Inland Revenue has received a surge of inquiries from student loan defaulters worried they could be arrested if they return to New Zealand.
One man who ignored his repayment obligations contacted the Weekend Herald from Australia and said he would now be scared to return for funerals or weddings.
The Government is unrepentant about the first use of the hardline measure - and a new trick up its sleeve will soon enable thousands of loan defaulters in Australia to be tracked down.
It says the arrest of Ngatokotoru Puna, 40, as he tried to leave New Zealand on Monday was a "last resort" after repeated warnings. Puna told media he was the nephew of Cook Islands Prime Minister Henry Puna
Student unions criticised the border arrest policy as draconian and likely to make overseas Kiwis "student loan refugees" - unable to return home for weddings, funerals or other important events.
After news of Puna's arrest was revealed in the Herald yesterday, the IRD received more contact than usual from worried borrowers overseas.
The arrest policy, passed in March 2014, is the harshest in a range of measures to recoup debt from the 110,600 borrowers living overseas. Last year those based overseas made up 15 per cent of all borrowers, but 74 per cent of borrowers with overdue payments, and had 90 per cent of the amount overdue.
There were 5735 borrowers who each owed more than $100,000 last year. Those statistics do not indicate whether they are overseas, but in 2012 the IRD said most of the top 10 debtors were overseas - and each owed more than $290,000.
Tertiary Education, Skills and Employment Minister Steven Joyce said if more money could be recouped from overseas borrowers, the cost of the scheme would be reduced significantly.
"The net cash cost of the scheme in the last year was down to $400 million - that is cash out, less repayments. In 2009/10, it was $771m.
"If we can get this overseas-based borrower stuff going, I can see us getting to a point where there is very little more going out [in loans] than what is coming back in [in repayments]."
A key measure will come into force this year in the form of an information-sharing agreement with Australia, which will allow for the exchange of contact details of Kiwi borrowers living in Australia. That could see thousands more borrowers receiving warning notices. The IRD has previously considered overdue borrowers for arrest if they re-entered New Zealand, but in each case the individual has agreed to repayments.
Accurate contact information is crucial - an arrest warrant can only be issued if a district court is satisfied a person is knowingly avoiding student loan repayment obligations.
Puna, who has lived in the Cook Islands for 13 years and whose $40,000 loan has ballooned to about $130,000, said the IRD sent reminder letters to the wrong address. He borrowed $5000 from his parents to pay the IRD before it was satisfied he could leave the country.