Student loan becomes $250,000 nightmare

For some student borrowers living overseas, coming home to face up to debt is not an option. Photo / Martin Sykes

"Yeah, stupid eh?" Trev says in a deadpan Australian accent over the phone from across the ditch as we discuss his whopper of an unpaid student debt.

Trev is not this Kiwi loan refugee's real name but that's what we'll call him because he wouldn't be too happy to be outed and get a knock on his Queensland door from a debt collector, thanks to a small loan he took out as a 19-year-old, largely to buy a stereo.

That loan has spun out of control and looks set to plague the New Zealander for the rest of his life.

Five years ago the original $7000 had risen to $157,000 and was accelerating so fast Trev fears the total is likely to be approaching $250,000 by now.

He can't face looking anymore and as he hasn't a hope of affording the huge monthly repayments, he has decided to put his head in the sand.

He would like to move his family home one day but says he can't and his children are missing out on seeing their New Zealand grandparents.

That small mistake in the early 1990s has long-term repercussions affecting generations, he says.

Trev is 39 now and is one of the thousands of overseas students the New Zealand Government says are not repaying their loans.

Tracking people down and sending in the debt collector is something they are investigating.

Many of the students with huge unpaid loans are those who have undertaken expensive degrees which promise high-paying jobs, such as medicine, but not Trev.

His horror story goes back to the early days of loans when interest was charged. All he borrowed was $7000.

Trev is a smart guy with a good job in IT, but when he was a green English student at Auckland University, he wanted that stereo.

These days, Trev thinks it was verging on criminal that such a system ever lent him the money in the first place. But back then higher education had abruptly gone from free to fees and students were encouraged to take out loans, which were handed out like lollies.

Trev stood in a queue for five minutes, signed a form and that was that. No one asked what he wanted the money for and there were no warnings about compound interest, late payment penalties and fees.

"I bought a stereo and then I had some financial problems and sold it a couple of months later for, like, $500. Yeah, it was a very expensive stereo."

Trev, who now has a wife, children and a mortgage in Australia, spent a few years on a BA in English then went off travelling.

For years he never gave the loan a thought, though in the back of his mind he says he was aware that he would pay back the $7000 when he got home.

The IRD had been sending statements to former flats and addresses where he had lived as a student in New Zealand, but he never received them, so he never knew the way the loan was accelerating.

When the IRD tracked down his parents five years ago and forwarded a statement, he found out with horror how much he owed.

Revenue Minister Peter Dunne told Weekend Review that turning a blind eye was not the answer.

There had to be a level of personal responsibility, he said.

"If someone takes out a student loan with certain obligations, it's unreasonable to expect that they can cry foul after 20 years of ignoring it.

"No one would do that with a credit card debt or a car loan or any other personal debt and presume that ignoring it for 20 years would not be a problem."

Though the thought of debt collectors mildly worries him, Trev doesn't think the IRD knows where he is.

He would be happy to pay back the original $7000 - he'd put it on the credit card tomorrow.

"The rest of it is interest and penalties and fines and interest on the fines and interest on the penalties and penalties on the fines. It's insane, it's an insane situation."

He tried to negotiate with the IRD during an amnesty but at $2000 or $3000 a month, the repayments were still impossible.

"So here's me with my Bachelor of Arts, which I've never used, incidentally, and I work in IT. I don't even put it on my CV. In fact, I don't even tell people I've got a Bachelor of Arts. "I feel stupid about it because as soon as I think about it, I think 'oh, crap, I paid $250,000 for that'."

He has come home for the odd wedding or funeral but always looks over his shoulder at the airport, expecting a tap on the shoulder from the Inland Revenue man.

Weekend Review understands that though the IRD would be aware of an overdue borrower's return, they do not arrest them.

Trev says the Government is dreaming if it thinks it will get hundreds of thousands of dollars out of people like him and that the talk about debt collectors will simply drive them further underground.

It would make better economic sense, he thinks, to clear the interest and penalties and let them come home, get jobs and pay taxes.

But the IRD says it would be unfair to compliant borrowers to write off interest and penalties for those who haven't made payments when due.

Trev, though, fears that in another five years he might owe $500,000 and in 10 years perhaps the bill will be $1 million - no chance of coming home then. How can he get out of this nightmare? "Well, I guess you just don't and you hope that at some point somebody's going to say 'well, that's ridiculous, just give us the $7000 back and we'll call it even'."

Other student loan debtors have found themselves in different but still "ridiculous" circumstances.

Brian (not his real name either) lives in South Korea teaching and owes $10,000 on his loan.

He's tried to make payments, he says, but the IRD has no facility to receive payment in won, the currency of South Korea.

He tried with United States dollars, too, but reckons it was the same story. Brian does admit paying the money back is a low priority and he has no intention of returning home any time soon.

South Korea is great, the cost of living is low, books cost a third of their New Zealand price and the girls are prettier.

"I reckon New Zealand's going belly-up," he says.

"Our economists don't work and our governments don't govern. I'd sooner stay here, this outfit has a future."

He would say to Prime Minister John Key: "We can see that you are doing nothing that will revive the New Zealand economy.

"Don't imagine that attacking students will get you off the hook. Why don't you just do your job?"

A bill before Parliament promises changes to penalties for overseas debtors and a $30 million upgrade of the online system.

Inland Revenue's advice
Borrowers need to stay in touch and talk to them if they are having difficulty meeting their obligations. A condition of loan contracts means they must advise Inland Revenue that if they are going overseas (for more than one month) and of a contact address while away.

Borrowers get statements twice a year. Those owing large amounts are identified as part of their risk profile and their cases are managed. But there are defaulters the IRD is aware of with large balances who have not stayed in touch.

Offshore debtors
Inland Revenue estimates about 85,000 New Zealanders with students loans live overseas - about 14 per cent of total borrowers. As at 30 June they owed:
* $2.087b in student loan debt (21 per cent of total debt).
$182.5m in overdue amounts (56 per cent of total overdue repayments).
* 41 per cent of overseas-based borrowers are in default.

Source: Student Loan Scheme Annual Report

Overseas borrowers, based on matching personal details against Customs' arrival and departure info, are more likely to be male, studied at university rather than a polytechnic, hold a bachelors or higher degree and completed their studies.