Credit: Original article can be found here
Five and a half thousand student loans have been wiped since 2010 after borrowers declared bankruptcy.
Overseas borrowers defaulting on their student loans have been blamed for a $135 million jump in written-off loans.
During the same period, the average student loan balance ballooned from $16,731 to $22,630. One person had nearly $360,000 in student debt cancelled in 2019.
The rise is being blamed on overseas-based borrowers defaulting on their loans.
* ‘I won’t pay off my $120,000 student loan in my lifetime’: call for lower tertiary fees
* ‘Eye-watering’ loans leave students feeling sick and anxious about future
* Student loan arrest: Debt at ‘crisis level’
* Woman arrested at Auckland Airport for unpaid student debt reaches IRD settlement
A person can become bankrupt when they can’t repay one or more debts totalling at least $1000.
By law, student loan debt must be wiped when someone is declared bankrupt.
However, an IRD spokeswoman said there could be a delay between the borrower being declared bankrupt and the debt being wiped, so the person may be declared bankrupt in one year and their debt written off the next.
According to the 2019 Student Loan Annual report, overseas-based borrowers owed 91 per cent of the $1.5 billion in overdue student debt.
For borrowers living in New Zealand, student loans are interest free.
But when a Kiwi with student debt is overseas for six months or more they are charged interest.
People who are based overseas and have failed to make payments on their student loan can be arrested at the border when they arrive in New Zealand.
The spokeswoman said from April 2020, student loan debtors would be able to make payments from more countries, including the UK, Europe, the USA and Canada.
Liam Sutherland is external relations manager of SavY – a charity that runs free financial literacy work shops for youth.
He said declaring bankruptcy had huge implications for people who lived in New Zealand, but for Kiwis living overseas being declared a bankrupt in New Zealand would have little to no impact.
“You kind of get no consequences and all the benefits.”
Lowering interest rates charged to overseas student loan borrowers could encourage them to pay back the debt rather than defaulting, he said.
It was also important that students understood the terms and conditions of the loan before signing the contract.
In January, a woman was arrested at Auckland International Airport over overdue student debt.
She appeared in the Manukau District Court before reaching a settlement with the IRD.