KEY POINTS:
The Government is moving to close a loophole that has enabled about 40,000 student-loan borrowers living overseas to avoid accumulating interest and late payment penalties on their debts.
At the same time, it is extending the length of an amnesty on penalties for those living overseas who have failed to repay their loans and softened their repayment options in a renewed attempt to encourage people back home to work.
The overall package - expected to cost about $15 million a year - was contained in the Student Loan Scheme Amendment Bill unveiled yesterday.
It involves a substantial reworking of initiatives for overseas borrowers announced as part of a broader student loan package in the lead-up to last year's election.
Last July, the Government said it would abolish interest on student loans for people living here.
In order to entice graduates to stay here, it opted to continue charging interest for those living overseas but said it would introduce a year-long amnesty, beginning this April, on penalties for late or non-payments for those borrowers.
It conceded the introduction of interest-free loans here had provided an incentive for people to fail to inform Inland Revenue they were leaving the country in order to avoid accumulating interest.
Finance Minister Michael Cullen said because this group had failed to fill in forms and there was no way of checking if they'd left the country, it was assumed they were here and not earning enough to make repayments.
The group also escaped penalty payments as a result.
From next April, a data-matching scheme between Customs and the IRD would enable them to track every student who left the country.
In addition, the Government said it wanted to improve the rules for overseas borrowers to ensure the regulations were not so prohibitive as to prevent people returning home.
Dr Cullen and Revenue Minister Peter Dunne said: "We recognise that graduates want to travel overseas and gain valuable skills and experience and that repaying student loans during their OE can be difficult."
However, there was a need for a "fresh start".
The bill will:
* Extend the the amnesty for non-resident borrowers in arrears by a year to March 2008, enabling late payment penalties to be wiped.
* Create a three-year repayment holiday for borrowers heading overseas, although the loans will still attract interest.
* Extend interest-free loans already available for post-graduate students studying overseas to under-graduate students.
* Reduce the 2 per cent a month late payment fee to 1.5 per cent.
* Simplify the rules around the size of repayments and on whether people are resident or non-resident borrowers.
Green Party education spokeswoman Metiria Turei welcomed the move, saying it would encourage more people to come home - although the Greens still believed that all such loans should be interest-free.
"Until now, students leave the country and, after six months, have huge repayment problems. The longer they are overseas, the worse the debt gets, making it even harder to come back to New Zealand."
New Zealand First education spokesman Brian Donnelly said his party had "always been of the opinion that the best immigrant is the returning New Zealander".
He believed many students had failed to read the IRD fine print before they headed overseas and had been so shocked by the penalties they were too discouraged to come home.
