Student debt: $135 million wiped after borrowers file for bankruptcy

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Five and a half thousand student loans have been wiped since 2010 after borrowers declared bankruptcy.

BRETT JORDAN/UNSPLASH

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.

While the number of student loan balances written off by the IRD each year fluctuated, the average amount written off per borrower has more than doubled from $16,024 in 2010 to $33,493 in 2019

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.

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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.

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