Overseas student loan holders have been rushing to get in touch with the Inland Revenue Department and restart their loan payments since the Government introduced sanctions for serious defaulters such as power to arrest at the border.

Revenue Minister Peter Dunne told a select committee yesterday that new measures had been successful in getting more overseas students to contact IRD and in some cases arrange to begin repaying their debt.

He said that within four days of the Budget announcements - which included new powers to arrest and increased debt collection services - more than 350 students had contacted the department to check their loan balance or begin repayments.

A private debt collection agency was helping the Government to trace 10,000 borrowers in Australia who were making little or no effort to repay their loans.


Officials confirmed that court action was being taken against fewer than 20 overseas borrowers. Mr Dunne said debt collection and legal action were reserved only for the most serious defaulters.

"We're certainly not approaching this from the perspective that every overdue borrower is going to end up in court. There's a whole series of steps we have to go through."

Labour tertiary education spokeswoman Megan Woods questioned whether the expense of hiring private detectives and debt collectors to track students was equivalent to the amount of money being recovered.

Mr Dunne said the previous policy of offering amnesty to overseas students had not significantly increased repayments. He said every $1 invested in encouraging repayments under the new policy had gained a $12 return.

But the New Zealand Union of Students' Associations president, Pete Hodkinson, criticised the Government for compelling students to repay their loans through a policy of fear rather than supporting them with a more intuitive repayment scheme, saying it could drive graduates away.