Student Loan facts

January 12th, 2013 at 1:00 pm by David Farrar

Journalists should be careful about taking assertions as facts. The Herald reports:

When Matthew Fraher left for Australia in 2000, he says, he was required to pay back as much on his student loan as his entire income, within a year.

Wrong. Impossible.

Now, after incurring penalties, his loan balance is six figures and could grow to almost $1 million by retirement age, even if he keeps up minimum repayments, he says.

Only because he has moved overseas.

Mr Fraher said he contacted the Inland Revenue Department (IRD) when he first left NZ in 2000 with a student loan of about $70,000.

The requirement for him was to pay 15 per cent of the principal and all of the interest in a year, he said – about $15,000, though Mr Fraher recalled the amount was $23,000.

The income from his first job would not have covered it, even if he had lived homeless and ate at soup kitchens, he said.

This is not what the law at the time was. Repayments were never based on the size of the loan – they have always been based on your income. 10% of your income above the $15,000 or so (then) threshold. So if you were on $55,000 you would be paying $4,000 a year interest.

And the law also said that after an adjustment for inflation, at least 50% of your repayments would go on reducing your principal, with interest written off above that. This was to stop the principal always increasing.

So say you were on $75,000 and had a loan of $70,000 (I’d love to hear how a loan that large was incurred back in the 1990s). Repayments would be $6,000 a year. If inflation was 2% then $1,400 would go towards inflation indexing the loan effectively. Of the remaining $4,600 $2,300 would reduce the principal and $2,300 would be interest.

This is massively different from either $15,000 or $23,000 as cited.

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48 Responses to “Student Loan facts”

  1. Archer (189 comments) says:

    DPF, I’m sure a NZ Herald would have fact checked their story before publishing it – I’m sure the figures quoted in the article are correct. Otherwise Michael Dickison would be an incompetent hack, and I’m sure that’s not the case…

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  2. B A W (98 comments) says:

    When I went overseas a few years back they told me it was 1/15 of the loan balance needed to be repaid each year (or all of it if it is less that $1000. There was no talk of 10% of your income – I presume that is for NZ persons only.

    There is one way he can resolve this loan situation – stay in NZ or file for bankruptcy.

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  3. Snarkle (118 comments) says:

    Seems like a cheap deal for NZ to me- we pay $X, the guy never comes back.

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  4. Monique Watson (1,062 comments) says:

    Always be careful if the facts are presented n a way that there appears to be a moral aspect of the facts. The Herald story is rubbish as per the calculations in the main story. But this doesn’t change the fact that there is a huge swath of Student Loan Exiles out there. They will not pay the loan back if it compromises their situation. They will pay it back if it doesn’t. Personally I am surprised to see Peter Dunne take a moral position on the student loan debt, when he was more realistic about outstanding child support debtors.
    Quite easy to rack up a loan of $70,000 in the 1990′s. Both National and Labour to blame.
    At the end of the day you can’t wag your finger and say, “Naughty Boy or Girl, pay up”!
    It’s about the substance of your loan book innit? And at the end of the day if you’ve fucked up the business model that a substantial portion of borrowers default, then you;ve only got yourself to blame.

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  5. fooman (38 comments) says:

    “Repayments were never based on the size of the loan” – unless you went overseas for more than 6 months. Then it became proportional to the balance of the loan.

    “I’d love to hear how a loan that large was incurred back in the 1990s” – Around 2000 in one year my loan went from 50k to 70k in one year. Around 7k in living costs ($150 per week, all year), fees (around 6k), and interest (around 7k as well).

    Interest on fees and living costs, while still studying full time (post grad level, 52 weeks a year) was a real killer.

    FM

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  6. V (694 comments) says:

    If you went overseas the loan repayment was a fixed rate. Think about it this way if you are overseas how would the IRD know how much you are eaarning, without introducing yearly income declarations etc.

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  7. dime (9,667 comments) says:

    you mean after doing a degree in political science hes on shit wages? :P

    there is a post grad in business though.. but then, have a look at the guy. he has lefty shithead public sector council worker written all over him

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  8. Pauleastbay (5,035 comments) says:

    Just make it like those ads on TV.

    If you have a big loan of “our money” pay up or you’re not leaving the country.

    Then, no student loans for arts degrees, law degrees- in fact no student loans for anything we have too many of. How many arts degrees are mowing lawns at the council ?.

    My nephew starts at Otago in a couple of weeks. he’s got his first two years covered with having worked since he was 14 and scholarships and he’s already been down looking for a part time job in Dunedin,no student loan required .

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  9. dime (9,667 comments) says:

    paul – some of us spent out teens partying and not working :D it was glorious too. sure i copped a big loan but i drank a lot of piss, had a lot of fun :)

    good on your nephew for being a nerd though!

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  10. itstricky (1,697 comments) says:

    Journalists should be careful about taking assertions as facts

    DPF – Eat your own dog food.

    Although my memory is hazy I’m pretty sure when I went overseas (around the year in question) repayments were based on the size of the loan as other posters have suggested above.

    Want to get the real facts for us (and possibly retract this post and try again?)

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  11. Pauleastbay (5,035 comments) says:

    dime- My teens finished when I was 41.

    the nephew is a clever nerd as well, he told his grandmother the other day ” unless I go completely off the rails, I’m never going to be hard up” – which will be the complete opposite of his Uncle!!!!!!!

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  12. dime (9,667 comments) says:

    dimes never been hard up. dime also has an interesting social life :D

    some guys i went to school with were the hell over achievers. they came unstuck at uni then got average jobs. its best to pace one self !

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  13. Sean (299 comments) says:

    I don’t know what the requirements were but I do know when I went overseas I took advantage of the lower taxes to pay off my student loam completely over about three or four years. As I recall, interest accrued on it at something around seven percent as well. I signed the forms and took the money, knowing it had to be repaid. This is one of those things that one does if one wants to be treated as an adult. The giveaway line in this guy’s bleat about some politicians having received free education is simply an excuse for a lack of personal integrity. Either your word means something or it doesn’t.

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  14. Elaycee (4,332 comments) says:

    There is one way he can resolve this loan situation – stay in NZ or file for bankruptcy.

    The moron in the article should start treating his taxpayer funded loan as just that: a taxpayer funded loan. And with any loan, there is the obligation to pay it back. If he doubts this scenario, he should discuss it with his bank manager when he applies for a mortgage. :D

    He is just another moron who goes through life sponging off others but who launches into a bleat about loan repayments as soon there is a sympathetic, politically motivated ear nearby.

    No sympathy from this taxpayer.

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  15. Pete George (23,344 comments) says:

    Worth repeating…

    I don’t know what the requirements were but I do know when I went overseas I took advantage of the lower taxes to pay off my student loam completely over about three or four years. As I recall, interest accrued on it at something around seven percent as well. I signed the forms and took the money, knowing it had to be repaid. This is one of those things that one does if one wants to be treated as an adult. The giveaway line in this guy’s bleat about some politicians having received free education is simply an excuse for a lack of personal integrity. Either your word means something or it doesn’t

    That’s what both my daughters did. They went overseas withy the intention of having a look around and also getting work that would enable them to pay off their loans. They had a good time and good jobs and knocked off their loans in 3-4 years as well.

    People with loans should go offshore only if that will help them meet their financial obligations, whatevr the conditions are at the time.

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  16. nasska (10,910 comments) says:

    Elaycee

    Spot on. For that matter why do we let these no hopers leave the country with huge unsecured loans anyway?

    Let them pay the money back & then go on their OE…..mind you in the case of BA & Pol Sc. grads the wages they’ll get at Burger King or McDonalds will delay the experience until they’re in their 70′s. :)

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  17. Mobile Michael (432 comments) says:

    More greedy rich kids complaining of being hard done by because of student loans. If you don’t like the system, come join those of us who funded your loan, subsidise it heavily, and have to wear the write off when you weasel out of it.

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  18. Kimble (4,412 comments) says:

    I love the part about him finding that the loan had DOUBLED in size. Over 9 years!

    Thats what happens. Welcome to the real world.

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  19. wreck1080 (3,810 comments) says:

    I have some sympathy with the argument that the people who created the student loan scheme benefited from a free education themselves.

    They were able to use their taxpayer funded education to earn a higher salary which in turn enabled them to buy loads of property (my parents included).

    So, todays young people are doubly screwed.

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  20. nasska (10,910 comments) says:

    wreck1080

    I agree that the boomer generation paid less in the way of tuition fees but there was still an element of user pays. The biggest difference was that living expenses were provided for via part time jobs, holiday work & bludging off parents.

    The question that needs to be asked is why do people go to varsity to emerge a few years later saddled with debt & lousy prospects for a decent job. The thinkers took up apprenticeships as plumbers, electricians, engineers etc.

    I’ve yet to see an unemployed plumber lining up for a minimum wage job at McDonalds. :)

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  21. dime (9,667 comments) says:

    wreck – blame all the shit heads who wont work. or the 115,000 people on the freakin DPB.

    education paid by govt? no worries, just kick our tolerant wimpy welfare system into touch. or cut it back to actual levels.

    Dime was talkin to this chick he went to primary school with. shes 36. she has worked a total of 6 months in her life. stop and think about that for a minute! gets dpb, rent subsidy etc life is easy. she will need to churn one more out in the next year or two and shes almost set til retirement.

    blame people like that for the student loan system.

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  22. Falafulu Fisi (2,177 comments) says:

    Most students are encouraged to take loans for useless courses. Education should be privatized. In that way, we see useless courses disappear from our Universities, because the market demand, will wipe out useless courses because they’re not worth studying them as the demand for them disappear.

    Anyway, the 2012/2013 University ranking put University of Auckland at number 161 which is the highest from any NZ university.

    What the fuck is happening to UoA? A few years ago, UoA made it to number 48 (I think) in university ranking. It has been slipping & going downhill since then. I think that there are too many bullshit courses and departments at UoA that need to be chopped. Relegate those courses to technical institutes where they belong. Merge some departments into one, example, merge Sociology, Education, Anthropology into one department and lets call it humanity department. Multimedia/Film Studies, should be at technical institutes. Merge the Maori/Pacific into History (or better completely killed those 2 Departments because they’re useless).

    If our Universities are slim, stick to core studies, then I think that our ranking will improve.

    The number #1 spot for 2012/2013 goes to CalTech. It is amazing for a small University such as CalTech to maintain itself for as long as I can remember in the top 5 ranking over the years and a worse year for Caltech if it drops from the top 5 but still make the top 10. They have Humanities department, but its not huge (its slim). No wondered they are always in the top 5 year in year out because they don’t emphasize on teaching bullshit courses & running useless departments.

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  23. wreck1080 (3,810 comments) says:

    Conversely, now that we do have student loans people must pay them.

    FalafuluFisi is entirely correct. I’d go further — reduce university class sizes and raise the entrance requirements.

    ie, get rid of the C students at least.

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  24. dime (9,667 comments) says:

    get rid of C students?? screw you!

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  25. AG (1,820 comments) says:

    Repayments were never based on the size of the loan – they have always been based on your income.

    Someone needs to tell the IRD this, as their website states:

    If you’re not on a repayment holiday, you must make repayments towards your overseas-based repayment obligations. Repayments are based on your loan balance …

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  26. BeaB (2,084 comments) says:

    I wish I had known I could have gone to varsity for free in the 60′s instead of working 13 hour days in a factory all through the holidays and no equal pay then so the guys got much more. And dad wouldn’t have had to fork out from his meagre wages to help support me. And I wouldn’t have paid a fortune for all those books. And gone without all sorts of things like new clothes. It was hard work to get a degree in those days and my bursary was tiny.
    Don’t tell me we got our education free!

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  27. Steve (North Shore) (4,522 comments) says:

    I never had the gift of a student loan. It was just an Election bribe and still is.
    Trouble is, I still pay TAX for these cork soakers who owe $70K plus and they have fucked off to OZ.
    Just stop the student loans and write the rest off. $70K is a nice gift, throw it into property under a trust, fuck off to the big OE and then come back and live off grandma’s investments.
    Meanwhile I pay

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  28. Longknives (4,686 comments) says:

    “get rid of C students?? screw you!”

    C’s get degrees!!

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  29. AG (1,820 comments) says:

    Took a bit of digging (three google searches, rather than the usual one), but here we go:

    Until 1 April 2007, borrowers who went overseas before their loans were repaid were expected to work towards repayment of the full loan balance within 15 years. Each year, the borrower was required to pay one-fifteenth of the outstanding principal and all the interest accruing on the loan. Many borrowers – especially those with larger loans and those who had low earnings while overseas – found repayments very difficult and many ended up in arrears. (1)

    I guess the take-home message is, readers should be very careful about taking assertions as facts.

    (1) http://www.educationcounts.govt.nz/__data/assets/pdf_file/0003/17238/Chapter-3-Student-Loan-Scheme-Annual-Report-2007.pdf

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  30. Zapper (967 comments) says:

    One-fifteenth of 70K is less than 5K. Certainly not the 23K he claimed.

    Thanks AG, you’ve proven the lies taken as fact by the reporter.

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  31. AG (1,820 comments) says:

    @Zapper,

    Each year, the borrower was required to pay one-fifteenth of the outstanding principal and all the interest accruing on the loan.

    For the 2000 – 2001 financial year, the rate of interest charged on student loans was 7% (http://www.beehive.govt.nz/node/6880). So that’s $4900 in interest, and $4,666 in interest, totaling $9,500. Less than the figures quoted in the Herald, but more than DPF cites.

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  32. AG (1,820 comments) says:

    Should read:

    “So that’s $4900 in interest, and $4666 in capital, totaling $9500.”

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  33. Chris2 (768 comments) says:

    The surest way to get student loans to be paid by those living overseas is to warn them that their NZ passport will not be renewed – they are only valid for 5 years now so time will be on the Government’s side. No valid passport and the only place they can live is back here in NZ.

    That would wipe the smirk of their faces.

    The same principle should apply to all unpaid fines (not just the big ones). Stop the defaulters at the airport, get them to pay off their fine with the credit card they will be carrying.

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  34. Zapper (967 comments) says:

    Yes, I can read AG. $9500 is not quite $23000 is it?

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  35. Zapper (967 comments) says:

    Of course, academics don’t give a fuck. They would rather more people spent on ridiculous degrees, or a C degree. Keep them in a job, funded by us. And while they’re in that job, they criticise the very people who pay their salary.

    How should we define such people?

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  36. Zapper (967 comments) says:

    I need dime to answer that question

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  37. burt (8,034 comments) says:

    Zapper

    One-fifteenth of 70K is less than 5K. Certainly not the 23K he claimed.

    Thanks AG, you’ve proven the lies taken as fact by the reporter.

    One moment caller;

    You need to pay 1/15 of $70,000 is $10,500 – now add the interest to that AND the interest on the $59,500 as well…. What was that interest rate again ???? Just might add up to $23,000 – perhaps ????

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  38. burt (8,034 comments) says:

    Ooopps – that was 15% … where is the edit function….

    Anyway, $4,666 plus the interst on that plus the interest on the remaining $65,334 …

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  39. Zapper (967 comments) says:

    Talking to me like I’m dumb while claiming 1/15 of $70,000 is $10,500. Heh.

    Get back in your box burt.

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  40. Zapper (967 comments) says:

    I can see how you’ve made it add up to $23,000 though. Unfortunately, your calculation is not even close to what happens in real life.

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  41. lilman (931 comments) says:

    My money,borrowed from me in an agreement between the Govt and the borrower.
    Dont bitch and bleat because you have to pay it back.
    Why should you get a free loan ?
    Oldest son away to Otago this year,has savings of $22000 dollars saved in 13 months ,worked bloody hard and not because it was a hand out but got off his arse cleaned toilets ,mowed lawns ,worked on farms,helped at rest home.
    He gets nothing from me and has already lined up 2 jobs in Otago that he will be doing to suppliment income whilst down there.

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  42. AG (1,820 comments) says:

    @Zapper,

    Yes, I can read AG. $9500 is not quite $23000 is it?

    True. The article is wrong. Did I ever say different?

    But then again, $9500 is not quite the $6000 that DPF says would have been required by an overseas resident earning $75,000. So he is wrong, too.

    Point being, you shouldn’t treat as gospel anyone’s confident assertion of “the truth”. And that is my only point.

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  43. Monique Watson (1,062 comments) says:

    Agree with privatizing tertiary education. Then give everyone one free degree. Free education with loans only for living expenses and maybe means tested on their parents income. Abolish student dole.

    Student Loan for education are the biggest load of wank that the right wing has ever dreamed up. No wonder it’s all turning to custard. It’s common sense innit? If you loan money for a non tangible asset then of course you’re not going to get a good level of debt repayment. Whoop de fuckin woo. It’s no surprise that a greater number of borrowers are going to default.

    So don’t go all boo hoo when there is nothing to repossess. It’s a failed business model. That is all. It’s more than obvious that drastic changes to the education system need to be made. Pity no one has the cojones to do so.

    To the “hang ‘em high”, crew, You don’t get net economic benefit to New Zealand with that attitude. Make it easier for borrowers to repay with zero interest rates on overseas borrowers. Getting debt collectors onto individuals makes them take up citizenship in other less punitive countries.

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  44. BeaB (2,084 comments) says:

    Monique. I think it was Phil Goff who intoduced student loans. Yet another way for Labour to spend our money for us.

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  45. cha (3,856 comments) says:

    Don’t let the facts get in the way of the dementia BB old dear,

    Labour introduced tuition fees in 1989 and the student loan scheme was brought in by national in 1992.

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  46. Monique Watson (1,062 comments) says:

    I was sat down in our school auditorium in 1992. I was in the seventh form and our class year were told that if we wanted to go to university, then we would be borrowing money off the government and repaying it when we got a job.
    It all meant nothing to me. I wasn’t aware that the system had been totally turned on it’s head. One year you were getting a student allowance as of right (I think) and then the next year you were putting your education on tick.
    I’d never even used eftpos at that stage. I had a bank account that I deposited money from my job and I withdrew the money if I wanted to buy something. I painted our local picture theater to earn money for varsity but there was a huge disparity between what I could physically earn in the six week break before I left for uni. I don’t have a poor work ethic. I’d worked after school at the local supermarket since I was fifteen $2.38 an hour.
    I didn’t understand what credit was. I didn’t totally get the full ramifications of borrowing something until I had a stereo repossessed when I was twenty. By an agency with a valid business model. At the end of the day, it had something to sell on when I defaulted.

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  47. BeaB (2,084 comments) says:

    cha
    What an unpleasant response.
    I attended many meetings where Phil Goff explained in some detail the loan scheme Labour was planning.

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  48. Monique Watson (1,062 comments) says:

    At BB,. Shows both National and Labour are cut from the same cloth. Apparently Labour was also planning the ntroduction of National Standards but National got there first. Then bleated incessantly about how awful it was.

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