Digest No. 2082

The aim of the Bill is to amend the Student Loan Scheme Act 2011 (the Act) to allow arrest warrants to be issued for persistent student loan defaulters and to provide for other amendments such as extending the power of the Commissioner of Inland Revenue to obtain from third parties the contact details of any borrower and not just a borrower who is in default.

The Bill requires faster repayment from compliant overseas-based borrowers. “At present, overseas-based borrowers’ payment obligations decrease as their loan balance decreases even though it is likely that their income is increasing. The Bill contains an amendment to ensure that an overseas-based borrower’s repayment obligation does not decrease as his or her loan balance decreases. For approximately 14% of borrowers (those who have a student loan balance over $50,847), the amount due per year will not exceed the interest charged on their loan. These 14 581 borrowers will continue to see their student loan balance increasing even if they are compliant. The Bill contains an amendment that will increase the repayment obligation of borrowers with loan balances greater than $45,000. This amendment will reduce the percentage of borrowers whose obligation does not cover their interest from 14% to 3.5%”.

The Bill proposes to enable Inland Revenue to request an arrest warrant for borrowers who persistently default on their student loan obligations. This power will send a strong signal to borrowers that non-compliance is unacceptable and create a strong sanction against persistent defaulters.

Main Provisions

Commencement The Bill comes into effect in general, on the day after the date on which it receives the Royal assent. The amendments (Clause 4) dealing with borrowers' deductions comes into force with retrospective effect on 1 April 2012. The amendments (Clause 6) relating to overseas-based repayment thresholds come into force on 1 April 2014. The amendments (Clause 7) relating to late payment penalty fees into force with retrospective effect on 1 April 2013 (Clause 2).

Overseas repayment obligations The new repayment obligations for overseas-based borrowers are to be prescribed: $1,000 per year, if their relevant loan balance is less than or equal to $15,000; $2,000 per year, if their relevant loan balance is more than $15,000 but less than or equal to $30,000; $3,000 per year, if their relevant loan balance is more than $30,000 but less than or equal to $45,000; $4,000 per year, if their relevant loan balance is more than $45,000 but less than or equal to $60,000; $5,000 per year, if their relevant loan balance is more than $60,000 (Part 1, Clause 6 substituting Section 110).

Arrest warrant The Bill provides for an offence where a borrower is in default of his or her overseas-based repayment obligations and who, having been notified by the Commissioner of Inland Revenue that he or she is in default, knowingly fails, or refuses, to make “reasonable efforts” to repay or to make arrangements to repay. If a District Court is satisfied that a person has committed this offence, it may issue an arrest warrant. The arrested person must be brought as soon as possible before a District Court, which may make a range of orders if it is satisfied that the person is about to leave or attempt to leave New Zealand without making reasonable efforts to repay or making arrangements to repay. These orders may: require the borrower to provide security (before leaving New Zealand); prevent the borrower from leaving New Zealand without the court's permission; require the borrower to surrender his or her travel documents or tickets (Part 1, Clause 8, inserting New Sections 162A and 162B into the Act).