Editorial: Fair approach needed over student loans

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The Government has good reason for wanting to administer the student loan scheme as rigorously as possible. The percentage of the money it invests in tertiary education that goes directly to students as loans, allowances and interest subsidies is more than twice the OECD average.

Any attempt to claw back that figure will generally be welcome. But it would surely be going too far if the Government were to use debt collectors to recover more from student loan borrowers living overseas.

That is one of the options being considered in an attempt to get at people failing to make repayments. The Revenue Minister, Peter Dunne, has been drawn to overseas-based debtors because overdue repayments from that group increased by 111 per cent last year.

The same people, while representing less than 15 per cent of borrowers, accounted for 20 per cent of the money owed. According to the minister, some had "worked out because we can't track them down, they don't put their hand up".

There was, he said, a fairness issue. "Why should New Zealand-based debtors repay on time and do very well - what's the point if those living offshore can basically get away with it?"

Mr Dunne is, of course, right about the inequity of the situation. But selecting the right means to address this is another matter altogether.

Indeed, putting debt collectors on the case could well be counterproductive. The cost of the exercise would escalate as debtors, having been alerted they were a target, made themselves even more elusive.

It is easy to foresee a scenario whereby the amount spent on the debt collectors exceeded the money recovered. Clearly, Australia and Britain have reached that conclusion. Mr Dunne conceded they had figuratively shrugged their shoulders when he suggested reciprocal recovery arrangements with them.

Both countries told the minister they believed little could be done about the problem. That, however, is not entirely true. Most of the debtors will at some stage want to return to their home country, especially one with the obvious attractions of New Zealand.

They number people - Mr Dunne likens them to refugees - who are staying overseas because of the size of their student debt. For them, the Government's approach should be of the carrot, rather than the stick, variety.

To a degree, this has been recognised in a proposal to reduce late payment penalties for these "refugees". Legislation introduced to Parliament last week also involves the spending of $30 million on an online repayments system that will be far more user-friendly than current paper-based procedures.

There is another reason debt collection would be ill-advised. The Prime Minister may be correct when he suggests some students need to have more respect for taxpayer funding.

But that is no cause to single them out for special treatment. This country does not set debt collectors on people who skip off overseas and do not pay child support or suchlike. Fairness precludes such a policy towards student debtors.

Certainly, the figures quoted by Mr Dunne do not support the case for an exception being made. The variation between the overdue repayments of people living in New Zealand and those overseas is noticeable but not extraordinary.

Other initiatives could more easily address problems arising from the benevolence of the student loan scheme. The most obvious, of course, would be to rescind the interest-free nature of the loans, the product of a Labour Government election bribe.

If that, unfortunately, is considered politically untenable, the cost of the scheme will have to be reined in by other means. Calling in the debt collector should not be one of these.