A recent surge in student loan repayments from borrowers based overseas is likely a tale of two types of debtors. Laura Walters takes a look at what’s behind the numbers
A recent surge in student loan repayments made by overseas debtors shows how the pandemic has affected Kiwis’ finances in different ways.
Some think the increase in loan repayments points to New Zealanders who’ve been forced to head home, and are now looking to avoid repercussions from IRD.
Meanwhile, those who’ve kept their jobs in other countries have found themselves with more disposable income, due to the lack of travel and social opportunities.
During the June quarter, there was a noticeable jump in student loan repayments from overseas-based borrowers.
During those three months, this group made repayments of $53.9 million, up 11.7 percent on the same quarter the previous year.
A more modest increase followed in the September quarter, with repayments with $63.1m, up 2.6 percent compared to the same period the previous year.
The increases tapered off in the December quarter, with a slight decline of 1.1 percent.
Notably, during the three-month period from October to December, the amount repaid by New Zealand-based borrowers increased by 26.7 percent, bringing the repayment amounts almost in-line with those of overseas borrowers - $42,374,088 and $43,294,939 respectively.
The reasons for this latest increase in New Zealand-based repayments are yet to be analysed, but it is worth noting that Ministry of Education did not include the impact of returning New Zealanders in its student loan debt modelling for the 2019/2020 year.
On average, overseas-based student loan debtors have more student loan debt, and take longer to pay it off.
Because overseas debtors are charged interest, their overall debt grows. And the longer they stay overseas, the less engaged they are with their student loan, making them more likely to become non-compliant.
In the 2019/20 financial year, overseas-based New Zealanders made up 72 percent of all people with overdue loan repayments. Out of a total of 103,604 people with overdue repayments.
And overseas borrowers owed 92 percent of the total $1.579 billion in overdue loan repayments.
In its student loan annual report, the Ministry of Education noted there were improvements in overseas compliance before the onset of Covid-19.
“We expect that overseas compliance will deteriorate as a result of Covid-19, but the extent of this is unknown,” they said.
But that has not been the case, so far.
“This is not a good way to greet Kiwis whose lives have been thrown into chaos and turned upside down.” - NZUSA president Andrew Lessells
Some have attributed the surge in repayments in the June quarter to overseas Kiwis looking to come home due to a change of circumstances caused by the pandemic.
This Government has largely done away with the practice of arresting student loan debtors at the border when they try to leave the country.
But the policy is still in place as a last resort. Indeed, one such case made headlines in January last year, when a woman was arrested at Auckland International Airport.
While loan debtors would not face arrest on arriving in New Zealand, they could face repercussions once in the country, and be arrested if they tried to leave.
Union of Students’ Associations (NZUSA) national president Andrew Lessells said he believed the spike in repayments could be attributed to New Zealanders returning to Aotearoa.
“These repayments are likely an attempt by returnees to prevent themselves from being detained at the border, which is still a very real threat,” Lessells said.
“This is not a good way to greet Kiwis whose lives have been thrown into chaos and turned upside down.”
On the flipside, some overseas-based debtors spoke about making a concerted effort in recent months to pay off their student loan, despite no immediate plans to return home.
One UK-based Kiwi said he paid off the last of his student loan in October, after 16 years of chipping away at the debt.
An overseas-based nurse said she had recently set up a payment plan with IRD.
And while servicing the $75,000 debt (including study fees, living costs and interest) was near-crippling on a £24,000 (NZ$46,000) salary, and would likely take more than 20 years, she had no plans to default.
“Paying off only the minimum is not really a viable long-term financial strategy if I want to be able to effectively save for my future.” - Overseas Kiwi Alex Walker
Other overseas-based debtors who spoke to Newsroom said they had kept their jobs, and ultimately had more money for debt repayment due to the lockdown measures.
One person said they weren’t spending money on commuting, eating out, or buying new clothes for work events, meaning more money in the bank.
Another said they paid off the final $10,000 during the first lockdown.
“Because without travel, I have nothing I want to spend money on! And WFH has meant I spend less not commuting and buying cheeky chocolate bars at 3pm.”
These experiences fit with recent data from the UK’s Financial Conduct Authority.
The authority’s Financial Lives 2020 survey found in October last year that just under half the nation’s population (48 percent) believed the pandemic had had no effect on their finances.
And 14 percent said they were better off, having either reduced their debt or improved their financial buffer.
Of course, that left 38 percent of people who'd seen their financial situation worsen - another example of the inequitable effects of the pandemic.
"The student loan system needs to have more humanity built into it." - Andrew Lessells
Alex Walker, who has been in London for four years, said he had started paying off considerably more of his student loan during lockdown.
“I came over here to travel and have a great time, but with Covid and everything all the travel money has been saved, all the eating out and drinking out has been saved, and so I've been able to pour that back into my student loan.”
The fact overseas-based debtors accrue interest on their loans was also a motivation, she said.
“Paying off only the minimum is not really a viable long-term financial strategy if I want to be able to effectively save for my future.”
Meanwhile, the current low-interest environment added another incentive.
The current interest rate for student loan debt is 3.5 percent, so debtors accrue more in interest on their loans than they would gain interest on the money if they left it in a savings account.
Others have taken out private loans with interest of less than 3.5 percent, and used that money to consolidate their debts and pay off their student loans.
While the interest provided an incentive for those who were able to pay off their loan, those in a difficult financial position could end up being stung.
NZUSA’s Lessells said while the 3.5 percent interest charged to overseas borrowers was not horrendous, the 7.5 percent late payment interest certainly was.
“Those who are charged it are in challenging circumstances and deserve compassion, not bills,” he said.
“Particularly at this time, the student loan system needs to have more humanity built into it, as Kiwis all over the world struggle with the impacts of Covid-19, job losses and economic collapse.”
