OnPoint: Budget 2013: Bringing Down the House (Prices), but not really
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The system seems to have edited me and not a moment too soon. I no longer have the energy, so we’ll just ignore the benefit systems' provisions for those unwilling to upskill in the tertiary sector, and stick with the claim that Ngatokotoru Puna’s issue was due to compound interest, ignoring other factors such as unequal eligibility for allowances (up to 60% of a loan), migration, late payment penalties, unemployment etc.
http://www.radionz.co.nz/news/national/270624/uni-students-numbers-drop
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chris, in reply to
ETA for those in the dark, the $5000 that Ngatokotoru Puna’s family paid for him to leave the country is equivalent to a single annual late payment fee (excl interest). The interest accrued in the last year, if it had also been required, would be an additional $7400.
Puna accepted he would owe the IRD money until the day he died.
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chris, in reply to
Well that was about as incorrect as it could possibly be, so Ngatokotoru Puna’s family paid a single annual repayment obligation. The updated RNZ report states
He had made an arrangement with the IRD, he said. "They said if I paid for this year's obligation [$5000] then they would wipe my 2011 to 2015 [obligations]."
I assume meaning the figures in these areas of the Late Payment interest/penalties and annual obligation/assessment columns of the spreadsheet were removed, and the incurred penalties on the obligations wiped. The current penalty rate for not meeting annual obligations is 9.3% of the annual unmet obligation. His compound interest remains at around $7400 p/a. It would be difficult to argue that this isn't a fairly generous deal for someone earning $21,000 over the repayment threshold, paying a mortgage on a $300k house, and who has made no effort to contact the IRD, but not everyone's uncle is a PM.
Sorry for the freak out; a culmination of years of anxiety about a debt that has felt insurmountable from the outset. In terms of killing a chicken to scare the monkey I guess they couldn’t have picked a better target (but one wonders if wiping the penalties was necessary) and this would appear to be the express purpose of the exercise given that:
in July 2015, IRD said it was looking into 20 student loan defaulters for possible arrest if they attempted to return to the country.
In contrast with 2,200 overseas-based student loan borrowers whose loan balances are over $100,000 and 84,562 defaulting borrowers.
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izogi, in reply to
This one is all about the miracle of compound interest.
I can’t seem to make this add up.
The maximum interest rate that IRD’s charged on student loan debt is 9% per year, and that was 1996. The maximum since 1999 has been 7%.
He’s just said on Campbell Live that he finished studying in 2003. I found a random interest calculator on the web, keyed in his claimed starting amount of $40,000, gave it the benefit of the doubt that he owed $40,000 18 years ago (1998), allowing him 5 years of study accruing from $40,000 at the very beginning of that.
For the total owing to reach $130,000 in 18 years, I had to set the rate to 12.5%, which is well above IRD’s highest ever interest and far far above the 5-7% interest it’s been charging since 1999.
Have I missed something here, or is it likely that his starting loan was higher than the $40,000 that he’s claiming? Not to suggest that this makes arresting people at airports reasonable! I’m just trying to figure out the interest.
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chris, in reply to
I assumed that although he graduated in 2003 he may have begun studying much earlier and perhaps missed a year or two somewhere along the line. Considering his age (he’d have turned 18 in about ’94) and the fact that he would have been eligible for allowances from about 1999 onward I assume something less straightforward like this to be the case. Remembering also that this was an era when the Government was still lending to students who failed courses year after year. We only know how much he borrowed as opposed to the total cost – possibly supplemented by other sources.
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chris, in reply to
In that John Campbell interview, when first asked how much he earns Ngatokotoru states that the starting salary for his job is $25,000, then lacking the fundamental research they reach a consensus that the repayment threshold is $30,000 (2:10). later he states that he now earns $35,000. The student loan repayment threshold is currently $19,084. In 2008 it was $18,148. Ngatokotoru Puna was in the country for a two-week maths conference organised by the New Zealand Association of Mathematics. His trip was funded by the Cook Islands’ government.
First time listener. Not particularly impressed.
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izogi, in reply to
He’s just said on Campbell Live
Uh, Checkpoint, obviously. Old habit.
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izogi, in reply to
Interestingly, according to IRD, if he's been in the Cook Islands the entire time, he should have been able to apply for his loan to remain interest free. The interest write-off relies on making repayments as required, though, which is presumably the problem. At the very least you'd hope it'd mean he could prevent any more interest from building.
Furthermore, repayment obligations when overseas don't seem to be based on income, according to IRD. Unless I've misunderstood, they're based on the size of the loan. With a $40,000 loan he'd need to pay $3,000/year. With a $130,000 loan (which is >$60,000) he'd need to pay $5,000/year. Stick to this, and successfully apply for the Cook Islands interest free loan, and the interest gets written off.
This would explain where the $5,000 figure came from, which he needed to pay before being allowed to leave NZ. IRD states on that page that you may be stopped from leaving New Zealand next time you return if you're behind on your repayments.
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izogi, in reply to
Stick to this
That said, $35k/year is going to be $31,010 after tax in the Cook Islands. Subtracting another $5,000 from that seems like a big chunk of income simply to retain repayment obligations so as to avoid being arrested on the next visit to NZ and to stop the interest climbing even higher.
Also, if it weren’t for the Cook Islands interest write-off option he’d be screwed at paying just $5,000/year. Miss a single $5,000 repayment, and the accrued 5.3% interest (the current rate) will push $130,000 owed up to $136,890!
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chris, in reply to
This was a shocker Izogi from all concerned. I’ve got to hand it to whoever targeted this particular individual. Having been a long time proponent against certain elements of the student loan system there’s little question in my mind now that any chance of overhauling any of these issues has been dealt a major setback by the mess that was today’s reportage.
Over the course of the day the reported total debt ranged from $20,000 to $130,000.
Ngatokotoru Puna is reported to be on a salary of $30,000 or $35,000.
CITI – Cook Island Teachers Institute President Nga Puna said the last contact he had had with IRD was in 2010, to ask for a three-year holiday from payments. As the head of the maths department at Tereora he’s reported as claiming that he is only paid a $30,000 salary and up until 2010 he had been under the repayments threshold ($19,084). In the JC interview he points out that the starting salary for teachers there is $25,000. As you mention, and as he stated in the Campbell interview; that same year The Student Loan Amendment Bill made student loans interest free to borrowers who live in Niue, Cook Islands, Tokelau or the Ross Dependency for at least 183 consecutive days.
Broadcasting on RNZ, broadcaster John Campbell allowed Nga Puna’s claim that the annual repayment threshold income for New Zealand student loan repayments is $30,000 to go uncontested.
Inverviewing New Zealand University Students’ Association acting president Laura Harris, Jesse Mulligan asserts that Puna’s repayment obligation when he left for Rarotonga in 2004 would have been $2000 p/a (2:08) based on his understanding that the outstanding amount was $30,000. While the current obligation for oversease borrowers for loans up to $30,000 is $2000 p/a, in 2004 the obligation of overseas borrowers for loans greater than $15,000 was one-fifteenth of loan balance (loan balance/15) + Estimated interest (7%) (Massey University Centre for Public Policy Evaluation, 2004, p.37). So in 2004 Puna’s repayment obligation would have been closer to $4000.
In this same interview Laura Harris claims that being arrested at the airport is "not something that would happen to you if you had bank loans or court fines":
Travellers can be stopped leaving or entering at New Zealand Airports if they have unpaid fines.
Student leaders are reported as having criticised the arrest of a Kiwi student loan defaulter at the border as being "not fair". However when objectively compared to many underpaid foreign borrowers Puna’s case is ripe for prosecution under current legislation. As Moz correctly pinpointed over the page, it’s the compound interest that is the chief issue.
An IRD spokesperson said: “Our powers to arrest at the border are used as a very last resort, and would only follow strenuous efforts to contact the borrower to make repayment arrangements – these would typically involve making phone calls, sending correspondence via mail and email to the borrower, and attempting to contact them via any third parties such as nominated persons and/or any known employer]]
Ngatokotoru Puna
P. O. Box 108, Avarua, Rarotonga, Cook Islands – President: Email: nga.puna@tereora.edu.ck mobile: +682 79321 -
chris, in reply to
And sorry I didn’t have time to properly read your posts before posting that. One thing I’ve felt missing today, except from the IRD itself and Puna after the fact is the advice to contact the IRD to customise the arrangement to your circumstances.
It’s all very well these student leaders saying things like “harsh penalties would only scare people off.” or “there is a lot of concern out there in the student community especially the ones overseas that they won’t be able to get home,” but pragmatically the best thing they could be doing is strongly advocating that borrowers make contact – to alleviate the stress etc.
Having taken a leaf from Moz and Chris Waugh’s earlier posts on this thread, I contacted IRD before returning home, and yes they required screeds of documentation, and made me jump through hoops ’o fire, but I remained committed and was ultimately able to get a significant sum wiped off my loan, legitimately. So I’d imagine even though Puna is earning what I would class as well over the threshold, with a bit of persistance there would have been some dispensations available to him as was the case with his settlement. instead he's just become a pin-up boy for the political right.
Despite that, my passionate disdain for many elements of this lending system and its enforcement remains unwavering.
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If you're overseas and earning less than $19k (student, volunteer work, on the local dole, bludging off parents), do you have to make repayments?
I think the fact that you can be arrested for non-payment is another reason to argue loan repayments are a tax, not a debt.
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chris, in reply to
If you’re overseas and earning less than $19k (student, volunteer work, on the local dole, bludging off parents), do you have to make repayments?
Unless you notify IRD of your circumstances and successfully apply for a hardship application you are annually obligated to pay at these rates and penalised an additional 9.3% of your obligation for failing to do so.
However the IRD will consider removing these obligations and wiping the penalties for those earning below the threshold, contingent of course on the borrower’s communication with the IRD.
It’s possibly also worth noting that many full time jobs overseas don’t pay 19k NZD. Among the various criticisms about defaulters is the thread in which their willingness to move abroad for such meager salaries is being called into question as an individual choice.
Alternatively you could earn $15,000 over the threshold for 5 or so years, get arrested at the airport and for just seven hours in a police cell and $5k + $2k lawyer enjoy the removal of $15,000+ worth of obligations.
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http://www.studentloan.org.nz/blog/arrested-man-could-have-avoided-90000-in-interest
I’ve not checked whether the removal of interest on islanders’ loans in 2010 wiped all historical interest, in fact I doubt that was the case for interest accrued prior to his departure in 2004. The number of relevant acts and amendments since 1990 makes research incredibly time consuming.
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