Walker Holly: Student Loan Scheme Amendment Bill (No 3) — First ReadingText is incorporated into the Bound VolumeWalker Holly: Student Loan Scheme Amendment Bill (No 3) — First Reading[Sitting date: 27 August 2013. Volume:693;Page:13022. Text is incorporated into the Bound Volume.]HOLLY WALKER (Green): Well there has been another Budget back in May and now we have in front of us in the House another series of bad student loan amendment changes. For a Government that loves to deal in stereotypes lazy privileged students are a favourite. So without fail every year you can predict in every Budget there will be some kind of punitive change to student loans and allowances and then a few months later as we are here tonight we will be here in Parliament debating the legislation to give effect to them. This time it is the lazy loan-defaulting overseas borrowers who of course in fact are not actually students at all but are graduates and who are unlikely enough as it is to ever come home to New Zealand to contribute to our economy and society without slapping them with the measures in this bill the Student Loan Scheme Amendment Bill (No 3). The fact of the matter is that those stereotypes that the Government loves to peddle are hardly ever accurate. Later in my contribution I will give you a real-life example of the types of people likely to be impacted by these changes.But first of all let us have a look at what the bill actually does. As we have heard from previous speakers the headline provision of this bill is that it allows the Inland Revenue Department to request an arrest warrant for student loan borrowers who “persistently default on their student loan obligations.” The first thing I would point out here is that this is hardly a proportionate policy response to the amount of debt that overseas borrowers owe in default. At the time of the Budget we saw some great headlines from the Government about how overseas borrowers owed $427 million of debt in default which sounds like a lot. But when you put it in the context of the $13 billion of total student debt it is a drop in the bucket. It is in fact 3.2 percent of the total student debt. It is not a proportionate response from the Government to target that 3.2 percent of total student debt with measures like that proposed in the bill. It makes it a criminal offence for overseas borrowers to knowingly fail or refuse to make efforts to pay. They have to make it a criminal offence because you need to be committing some kind of criminal offence in order to be able to grant an arrest warrant.Let us just think about this for a minute. Having lived and studied overseas for a number of years I can confirm that it is very easy to get behind on your student loan repayments while you are overseas. Notwithstanding some recent changes that have made it slightly easier it is still difficult. Information is hard to come by. It is complicated to make voluntary repayments. Communicating withStudyLink from overseas is difficult. Negotiating a repayment holiday or an interest exemption is unnecessarily complicated as I found when I tried to convince the New Zealand Qualifications Authority that my Master’s degree from the University of Oxford was equivalent to a level 7 qualification in New Zealand which apparently it did not believe. Many New Zealanders living or studying overseas simply give up and they resolve to deal with the problem when they get back to New Zealand. Is that the right thing to do? Probably not but it is the reality. When it is that complicated and difficult it is not surprising that that is the attitude many graduates take.What this bill does is make it much more difficult for people who do this to come home and sort it out. It whacks them with a massive disincentive to ever come home because they will now face potential arrest and criminal conviction. It is madness I would contend for New Zealand to be introducing laws and policies that make it less likely for our tertiary graduates living overseas to come home when in fact we have record numbers of New Zealanders leaving every year and not coming back. We need policies that encourage them to come home like the opportunity of a debt write-off scheme for staying in and contributing to New Zealand not policies like this that scare them off from ever returning.Not only is the threat of arrest and a criminal record a major deterrent against returning to New Zealand for borrowers but also it poses major enforcement challenges. As noted in the regulatory impact statement and by the previous speaker Megan Woods there are some difficulties around enforcement powers in airports. It will be up to the police to decide whether to exercise these arrest powers. I put it to the House as to whether it is really the best use of police time at our airports to have the police running around after student loan defaulters and trying to make a judgment call about whether their bags are already on the plane and whether they have children with them and therefore whether it is worth actually arresting them. I do not think so because I think the police at our airports have a far more important job to do which is actually providing airport security. So enforcement is a joke.The second major change that this bill makes is increasing the repayment obligations for overseas borrowers and that is specifically for borrowers with balances greater than $45000. Those with a balance between $45000 and $60000 will now have to pay back $4000 a year on their loan regardless of their income and those with a balance of over $60000 will have to pay back $5000 a year on their loan. The major flaw with these new repayment obligations is that they are in no way means tested so a graduate living overseas could have a very low income or indeed no income at all and still be required to pay $5000 a year off their student loan. If they do not because it is simply impossible for them to do so because they do not have an income that allows them to do that then they face the punitive arrest powers granted by the bill. So it becomes a vicious cycle.The changes in the bill very much depend on that threat of an arrest warrant actually working as an incentive to start repaying. If that threat does not work if it does the opposite and simply makes a person throw up their hands and say “Well I’m not even going to try.”—and the officials note in their advice that they do not expect this threat to be particularly effective—then all that this change will do is increase the rate of growth of default by increasing the repayment obligation and that is noted for the Minister of Revenue in the regulatory impact statement. Clearly he chose to ignore it. This really begs the question of whether the Government is actually interested in pursuing practical legislative change or just interested in trying to be seen to crack down on those lazy students and graduates. But as I said at the outset of my contribution I think we all know which of those it is.In addition the bill inexplicably changes the repayment rules for overseas borrowers so that their repayment obligation does not decrease as their loan balance decreases. I cannot for the life of me figure out why this has been included and what it achieves. It is manifestly unfair because it creates an inequity where two overseas borrowers who owe the same amount today could have very different repayment obligations based on what their loans were when they left New Zealand some time ago not based on what they have repaid since and not based on their income. Again this puts in place another disincentive to them to actually meet their repayment obligations since there is noreward for them doing so in the form of a decreasing obligation. I cannot see what is achieved in the Government’s view by including that in this bill.At this point I want to place on record before the House a real-life example of how the new repayment obligations would affect a New Zealand family living overseas. This family wrote to us at the time that the changes were announced in May in Budget 2013. This is their situation. The husband has a postdoctoral fellowship in the United States worth $41000. The wife is currently being examined for her PhD but she is otherwise unemployed. They have a toddler and a second baby on the way. Combined their minimum compulsory repayment threshold has now just increased from $6000 a year to $9000 a year which as far as they can tell—and they are correct in this—has no means testing or anything that takes into account their income the fact that they have only one income and the fact that they have two dependants; only the fact that they are now living overseas. At the current exchange rate for where they live that roughly calculates to 18.6 percent of their household income.They chose to leave New Zealand to do a postdoctoral job because it is how that father can establish his international career but they have a strong intention of returning to New Zealand and fully intend to pay off their loans. Indeed they are currently fully compliant with their loan repayment obligations. But they cannot do it in a way that will stretch them so financially when they have children so young. Are these lazy privileged obligation-dodging students—the stereotype the Government likes to peddle in? No they are not. They are hard-working New Zealanders.Hon Trevor Mallard: John Hayes says “Yes.”HOLLY WALKER: John Hayes says “Yes.”Hon Annette King: He got a free education.HOLLY WALKER: Yeah good on you Mr Hayes; I will let them know that you said that. They are actually hard-working New Zealanders who are building their careers overseas and starting their family and are currently fully compliant with all of their obligations. What on earth is achieved by sucking out nearly 20 percent of their income on to their student loan repayments back home at a time when they only have one income and two small children? It is beyond me. Perhaps John Hayes would like to take a call and elaborate on that. So this is a dangerous and unnecessarily punitive policy that is based on the Government wanting to be seen to do something on a populist problem and not based at all on facts or real-life evidence.