Defaulting on student loans ...

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Forums › Finance and wealth management › Defaulting on student loans ...

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Elpie

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#1477698 24-Jan-2016 10:11

afe66:

As someone who was caught in the first year of the scheme my sympathy is zero.

(from the bad old days when interest was charged from when you used it, no interest right-offs, no accelerated payback schemes for me)

You know the rules when you sign up for them.

Scheme is has now been in place from before the incoming 1st year students were born...

A member of my family also got caught when the scheme first came in, but hasn't had such a good experience. She had a <$5,000 loan for a year's university study. Had a serious accident and withdrew from the course on her first day out of hospital - a couple of days after the university deadline for a fee refund. The university initially said they would refund on compassionate grounds then changed it's mind. The fees went into the student loan system. She was on disability benefit and hasn't been able to work since then. With all the various changes made to loans over the years her loan ballooned out to almost $30,000. She couldn't pay from her benefit so the amount kept growing. She notified IRD when she moved to Australia to live with her son - they wouldn't give her any leeway. Now, because the overseas repayments are based on the total of the loan, not on ability to pay, the loan is growing huge. She owns absolutely nothing and has no way to repay. She said IRD was prepared to make an arrangement for her to pay regular amounts from her old age pension (she is a senior now) but would not do anything to offset interest costs so she would be subsistence living without ever being able to clear out the loan.

I'm not currently in touch with her but assume she would be one of those people too scared to travel back to NZ. How that pans out for her old age, I don't know.

I'm just not interested in judging people that default on student loan repayments because I don't know what their personal circumstances are. For all I know, there could be thousands like my rellie. She could not have anticipated all the changes various governments made to the loan scheme, so I get riled when people say, "they knew what they were doing when they signed". This is not necessarily true as the scheme they signed up on isn't necessarily the scheme that's in place today.

DarthKermit

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#1477701 24-Jan-2016 10:18

Hello Elpie, how's life in Canada treating you?

tdgeek

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#1477713 24-Jan-2016 11:11

old3eyes:

Hope that arrest a few more defaulters. It's not free money. This guy will most likely plead diplomatic immunity or the like.

I agree. He's got a mortgage to worry about now. Pity. There is an option to pay the loan back. Most loans are probably like that now.

tdgeek

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#1477718 24-Jan-2016 11:15

mattwnz:

Although people quickly forget. But I seem to recall when the whole student loan thing came in, that the government reassured people that they wouldn't be treated heavy handed, should they not be able to pay back their loan. Although it is probably very difficult to find any details about this 2+ decades later. Really we shouldn't have student loans, as it is a flawed system, where personal debt will just keep going up and up. Makes the governments books look better though. Instead a bonding scheme would have been far better. Bonding schemes are used a lot in many industries.

In this case, the dude wont pay back the loan but will pay a mortgage. If it was anything else it would have been repossessed, foreclosed, carried higher interest, and ruined his credit standing.

I don't buy the wrong address thing either.

Elpie

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#1477722 24-Jan-2016 11:33

tdgeek:

In this case, the dude wont pay back the loan but will pay a mortgage. If it was anything else it would have been repossessed, foreclosed, carried higher interest, and ruined his credit standing.

I don't buy the wrong address thing either.

I don't get how he managed to secure a mortgage. Banks ask for information on any loans outstanding. If he was able to convince the bank that he could manage mortgage payments AND service other loans then why isn't he doing so? If he lied to the bank then he may be in more trouble than just with the IRD.

I guess he expected sympathy when he went to the media.

Elpie

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#1477723 24-Jan-2016 11:36

DarthKermit:

Hello Elpie, how's life in Canada treating you?

Very well, thank you 😄

There's things I miss - like Wattie's tomato sauce and Marmite - but, on the whole, the only thing I'm sorry about is that I didn't make the move sooner. I wouldn't mind being there for summer though, it sounds like a good one.

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jfanning

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#1477770 24-Jan-2016 13:18

afe66:

Q?How many GKers who have young children are putting money aside for their university fees....

A.

Mine aren't young anymore, but we did for all of them. Wasn't a huge amount, but anything is better than nothing.

PhantomNVD

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#1477787 24-Jan-2016 14:34

I'm saving for both of my sons (4yo and 7yo) but will strongly advise them to take a loan and only use the savings to repay it after. The 10% rebate makes this the smart choice, as I did a postgrad year, took the (interest few) loan and then wacked it with my revolving credit (senior student benefits :) ) and smiles to see the 10% reduction in the total fee 😉

This also prevented the interest if I'd payed straight from my revolving for the year studying too... So it's actually now silly to pay your own fees upfront, since there is actually no benefit from doing so at all!

kingjj

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#1477790 24-Jan-2016 14:53

PhantomNVD: I'm saving for both of my sons (4yo and 7yo) but will strongly advise them to take a loan and only use the savings to repay it after. The 10% rebate makes this the smart choice, as I did a postgrad year, took the (interest few) loan and then wacked it with my revolving credit (senior student benefits :) ) and smiles to see the 10% reduction in the total fee 😉

This also prevented the interest if I'd payed straight from my revolving for the year studying too... So it's actually now silly to pay your own fees upfront, since there is actually no benefit from doing so at all!

I thought they got rid of the 10% early repayment rebate if that is what you are referring to? You get nothing now for paying back early (other than the warm glow that comes with it).

Kyanar

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#1477816 24-Jan-2016 15:37

Elpie:

A member of my family also got caught when the scheme first came in, but hasn't had such a good experience. She had a <$5,000 loan for a year's university study. Had a serious accident and withdrew from the course on her first day out of hospital - a couple of days after the university deadline for a fee refund. The university initially said they would refund on compassionate grounds then changed it's mind. The fees went into the student loan system. She was on disability benefit and hasn't been able to work since then. With all the various changes made to loans over the years her loan ballooned out to almost $30,000. She couldn't pay from her benefit so the amount kept growing. She notified IRD when she moved to Australia to live with her son - they wouldn't give her any leeway. Now, because the overseas repayments are based on the total of the loan, not on ability to pay, the loan is growing huge. She owns absolutely nothing and has no way to repay. She said IRD was prepared to make an arrangement for her to pay regular amounts from her old age pension (she is a senior now) but would not do anything to offset interest costs so she would be subsistence living without ever being able to clear out the loan.

It's not that the IRD was unwilling to do anything, it's that by law they were unable. Unlike with taxation debts, where the Commissioner has discretion under the Income Tax Act, the student loan powers are delegated under the Student Loan Scheme Act, which gives IRD the power to defer obligations temporarily and remit penalties, but does not give them the authority to remit interest or principal, no matter how much they may want to.

This story is one that needs to go to the Ministers of Finance and Tertiary Education, because the scheme really does need to account for situations like your relative. And the tertiary institution in question also needs to face consequences.

Have you considered taking the story to the paper? The current topic du jour is student loan defaulters, so they'd probably leap on a bit of a sob story that they can smack the government with, and someone with power might actually do something about it.

Elpie:

Very well, thank you 😄

There's things I miss - like Wattie's tomato sauce and Marmite - but, on the whole, the only thing I'm sorry about is that I didn't make the move sooner. I wouldn't mind being there for summer though, it sounds like a good one.

Well, you could order it in.

mattwnz

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#1477817 24-Jan-2016 15:39

kawaii:

As my understanding the money lent comes from the reserve bank and the reserve bank is owned by the government itself thus any interest that is accrued on it comes back to the government which means the real interest rate in terms of overhead and administration is probably very low - the amount quoted in the election when it was introduced wasn't the amount that it cost the government but rather it was the amount that the government gave up in terms of revenue derived form charging interest on student loans. The problem that exists today is the cost and the waste because if there is a move to free tertiary education then it'll require getting rid of large amounts of bloat and waste to make it affordable. For example, get rid of marketing and advertising for public universities for starters, how many polytechnics and universities do we need? would it be better to rationalise them as to avoid duplication of administration, campuses etc?

NZ does earn a significant amount of money from international students, so at least some of the marketing and branding is needed to make them look professional compared to other countries. Maybe NZ should have more international students to pay for the cost of making it free to NZers. I would be all for that. I think international students coming into NZ are good for the country in many ways. Perhaps not for housing, but that can be solved by distributing them into other parts of the country.

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matisyahu

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#1477831 24-Jan-2016 16:43

mattwnz:

kawaii:

As my understanding the money lent comes from the reserve bank and the reserve bank is owned by the government itself thus any interest that is accrued on it comes back to the government which means the real interest rate in terms of overhead and administration is probably very low - the amount quoted in the election when it was introduced wasn't the amount that it cost the government but rather it was the amount that the government gave up in terms of revenue derived form charging interest on student loans. The problem that exists today is the cost and the waste because if there is a move to free tertiary education then it'll require getting rid of large amounts of bloat and waste to make it affordable. For example, get rid of marketing and advertising for public universities for starters, how many polytechnics and universities do we need? would it be better to rationalise them as to avoid duplication of administration, campuses etc?

NZ does earn a significant amount of money from international students, so at least some of the marketing and branding is needed to make them look professional compared to other countries. Maybe NZ should have more international students to pay for the cost of making it free to NZers. I would be all for that. I think international students coming into NZ are good for the country in many ways. Perhaps not for housing, but that can be solved by distributing them into other parts of the country.

Definitely especially when you look at the Upper Hutt area where the old CIT campus is not to mention the old MAF farm near Wallaceville which would serve as a good basis for student accommodation when coupled with easy access to train and bus service into Wellington. Unfortunately I don't see anything happening as so long as the existing government looks only to the short term such as their obsession over building more roads rather than investing into public transportation infrastructure and reducing fares through seeing subsidies as an investment rather than merely a cost entry.

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JimmyH

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#1477887 24-Jan-2016 19:00

kawaii:

As my understanding the money lent comes from the reserve bank and the reserve bank is owned by the government itself thus any interest that is accrued on it comes back to the government which means the real interest rate in terms of overhead and administration is probably very low - the amount quoted in the election when it was introduced wasn't the amount that it cost the government but rather it was the amount that the government gave up in terms of revenue derived form charging interest on student loans. The problem that exists today is the cost and the waste because if there is a move to free tertiary education then it'll require getting rid of large amounts of bloat and waste to make it affordable. For example, get rid of marketing and advertising for public universities for starters, how many polytechnics and universities do we need? would it be better to rationalise them as to avoid duplication of administration, campuses etc?

Your understanding is wildly inaccurate, that isn't how the Government's finances work. The money isn't lent by the Reserve Bank out of thin air, it's funded by the Treasury and costs the Government interest to raise. It's actually a very generous scheme for borrowers, on which the government loses a lot of money after taking defaults and the cost of raising the money into account.

I think you are getting confused with seigniorage, which is the profit central banks like the Reserve Bank make from issuance of a fiat currency, and essentially why the Reserve Bank pays the Government a divident. But this is essentially unrelated to the funding of the student loan scheme.

JimmyH

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#1477888 24-Jan-2016 19:01

old3eyes:

Hope that arrest a few more defaulters. It's not free money. This guy will most likely plead diplomatic immunity or the like.

He can only claim diplomatic immunity if he has first been recognised by the New Zealand Government as an accredited diplomat. And he hasn't. So he can't.

JarrodM

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#1477910 24-Jan-2016 19:48

kingjj:
PhantomNVD: I'm saving for both of my sons (4yo and 7yo) but will strongly advise them to take a loan and only use the savings to repay it after. The 10% rebate makes this the smart choice, as I did a postgrad year, took the (interest few) loan and then wacked it with my revolving credit (senior student benefits :) ) and smiles to see the 10% reduction in the total fee 😉

This also prevented the interest if I'd payed straight from my revolving for the year studying too... So it's actually now silly to pay your own fees upfront, since there is actually no benefit from doing so at all!

I thought they got rid of the 10% early repayment rebate if that is what you are referring to? You get nothing now for paying back early (other than the warm glow that comes with it).

This is true. I got a bit of money from my parents to go towards paying my student loan but I still have it in the bank no point paying any extra unless I want to leave the country. So my loan will just come down by the 12% of my pay each week until it's paid off, or I want to go overseas for an extended period of time, or they reintroduce interest (in which case I'll probably go overseas anyway as there'd be no incentive to stay here)

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