Student Loan Borrowers can no longer Fly under the Radar
These days many Kiwis returning home from abroad no longer breeze into Godzone with the same confident swagger they once assumed. These are the original batch of Kiwi Student Loan borrowers, who dared to ignore their student loan repayment obligations, thus invoking the ire of the IRD. And these same Student Loan borrowers are now being caught in the net of the Internal Affairs tracking system, working in collaboration with the IRD.
A visit to our office from one of these edgy expats caught our undivided attention recently. In 2007, Tim (not his real name) left New Zealand on his OE, with the eager anticipation of a young man about to explore distant foreign enclaves. At the same time Studylink was transferring his student loan debt into the safe auspices of the IRD. Of course Tim became distracted by his new experiences and completely ignored the small debt he left behind him, married, settled down and started a family in the UK.
So, not long after Tim’s return to NZ this summer, just as he had done many times before, Tim’s parents received a concerning call from IRD enquiring as to the whereabouts of their son and requesting that he contact them regarding his unpaid student loan asap. This is the point where we became involved, as the horror of Tim’s repayment oversight became apparent and where Tim’s complacency rapidly switched into damage control and Tim anxiously looked around for an accountant to help.
What had transpired, on our investigation, was that the somewhat benign original debt of 30,000 that Tim left behind, had over the intervening years, spiraled to a not unsubstantial 117,000 due to the unpaid obligations and accrued interest and penalties. And it also transpired that Tim was faced with the prospect of just one month to arrange a repayment of $44,000 with the remaining balance to be paid back at the rate of $5,000 per year with a fairly negligible remission of $5,700. Or alternatively, that he pay in full, a lump sum of $98,000 and IRD would remit $18,500 late payment penalties. Unsurprisingly neither of these options appealed to Tim.
Also, if Tim didn’t comply, he faced the very real risk of arrest at airport departure, followed by court appearances, the drama of finding bail and incurring further penalties and interest. A hard-line law change in March 2014 had meant that student loan borrowers who were well behind on repayments and ignoring requests from Inland Revenue could potentially have an arrest warrant issued, preventing them from leaving New Zealand until they resolved their arrears.
The option of arrest at the border was modeled on a law that is used to capture people who default on child-support payments. It was designed to target the worst offenders and act as a deterrent to others.
An information-sharing agreement with the Department of Internal Affairs alerts Inland Revenue when defaulters apply for or make use of a New Zealand passport. In addition, an information-sharing agreement with Australia, expected to start this year, will allow for the exchange of contact details of Kiwi borrowers living in Australia.
In summing up, ignore your student loan debt repayments at your peril. Inland Revenue is looking for trophies and you could face having your name and face splashed across the media.
Defaulters can no longer fly under the radar and risk becoming student loan refugees that are scared to come home.