Arresting people and chucking them in prison preventing them working won't recover student loan money, working with overseas tax offices will

Fairfax's New Zealand news site published a story this weekend where they reported that an Auckland accounting firm Andersen Accountants was offering advice to graduates living overseas to declare bankruptcy due to the crippling interest on student loans.  The crippling interest can make a student loan unaffordable for even the most honest person who wants to do the right thing.

As you can imagine because students are supposedly evil, the majority of reader comments on the article criticised students as being bludgers, saying that they never paid taxes, that they basically stole from the taxpayer and that they should be arrested at the border.

Lets consider a few facts though, and this is coming from someone with a student loan who cannot make the minimum repayments.  Before I go into what I think I will explain my situation.

I have been working since I was 16 years old, so the last 12 years.  Most of that was in NZ but I left NZ for Australia in 2008 for the first time so interest was added to my loan, then I left another couple of times so more interest was added, and I left in December last year so at least $4000 worth of interest has been added in six months.  So why didn't I work in NZ?  The company I was working for in New Zealand announced upcoming redundancies so my plan to move back to Sydney was put into motion and made active.  If I'd stayed in NZ then more than likely I would have stayed with the media company I was with and been made redundant in May of this year, and then sat on a benefit for God knows how long, or ended up in a call centre.  You see, today, the NZ Herald reported that call centre jobs are the growth area in Auckland.  You do not attend university to work in a call centre or sit on a benefit and why should people be punished for deciding to create a better life for themselves?

Next up, consider the financial positions of former students living overseas.  They may have debt.  I know I have private debt and because that impacts things, little things, like even being able to rent an apartment it has to come first or I have to keep living in backpackers or hostels when I'm reliable with my rent and always have been.  People may genuinely not be able to afford the minimum payments which are basically based on 10% of your student loan, not on what you can actually afford.  So to give you an example - let's say you have a loan of $50,000 (and some, like me owe more) then your minimum payment is $5000 a year.  Let's consider you have to pay $10,000 in rent a year (based on a modest $200 a week in a modest suburb in Sydney's inner west) but let's figure this, you still have to eat, you still have to cover your other debts, you still have to buy clothes and shoes for work, and you may have unstable work, so you also have to save for when you have no work, because casuals in Australia don't get holiday or sick pay.  So even if your income was low and you genuinely couldn't afford the repayments, you my friend, well you would be arrested at NZ Customs trying to enter or trying to leave.

Okay, so you then get a stable job, so you have to service your private debt first, now what if you made stupid decisions with money when you were younger?  Then chances are you may have a very high amount of private debt where you should be paying at least $100 - $200 a week on that.  As that debt is going down and affecting your everyday life in your new country you're going to prioritise it.

So the simple question remains, how is arresting people at the border when, like all bad financial situations, they may just need more time?  How is stopping them leaving going to help when they have jobs overseas and commitments overseas?  Will imprisoning someone while they're sorting out their finances really help the Government recover the money?

The problem, and the main reason why people overseas don't pay their loans is because they simply cannot afford to and if the interest was removed then they would probably make more of an effort, but why would you pay a debt that doesn't affect your everyday life when there are private debts that do?  And why would you pay an ever growing debt when you could pay the decreasing debts that affect your day to day living?  Why would you pay a debt that is primarily made up of interest?

The NZ Government needs to work with overseas tax offices and base repayments on actual income.  If you are in NZ then 12% of what you actually earn will go onto your loan, while if you are overseas at present, the NZ IRD doesn't work with the Australian Tax Office for example, why not?  Why haven't they looked at this?  This would stop people defaulting on their loans.  And why not remove the ridiculous minimums?  Why should someone like me, face being arrested because of our financial position?  This also affects our voting rights because given we could be arrested at the border and stranded in NZ do you really think we'd be dumb enough to re-enter the country?  We have to once every three years to maintain our voting rights if we're an NZ citizen.   Are we supposed to just forgo our right to vote when we're good citizens?  What right does the NZ Government have to take away our right to vote when the policy affects us?

Also, what IS a serious defaulter?  I make payments on my loan where I can but certainly not the minimum because I simply cannot afford it.  I only hold citizenship in ONE country at present and that means if something goes wrong I'm on my own.  Are we so stupid that we want to protect our new lives?  If the NZ IRD worked with the ATO at least then people wouldn't default because short of defrauding the Australian Government, defaulting simply would not be possible.

It astounded me to read half the comments on the Stuff.co.nz article.  Former students/graduates of NZ universities may in fact have paid their student loan while they were in the country, paid taxes and generally contributed to the economy, yet those commentators made it out like former students never paid taxes and that is untrue.

The legislation needs reviewing, but anyone who does want to consider bankruptcy really needs to know it is not the easy way out and I can't see it becoming a legitimate option for people because it prohibits your opportunities to travel, you can't have more than $500 in savings, you can't control your finances etc.  Sometimes NEARLY going bankrupt is actually the push you need to get your finances in order, but legislation around student loans needs reviewing otherwise people will continue to default and NEVER return to NZ because of the prospect of being arrested.