Crackdown on overseas borrowers – a real life example

Tertiary Education Minister Steven Joyce has been busy tweeting about how great the new crackdown on overseas borrowers contained in the Budget will be:

“Student loan borrowers based overseas = 15% of borrowers, 60% of defaulters & 80% of default amount. Time to pay more”

he tweeted yesterday.

This official spin results in stories like this: “Budget 2013: Tardy student borrowers owe $427 million.”

The Government’s tough new student loan rules are an attempt to claw back more than $427 million of debt in default from overseas-based borrowers.

New figures from the Inland Revenue Department show that borrowers based overseas make up 15 per cent of those with student loans, but account for 60 per cent of 84,562 defaulting borrowers. The top 20 defaulters living in Australia collectively owe more than $1.6 million in default, with each borrower owing more than $47,000 in arrears.

Changes announced in the Budget will see passport information matched with information on student-loan debt, meaning that defaulters could be arrested as they try to leave the country.

Fixed repayment obligations and higher repayment thresholds will also be introduced from next year.

Minister of Tertiary Education Skills and Employment Steven Joyce said the crackdown was aimed at the worst offenders.

That’s all very well, but the changes aren’t only about cracking down at the border. They also include higher repayment requirements for borrowers living overseas, regardless of their income or circumstances.

One of my pet bug-bears about the annual “crackdown” on student loan repayments that we’ve been experiencing for the past five years since National has been in Government is the implication that it’s lazy students that are being targeted. Student loan borrowers who are eligible to repay their loans are graduates – grown ups! – with complex responsibilities and situations. Unilaterally raising their repayments, like Steven Joyce did for domestic borrowers last year, and overseas borrowers this year, has real, serious implications for their daily lives.

Take this example, emailed to our team yesterday, from a kiwi family living overseas who want to remain anonymous:

“Husband has a postdoctoral fellowship worth US $41,364. Wife is in the examination process for NZ PhD and is otherwise currently unemployed. We have one toddler, and a second baby on the way. Combined, our minimum compulsory repayment threshold has just been increased from NZ$6000 to NZ$9000 pa, with, as far as we can tell, no means testing or anything that takes into account our income or have dependents, only the fact that we’re now living overseas. At the current exchange rate this roughly calculates to 18.6% of our current household income. (On top of this we’re also paying the interest on our loans, and our normal outgoings which include expensive USA health insurance.) Husband chose to leave NZ to do a post-doctoral job because that is how he will establish international collaborations to further his research career, and also he had very little prospects of getting a similar job in NZ. We want to pay off our student loans and return to NZ, and fully intended, but not in a way that will stretch us so financially when we have children so young.”

It’s people like this who will be most affected by these unnecessarily punitive changes, not the archetypal lazy students deliberately evading their responsibilities imagined by Minister Joyce. It’s time some of the reporting about these changes reflected this.

44 Comments Posted

  1. The most important point is missed here. The interest rate of about 6.3% is charged on the overseas student loan. This is outrageous. Why do they not charge something more acceptable like 3%?

  2. I think it is absolutely immoral for those students to pay interest on those loans. That’s usury condemned both by the Bible and the Koran!

  3. Comes from the RWNJ idea that the amount you are paid reflects the value of the work you do for the firm. And hence society.

    I was being ever so mildly, sarcastic.

    However if that was really the case, many secretaries would be paid more than the suits, who stand around looking out their corner office window, all day.

    And those who inherited wealth, and do not work, would be allowed, nothing!

  4. People are paid for, supposedly, the value of the work they do.

    That’s an interesting statement, and one that is clearly wrong; where does it come from?

  5. For starters , Photo, your figures are deliberately deceptive. Photo stats as usual.
    65% of income tax is paid by those earning less than 100k, from the IRD’s own site. Most is paid by PAYE earners. Others have the capability to dodge tax.
    Income tax is not the only type of tax paid. Other types of tax such as GST and fuel taxes fall disproportionately on low earners because they have to spend more off their own income.

    However you have missed the point.

    People are paid for, supposedly, the value of the work they do.
    Many highly paid people are grossly overpaid compared with the value of their work. Already, extremely wealthy people get way beyound any contribution they could possibly make. Taking undeserved and unearned wealth from everyone else. Leaving less for those at the bottom.
    And, removing money from the local economy to play silly games with. Which we also end up paying for.

    Progressive taxes so that ever more wealth does not accumulate in fewer and fewer hands, is an economic essential to keep a capitalist system functioning. That is apart from our ” socialist” ideals of fairness.

    Why do you think it is OK for someone to skive off all their life, while living a life of plenty on inherited wealth from their father, but it is not OK for someone to have the basics required to live in our society, as part of their inheritance from all their ancestors, who worked hard, paid taxes and built the country into what it is today.

  6. Putting this another way, we already have a GINI over 35 and severely inequitable conditions. The severe structural distortion of this economy has to be addressed. Wealth needs to depend more on work done than stuff owned.

  7. Yes… and on Planet Key with its orbiting moon Photonz, money is the measure of everything.

    Unfortunately the money is based on debt, distortion and dishonesty so the VALUE to the society is vastly different from the measure.

  8. Or put another way, the top 2% of earners contribute slightly more in income tax than the bottom 65%.

  9. Kerry says “those at the top take far more than they contribute, or deserve!”

    20% of all income tax is pay by just 2% of earners. That’s an average of $74,400 each.

    The average spending per person in NZ is $18,000, though much less on average for those not on a benefit, if your kids go to private school, or if you use private medical facilities.

    And Kerry thinks those people contribute less than the the govt spends on them.

    I suppose on planet Kerry the 40% who effectively pay no tax somehow contribute more financially than they take.

  10. Unfortunately Dave, you’re almost completely wrong. Not your fault though as I didn’t provide context.

    I’ve only just started university as an adult student. Neve been before so reached my salary level through knowledge skill and working since I left school. I’m an expert at what I do, but I want to better my position. The only way I can do that is via education.

    And after taxes and SL my task home is about 60k. Furthermore, I do pay my debts, mate. That’s all I do frankly as a member of the white collar middle class.

    What I do object to is having to incur interest to pay it off, while plenty with far higher debt and lower prospects get a free ride.

  11. C’mon dave, that’s a poor effort. All you did there after saying you weren’t ignoring the post was to ignore the post and carry on talking about some unsubstantiated assumptions you’ve made.
    Now, on the subject of those assumptions, how is it your business to tell this family how to manage their finances? There’s a word for people who want to tell others how to run their lives. Several words. If at the time they took out their loans, they assessed that they could manage, that’s their choice.

  12. Kerry says “They just prefer that others pay the cost!”

    Isn’t that exactly what you want?

    You’re always saying the people at the bottom (who contribute little financially) should be getting more, and those at the top who contribute far more than they consume, should be screwed for more.

  13. Taxes are the cost of living in a functional society.

    You can always move to a country where there are no taxes! LOL.

    Funny that the rich always prefer to live in socialist countries.
    They just prefer that others pay the cost!

  14. AcC
    I’m not ignoring it, I’m suggesting that their complaint is less than valid – in my opinion. They have too much debt (about $100,000 by my back of the envelope calculation) and are not maximising their income from the education they have received. e.g. Two PhDs cannot between them find enough spare hours to tutor, invigilate or otherwise use their education to increase their income.

    I CAN ONLY AGREE WITH YOU as I had a (so called) free education too. Five years later I was paying tax at a marginal rate of 95% (or as the Beatles tax-man put it “here’s 1 for you 19 for me”.)

    as for me being a socialist because I paid taxes – wow! and there was me thinking I had no choice! lol

  15. Dave.
    You paid taxes. You socialist!

    If you go back a bit, you will see I do not have much time for the privileged complaining about paying back student loans.
    Especially those earning a good income overseas with the education we paid for. They are lucky they only have to return the loan part of the cost.

    Student loans enable many more people to get into tertiary education and education was not “free” in the past.
    It was paid for by taxes on those who did not go to University.
    Tax rates on the equivalent of 100k in the early 80’s were much higher. I was paying half my income in tax. A higher proportion of my income, than Gregor is paying in tax, and, loan repayments.

    I do not have much of a problem with students paying 25% of their education cost, through loans. It seems to me a fair split between individual and public benefit.
    I am fine with tax payers funding 75%, provided students stay in New Zealand and are prepared to return it through progressive taxation.

    It is hypocritical that many accepted tax funded education, vote for lower taxes for themselves. And then! complain about paying back loans.

  16. It’s not that difficult, dave. The whole point of the post is that changes made by the government have meant that a group of people, exemplified by a particular family, have gone from being in a financially sound position to being in financial strife. In case you missed it, the change from OK to not OK did not happen through the action or in action of the individuals. It happened because the government made changes as part of the budget.
    Your whole argument falls over unless you ignore this point, which seems to explain why you are ignoring it.

  17. Gregor
    I worked it out as:
    Your details

    Current loan balance:$60,000.00
    Gross annual income from salary/wages:$100,000.00
    Frequency of salary/wages payments:Monthly
    Estimated salary and wage repayment deductions for the 2014 tax year: $9,709.92.
    which is made up of monthly deductions from your salary/wages of $809.16

    Mate. You’re earning a HUNDRED GRAND A YEAR, and complaining about repaying the loan that let you acquire the qualifications to do that.
    The facts that you are a sole breadwinner with a mortgage and 2 kids is of no interest to me at all. You made those decisions – wich were yours to make. Just don’t try to convince me that you can’t live on $90,000 per year: I, and I hope everyone else who reads here, will have to choke holding in our sympathy for you!
    Pay your debts m8, like the rest of us have to do.

  18. Kerry, please acquire and apply a little logic here. Of course I used several of those things, I also paid taxes every year of my working life. In addition I eased the burdon on the health system and the school system by paying for private supply, paid fuel taxes to pay my way for the roads, didn’t use public transport without paying whatever was asked (I didn’t ask for a subsidy,).

    What has all that got to do with the fact that the example used in this blog posting is of a couple who, knowing they had incurred significant debts by their own choice, are complaining that they have to repay the debt and can’t afford to do so and live as they do, because of other choices they have made and not wanting to reduce their lifestyle?

    When my wife and I decided to have children we recognsed that there would be a cost to that, and that we would probably have to give up some things as a consequence. We raised our children on our earnings, our blood sweat and tears, and our taxes. I expect others to do the same, and think such an expectation is reasonable.

  19. Dave. So you do not use the health care system, pre-schools, schools, including private schools, power, use roads to transport your kids, public transport or received any goods transported by any means that the Stae developed and have never received any money, subsidies, services or goods from the State, for yourself or your children, including to the business that pays you?

    Your kids never received anything paid for by other tax payers.

    And will not use the services and goods supplied by other peoples children when you retire.


  20. Kerry says “In the Photo planet. Only the rich are allowed to breed.”

    On planet Kerry, we encourage high school students to have babies, and encourage those who are least able financially and emotionally to properly care for children, to have more than anyone else.

  21. I said

    People who have children and don’t have the means to adequately raise them without external subsidy should be taught better social responsibility at school.

    Kerry said

    OK. Good. That puts out all MP’s, most farmers, almost all NZ business and probably you, out of the gene pool.

    How Kerry managed to go from my statement to his/hers I have no idea. However, for the record, I have children and neither needed nor sought external subsidy for their raising. I’m sure there are many MP’s, farmers and business people in the same situation. I worry ttough that none of the Green Party MPs have taken issue with the suggestion that they don’t have the means to adequately raise them without external subsidy, as I remember it, MPs are rather well paid and the Green party even agrees with that statement!

  22. I am assured by an IRD employee that such requests are looked on from a favourable perspective.

    I can assure you Dave from personal experience and repeated submission that the IRD care not one jot about personal hardship.

    Irrespective of you circumstances your wages are garnered by a fixed proportion of your income.

    AS a decent earner but sole breadwinner with a mortgage and 2 kids, I have been required to pay back my loan @ around $800/month on top of income tax, effectively paying back any loaned money in full during every study year.

    As this repayment goes against my mortgage, I am effectively paying 5-6% p/a.

    The IRD don’t give a shit when it comes to SLs – all they care about is easy targets to recoup from.

  23. How is that relevant, dave stringer? It also doesn’t say smoking is bad for you and the moon is not made of cheese. Unless you have evidence that the anonymous family in this example aren’t making the minimum payments it is spurious to raise the possibility.
    In the absence of any evidence to support your spurious argument it looks a lot like you are trying to avoid discussing the point of the post.

  24. Kerry
    in an ideal world it is only the responsible who have the means to raise them that add children to an ever growing world population. People who have children and don’t have the means to adequately raise them without external subsidy should be taught better social responsibility at school.

    Your glib comment is a perfect example of thw socialist extremism that stops me from joining or voting for the Green party right now.

  25. Sorry Armchair Critic, nowhere does it say they have been paying the mandatory minimum, only that it has increased. If they have been paying, and are not in arrears, they can contact IRD and ask for their historic payments to continue to avoid hardship. I am assured by an IRD employee that such requests are looked on from a favourable perspective, it is only when the debtor is in arrears that they have no patience.

  26. That’s a fairly serious failure of your comprehension skills there photonz1. The premise of the quote in the post is that the family thought they were financially secure. Then the government changed the rules. Now they are notffindfinancially secure as a direct result.

  27. Holly’s example is two people intelligent enough to get doctorates, but not intelligent enough to plan to be financially secure BEFORE starting a family.

  28. BJ,
    As I don’t know MIT’s sources any more than you, I’m stumped. However, I did find this:‎
    U.S. median household pre-tax income fell from $51,144 in 2010 to $50,502 in 2011.
    On that basis, $42,000 after tax doesn’t seem too bad, though knowing where this 2xPhD family are living in the US, and what their housing situation is, (several universities have subsidised housing for post-doctoral researchers, MIT being one that I know of,) would help in making an equitable judgement. There’s a big divide between the cost-of-living in Buffalo NY and Burbank CA.

  29. Dave

    I do not know where/how MIT comes up with that figure… There are several aspects of those numbers which are EXTREMELY wrong, having lived in California.

    $130 a week for food? Not a chance in hell mate. ONE person might do that. Barely.

    $0 for child care? If one of them doesn’t work.

    $1303 for housing doesn’t cover any part of the utility bills.

    That’s not an “average” lifestyle in California. That’s below “average” by a fair bit. It isn’t quite “poverty” but there isn’t ANY slack in it for taking a quarter of it away as loan repayments.


    That said, the wisdom of having kids while in that financial situation in the first place can be questioned. Thing is, we’ve never put a limit on people’s reproduction based on their financial status. Doing so for folks with skills and education and decent prospects for the future seems to be a bit of grabbing the knife by the blade.

    New Zealand has, because it has failed to address its economic distortions, little prospect of employment to offer its skilled graduates. So we WILL have this problem. Until we address the distortions.

    The nonsense that passes for economic wisdom between English and Key is impossible to justify… and extraordinarily damaging to this country.

  30. MIT have a calculator of what is needed to live an “average” lifestyle in America, state by state. The following is for California (not the cheapest place by far) and show the individual expenses that went into the wage estimate for a family with two adults and one child.

    Food $553
    Child Care $0
    Medical $423
    Housing $1,303
    Transportation $639
    Other $210
    Required monthly income after taxes $3,128
    Required annual income after taxes $37,536
    Annual taxes $5,733
    Required annual income before taxes $43,269

    Your hard done by family doesn’t seem so hard done by when you take into account the fact that their grant income will be tax free!

  31. Husband has a postdoctoral fellowship worth US $41,364. Wife is in the examination process for NZ PhD and is otherwise currently unemployed. We have one toddler, and a second baby on the way. .. .. .. .. .. .(On top of this we’re also paying the interest on our loans,)

    Strikes me that this is a perfect example of how the system has gone wrong by allowing this couple to get into this situation.. They this couple have substantial student loans, have children, have an aversion to work, live in America and want ME to pay for their lifestyle choices.

    If they had been sensible they woldn’t have had children until their financial situation was better. THey would have worked inbetween degrees so that they had funds to draw on to support themselves rather than expectin there to be funding around for them to live on. Te irresponsibility of this couple is amazing, and yet you refer to them as if the are hard done by and deserve our sympathy.

    Sorry, no sympathy to spare, I’m too busy paying taxes out of my pension!

  32. Holly,

    I agree that in some circumstances changes in thresholds can cause hardship, but it is difficult for the IRD to do things any other way, given they have absolutely no visibility on the income of overseas borrowers. What are your suggestions?

    New Zealand has a serious, serious problem in this area, given that a very substantial percentage of the money that should be actually spent on education is going to support the debt servicing costs on tuition fees and living expenses which are never recovered.

    Even in the example you give (which is clearly atypical – a two PhD family), it is clear that the attitude towards student loan debt is wrong – people do not regard this as a debt in the same way they would a mortgage, but rather some sort of unreasonable encumbrance, to be ignored if it does not fit in easily with their personal circumstances. It is a shame, because our current system punishes those who diligently repay their loans, while failing to address those who have no intention of addressing their debts.

  33. Two minds about this one.

    This smacks too much of entitled rich kids moaning about having to pay their own way.

    Why should we pay for someones education, just so they can go overseas?
    We pay for tertiary education so they can contribute to New Zealand society.

    I doubt that many of those who complain about student loans would be happy with the high tax rates which paid for “free” tertiary education.

    They also would not like the competitive academic entry requirements, we had, in the days of “free” tertiary education.

    Student loans have enabled us to pay for many more people to go to University. Unfortunately the decimation of apprenticeships and trade training has made it much more difficult for those who want to train for skilled jobs.

    It was not “free” in the past. It was paid for by higher taxes on those middle income earners who did not go to University. Not really fair as the majority of students were, as today, the children of well off tax dodgers.

    Half my income went in tax in the early 80’s, a greater proportion of my income than those complaining are now paying in student loans, and I did not even go to University.

    Funny, we seemed to have much more disposable income in those days.

    Paying the private sector for services which used to be public has cost us dearly.

    So I will support a return to a high level of public services, including “free education” supported by high tax rates, and limited entry on merit, as it works better for all of us, (As countries like Norway, and NZ/USA in the 60’s, prove) but I doubt that many of those moaning about high student loans, would!

    They only seem concerned about the effects of our mean society, when it effects them!

  34. I’m sorry, but this is the sort of nonsense that makes me very frustrated with the Greens. Please understand this. It is a LOAN. It is a LOAN THAT YOU HAVE TO PAY BACK. I cannot understand the example given above, given that in order for this to be the case you would need at least two loans worth at least $30,000 each, and you have to be silly enough to leave the country in the first place without paying back your loans AT LEAST to the threshold of $30,000. In the example given, I’m sorry but it’s just ludicrous. Why not work to pay off your loans first? Why do you both have ridiculous loans? Why can’t the wife take a part-time job that would easily pay back $9000 a year? Given the postdoc is paying $41,000 US that would assume you are based in the US – as I am – and I can assure you, it’s possible to live on very little over here. Maybe his postdoc will have to be cut back – such is life.

    Us sensible people who live overseas, who start with high loans (i.e. people like me), we FIRST of all pay back our loans before we leave, and second of all expect and understand that OF COURSE we are obligated to make high repayments! This is NORMAL for people who live in the real world!

    My American friends, all whom are liberal, would be astonished if I shared this story of entitlement with them. Many of them have $100,000 student loans and earn in the realm of $40,000 a year. They sacrifice, live in cheap apartments, work hard and get their loans under control. And they DON’T spend years doing PhDs without first considering the cost!

  35. I suggest Fed Up Youth listens to the other side of the story.

    My Uni students were paid for by parents’ savings. Therefore they did not have the loan scheme to worry about. We are certainly not rich. My idea of fun is a visit to the Salvation Army shop.

    Your issue would probably be closer to the insultingly low wages from John (I would love to see wages drop) Key – yes he really did say that – why aren’t you marching in the streets over fair pay to pay for your education? Did you join me to march in the streets over Key and Co stealing our assets by legislating to sell and then with his millions buying up large along with his mates that he delivered tax cuts to that the country could not afford.

    You should also be marching in the streets for free tertiary education because the adults that will be relying on you ‘kids from Cannons Creek’ need to know you have the wit and the wherefore to look after those adults when they are retired. Do you remember when University staff protested about the behaviour of Steven Joyce (who received free tertiary education) with his attempts to turn Kiwis into automatons? They were concerned about the dumbing down of the education system in total, from the academic learning to the specified learning in pre-school, primary, secondary, technology… A love of learning is very special; I hope you understand that concept at some stage in your life.

    I also suggest you turn your attention to the CEOs of companies, that also received free education if you judge their age grouping, that are creaming it off yours and my rellies both past, present and future. Understand where the real greed is.

    Wasn’t it some people living in state housing in a poor area that loved John Key when he took the wee girl to Wellington with him just before the 2008 election, voted in their droves for him, and then he dropped the family when it suited? Those people were conned you know. Now, the state housing is being dismantled, especially in the nicer areas where the rich don’t believe the poor have a right to be.

    An academic friend of mine never hesitates to remind people that they are enjoying higher learning through the taxes of the blue collar workers; your job will be to remind John Key that the blue collar workers are equally valuable in New Zealand society. I do not believe he has yet grasped that concept because those workers certainly helped him on his way, yet he seeks to destroy their lives, with every bill forced through parliament to remove their rights.

  36. Why do (supposedly intelligent) people think the student loan scheme is a free money scheme. The kids who don’t go to Uni usally aren’t opting out by choice, yet they have to carry the rest of their generation.

    From my observation, Uni Students and Student Loan moaners are rich kids with a sense of entitlement that costs New Zealanders billions. For us kids from Cannons Creek we don’t get oppurtunities to stick our hand out like they do.

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