Mr Dunne.

"This is about efficiency and effectiveness"

Mr Dunne says a defaulting borrower will initially be followed up by Inland Revenue and given the opportunity to pay back what they owe.

However, for certain borrowers, the Commissioner of Inland Revenue will have the ability to call up the entire loan, he says.

New Zealand Union of Students Associations (NZUSA) President David Do says that approach could force people into bankruptcy.

Borrowers who took out loans while interest rates still applied and have since moved overseas may have ballooning student debt they have no way of paying back, he says.

"Instead of an overly punitive approach, the government should look more closely at why people may be forced to default. If exercised in an unwarranted way, it could potentially force people into bankruptcy," Mr Do said.

He also cites unintended factors such as employer error that could force students to default on repayments.

"This approach, in isolation, is potentially risky."