Australia will look at ways of collecting student debt from Kiwis in Australia, doing New Zealand a huge favour by tracking down the large numbers of expats.
New Zealand would also collect student debt through the tax system for the Australian Government. But the deal, if and when it goes ahead, would heavily favour New Zealand.
It is understood early estimates by Australia show Kiwis in Australia owe as much as $600 million in student loans to New Zealand. The Government could collect this, most probably through the tax system.
The student loan debt of Australians living in New Zealand is more like $20 million because far fewer Australians come here.
The Prime Ministers of both countries, John Key and Julia Gillard, asked officials at their annual summit in Queenstown yesterday to work out a way to do it, although that may take a couple of years.
Inland Revenue Minister Peter Dunne and Tertiary Education Minister Steven Joyce have announced a series of initiatives in the last three years to speed up the repayment of $13 billion in student loan debt, such as legal action and using debt agencies.
But nothing has come close to the scale of the Australian proposal.
It is likely the move will be welcomed by a large number of student debtors who want to pay back their loans as quickly as possible.
But there will also be some who object to the role of Australian authorities enforcing New Zealand obligations.
In August last year, the Inland Revenue Department announced it was cracking down on student loan borrowers across the Tasman. The IRD gained new powers to get a New Zealand court judgment transferred to Australia, where it would be enforced.
Measures involved charging orders on a property, deducting money from a person's salary, hiring debt-collectors, seizing assets such as vehicles and even forcing people into bankruptcy.
New Zealand Union of Students' Associations spokesman Rory McCourt said the Government had already introduced a poorly-publicised system to ensure expats did not have to pay $25 bank fees for transferring their repayments home to the New Zealand IRD.
"The Government should wait and see if that works before puffing out their chests and saying they are going to go after loan cheats when people haven't been given a fair go to pay themselves," he said.
"We would like more carrot and less stick."
However, Joyce said last night that the proposed reciprocal student loan collection deal was the beginning of the process, not the end.
It was, he said, a positive step that could benefit not only the New Zealand taxpayer but also borrowers who wanted a way of making repayments regularly.
There was not much in it for Australia, so it would be doing New Zealand a favour.
He said New Zealand had raised the matter with Australian officials in the past, but it had gone nowhere until Gillard kicked it along yesterday.
"There's nothing like a bit of Prime Ministerial endorsement to get things going," he said.
- additional reporting
by Joanne Carroll