Nearly 900,000 people have taken student loans since the scheme started, and more than two-thirds have not fully repaid the money back.
A Ministry of Education report says only $6.4 billion of the $13.9 billion borrowed since students started getting loans in 1992 has been paid back.
The Government is trying to ensure outstanding loans are repaid, but Inland Revenue has had to write off millions of the debt because of death and bankruptcy and accepts that some of the money will never be repaid.
That portion is estimated to be loans given to about 12 per cent of borrowers - more than 107,000 people - who have left the labour force, taken unpaid work or become ill or disabled and unable to work.
Tertiary Education Minister Steven Joyce said policy changes over the life of the scheme, such as the introduction of interest-free loans in 2006, had not necessarily encouraged people to repay the money.
International students coming to New Zealand, studying on loans and then leaving the country after graduating had also not helped, he said, and changes were being made to alleviate this problem.
Another big problem area was the number of New Zealand students living overseas and not repaying loans.
The report says Inland Revenue had $325 million in overdue loan payments in the year to last June, more than half of it owed by nearly 35,000 New Zealanders living overseas.
Mr Joyce said that in a new scheme, New Zealanders living in Australia would be traced and spoken to about their debt.
Repayment plans would be set up, but it was too early to say what would happen to those who continued to avoid payment.
Mr Joyce said other moves were also being planned in a bid to reduce the level of unpaid loans.
These included introducing performance-based loans.
Statistics show a much better repayment rate from students who graduate.
Last year, 199,000 people (71 per cent of students) borrowed $1389 million in student loans. Nearly a third were new borrowers.
The report also found the median first-year loan was just over $6000 last year, about $100 more than in the previous year.
The majority of loans are less than $15,000, and just over a quarter are under $6000.
But 2000 people owe more than $100,000 on their student loans.
Union of Student Associations co-president David Do said the report showed repayments were continuing to increase.
That was in part because the loans were now interest-free, which made it easier to repay them.
STARTING OUT $17K BEHIND
Bachelor of communications graduate Hayley Jacobsen will start her first job out of university this summer with nearly $17,000 worth of debt.
The 21-year-old Aucklander is typical of many tertiary students in having to borrow to pay for her studies and living costs.
Despite working part-time throughout her three-year degree, Ms Jacobsen could not afford the $12,000 fees and needed help with expenses, which included paying board to her parents.
"I don't understand how anyone could go to university without [a loan]. It's so expensive."
This week, as she finished her course, she received a loan summary showing a debt of $16,632.47.
"It's pretty scary because I don't know the nature of having a fulltime job and what it is going to entail and whether I'm going to earn enough to be able to pay that back.
"I'm trusting that you sort of come up with a scheme where you pay a certain amount back every week and I'm sure that will be fine."
Like many students, she said, she had not given her loan too much thought while studying. She would probably do the minimum repayments once she was working.
"I'm just hoping it won't come back to bite me on the bum when I want to get married in the distant future."
Ms Jacobsen said interest-free loans were a good way to encourage people into tertiary education and she was not too worried about hers.
"We have all got them, it's all good. I still believe in the no-interest student loan.
"I think sticking to that is going to encourage people to get a tertiary education and put us all in professional positions."
WHO'S GOT WHAT
* 894,000 people have borrowed $13.9 billion since 1992.
* Last year, 71 per cent of students took loans, totalling $1.4 billion.
* More females than males take loans, but males borrow more.
* Median age is 20 but more older students are borrowing money.
* Majority of loans are under $15,000 but 2000 people owe more than $100,000.
* Loans worth $10.7 million were written off in the year to last June because the borrowers had died.