A doctor was detained at Wellington airport last month over unpaid student loan debt that had ballooned to approximately $180,000 including penalties.
The doctor, who had been living in Australia, had returned to New Zealand to visit his ailing father and was attempting to leave the country when arrested. He is now unable to depart and has acknowledged he should have responded to earlier Inland Revenue contact attempts. His brother owes more than $300,000 in student loan debt.
The case reflects a broader issue with overseas borrowers. Roughly 114,000 New Zealanders abroad currently hold student loans, and almost 70% are in default. Those defaulting owe about $2.5 billion collectively.
Student loan lawyer Dave Ananth, a former IRD prosecutor now representing the arrested doctor, said many clients approach him after life circumstances change and they face travel problems. He has handled a few hundred cases in recent years.
"They thought ok, we'll come back to the student loan a little when things settle down - that never happens and then after 15, 20 years you get a massive bill from IRD," Ananth said.
He said he does not observe an attitude of refusing to pay among borrowers. "None of them have said look I'm not paying my student loan, it's a lot of remorse... things didn't work out." Ananth said illness, family breakups, divorces and job loss often cause debt to accumulate.
As of 1 April this year, the annual interest rate on overseas student loans is 5.6%, with a penalty rate of 9.6% compounded daily for unpaid interest. Ananth said a $30,000 loan can grow to $120,000 after about 20 years if ignored.
The Student Loan Scheme Act includes provisions allowing remission of some, but not all, penalties. "There are provisions, but what I'm saying is engage," Ananth said. "Ultimately, I think it's a student loan debt, it's taxpayer funded, you've got to pay it back."