Parker David: Student Loan Scheme Amendment Bill — In Committee 
Parker David: Student Loan Scheme Amendment Bill — In Committee 
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Hon DAVID PARKER (Labour) 
: 
 I want to deal with the issue as to what it is that is standing between borrowers and repayments. I was on the Finance and Expenditure Committee that heard submissions on the Student Loan Scheme Amendment Bill and we heard from a former official of the Inland Revenue Department who when she was with the department had responsibilities that included the recovery of student loans. She informed the committee that although it is appropriate that we have a contact person for a student loan other than the borrower—normally the parents; I do not think anyone in the Chamber disagrees with that being a sensible thing to do—in her opinion she did not think this was going to make much difference to repayments because the reality is that the vast majority of the outstanding balance of overseas-based student loan borrowers relates to interest and penalties. Once interest and penalties reach a certain point and interest compounds every interest period the amount that is accruing due to the Crown grows at such a rate that the borrower feels helpless and hopeless. They think that this has become such an insurmountable problem they choose to ignore it because they do not see any meaningful way that they can get their loan under control.  
So her evidence to the select committee was that this problem of outstanding overseas student loan amounts is not going to be properly dealt with until we come to some way of dealing with some of these very significant arrears that we have on some of these older balances. This was also the experience that we had for New Zealand - based student loan borrowers where New Zealanders were borrowing and paying interest whilst they were at university and then paying interest during the period of repayment. We had quite a number of borrowers who became so behind that they just gave up and they did not even make an attempt to repay the principal or the interest because they could just not get ahead. That is the problem that we have here.  
So I would invite the Minister in the chair Chester Borrows to take a call and to respond to this issue as to whether that in fact is the case. I would suggest it is because of the evidence that we had from the department on the effect of these measures on student loan repayments—and Dr Clark might be able to help me with supplying a figure here. The amount that this is anticipated reducing overseas student loans is— 
Dr David Clark 
: Apparently the repayment holiday’s $5 million out of $12 billion. 
Hon DAVID PARKER 
: So $12 billion owed in total on student loans and the proportion of those who are overseas is substantial. This legislation improves collections by decreasing the holiday period from 3 years to 1 year and it increases collections by an estimated $5 million. 
Dr David Clark 
: Treasury and the Ministry of Education think it will actually have the opposite effect. 
Hon DAVID PARKER 
: So Treasury— 
Hon Member 
: It’s just a guess. 
Hon DAVID PARKER 
: No it is a good point. David Clark was on the committee as well and he interjects by making the fair point that indeed the Ministry of Education thinks that rather than encouraging more repayments this is going to make it worse because more student borrowers will be getting into trouble earlier. I am not sure that I am completely convinced by that argument because I do think that if you have a lengthy holiday period then you are more likely to get used to not repaying. I think there is some benefit in letting people know what the real event is slightly earlier. But I do not think it is going to collect old debts from debtors who are not paying because their interest bills and their penalties have become so high and they compound every interest period that they just cannot get on top of the problem.  
So for the Government to present this as a substantial cure to outstanding indebtedness on loans to borrowers overseas its own analysis shows that that is not true and therefore this is but tinkering at the edges. Until the Government is willing to grasp the nettle and actually do something with these long-outstanding balances and the accrued interest and penalties that are the major part of the debt now it is not going to get on top of the problem. To the extent that the Government includes these receivables in its financial statements at probably a higher value than is truly recoverable then it is misrepresenting the position to itself. I know that it makes an allowance for uncollectable debt but I suspect that in respect of these international debts that allowance for uncollectable debts is too low. So I would ask the Minister to respond as to whether the underlying problem is for a lot of these old debtors the fact that interest is accruing.