Dunne Peter: Student Loan Scheme Amendment Bill (No 2) — First Reading 
Dunne Peter: Student Loan Scheme Amendment Bill (No 2) — First Reading 
[Volume:635;Page:6589] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Student Loan Scheme Amendment Bill (No 2) be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Education and Science Committee that the committee report finally to the House on or before 28 February next year and that it have the authority to meet at any time while the House is sitting except during oral questions during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 192 and 195(1)(b) and (c). 
The bill introduces a number of changes to the administration of the student loan scheme particularly in relation to borrowers who are overseas. Since 1 April this year student loans for most borrowers who live in New Zealand have effectively been interest-free. In practice their loans attract interest but it is written off at the end of the tax year. Borrowers who live overseas generally are not eligible for interest-free loans. The rationale for introducing interest-free loans was threefold: to reduce the costs to students of tertiary education to encourage tertiary-educated New Zealanders to stay in New Zealand and contribute to the New Zealand economy and to help encourage skilled New Zealanders to return home. 
A number of concerns about the operation of the student loan scheme rules have emerged both before and after the introduction of interest-free loans this year. The rules are not working as well as they might in relation to borrowers who go overseas. Compliance is low amongst borrowers overseas and the legislation may well be creating disincentives for them to return. As well it is probably unrealistic—in some cases at least—to expect young New Zealanders to repay their loans while they are doing their traditional OE. Furthermore under the current rules it is also difficult for the Inland Revenue Department which collects the repayments to know the whereabouts of borrowers if they go overseas. That problem which has existed since the student loan scheme began was brought into sharp focus by the introduction this year of interest-free loans. The introduction of interest-free loans has increased the incentives for people heading overseas not to tell the Inland Revenue Department as borrowers who are based overseas generally attract interest on their loans. 
So this bill introduces changes to deal with these and other problems and generally updates the legislation to make it consistent with the policy intent of interest-free loans. These are the main changes. The bill introduces a new set of rules for borrowers based overseas to come into force on 1 April next year. The new rules will make it easier for people overseas to repay their student loans and will offer the chance of a fresh start for those who have fallen into arrears. There will be a repayment holiday of up to 3 years for borrowers going overseas. During that time they will not have to make repayments although their loans will still attract interest. This change recognises the fact that it is not always easy for people to repay their loans while doing their OE or working overseas in holiday jobs. 
For overseas borrowers who are not taking a repayment holiday the bill introduces progressive repayment obligations that are based on the size of their loan balances. For many borrowers overseas that will mean annual repayment requirements that are lower than they are under current law. Interest-free loans for people studying overseas will be extended from postgraduates to undergraduates studying full-time to bachelor degree level. The measure will be limited however to loans that are held before leaving New Zealand. 
The amnesty on penalties declared last year for non-resident borrowers who are in arrears with their payments will be extended by 1 year to 31 March 2008. The extension of the amnesty will allow borrowers who are identified as a result of the proposed data-match which I shall describe shortly to come within the amnesty. It will therefore become possible for those who are in arrears to make a fresh start. If they meet certain conditions their loan balance will not increase except for interest and that should remove some of the fear of returning home for those who have not been meeting their obligations. 
These changes are all aimed at making it easier for borrowers who are based overseas to meet their student loan obligations. The changes also seek to deal more effectively with those who have fallen behind in their repayments thus making it possible for those who front up about their situation to return home without having to face an overwhelming burden of debt. 
The bill also introduces two important changes for all borrowers whether they are in New Zealand or overseas. First the late payment penalty will be reduced from 2 percent a month to 1.5 percent a month in order to make it less punitive. Second the hardship provisions in the Student Loan Scheme Act are being amended to give the Inland Revenue Department greater flexibility in administering them. 
A number of amendments in the bill are there to improve the administration of the scheme. The chief of these amendments is a change to the law to allow data matching between the Inland Revenue Department and the New Zealand Customs Service—a mechanism that is missing under current law. That change will make it easier for the Inland Revenue Department to know who is overseas and who is not and to ensure that only those entitled to interest-free loans are receiving them. The Commissioner of Inland Revenue has recently advised me that data matching is expected to reveal about 40000 borrowers who are or have been non-resident and who received interest write-offs to which they were not entitled for the tax years before 1 April 2006. Their loan accounts will have to be adjusted to reverse those write-offs. The bill provides however that any loan that was repaid by 13 November this year will not be reopened to adjust any incorrect interest write-off. 
These and other changes in the bill are described in detail in the separate commentary on the bill that has been distributed to members. I therefore commend the Student Loan Scheme Amendment Bill (No 2) to the House.