Students on OE to start repaying loans earlier

Law change means Inland Revenue will find it easier to track down borrowers. Photo / Thinsktock

People with student loans going on their big OE will have to start repaying their loans after just one year and provide Inland Revenue with a contact in New Zealand to help track them down.

The previous law allowed people to go overseas for up to three years before they had to start making repayments, but the Government reduced that to one year, saying it was more equitable to student loan holders who remain in New Zealand and had to make payment throughout. The changes passed into law last night.

Labour's tertiary spokesman Grant Robertson said his party pulled its initial support for the bill after the Government refused to budge on the length of time a repayment holiday would apply. Labour had proposed a compromise of two years, a period which aligned with the usual visa to Britain, the main destination for New Zealanders on their overseas experience.

All borrowers overseas will have to provide a contact person in New Zealand, such as a relative, for Inland Revenue to go to if they lose track of the borrower. Although that person would not be liable for the loan, Inland Revenue could contact them to seek information about the borrower.

Mr Robertson said Labour also wanted some assurance that nominated contact people - likely to be parents - were told of their responsibilities, including informing Inland Revenue if they moved house.

About $2.5 billion is owed by student loan borrowers living overseas - about 20 per cent of the total loan balance of about $12 billion. Last year Revenue Minister Dunne said Inland Revenue had details for about one quarter of the 91,000 overseas borrowers.

When he introduced the change, he said three years was possibly over-generous and it was fair to assume a borrower would be earning some money by their second year overseas.

However, Mr Robertson poked fun at Mr Dunne because he introduced the three-year holiday in 2007 as Revenue Minister in the then Labour-led Government.

Mr Dunne referred to it then as a pragmatic way to deal with the problem of the tradition of the OE.

"Mr Dunne has changed his mind."

Mr Robertson said Treasury advice had told them there was little evidence the reduced holiday period would improve repayments and could discourage people from returning.

Most of the changes came into effect on April 1 but the bill making the changes was not passed until last night, requiring last-minute clauses to ensure it would apply retrospectively.

THE CHANGES

* Student loan holders who go overseas long term must start repaying loan after one year, rather than three years. The repayment 'holiday' will no longer be automatic.
* Those going overseas must provide a NZ-based contact person for Inland Revenue. Borrowers can no longer offset losses against net income to reduce payments.
* Payments calculated each pay period for all borrowers.
* Those who have significantly overpaid can apply for refunds. Those who underpay will have catch-up deductions made from their pay.
* From January 1, 2013, Inland Revenue can get the contact details provided to StudyLink.