Budget set to hit student loan debtors overseas

People who take off overseas after study appear likely to be the target of budget changes to the interest-free student loan scheme.

In a speech to NZ Business today, Prime Minister John Key said the scheme in its current form was not good value for taxpayers, with only $55 of each $100 lent to students being returned.

"In particular, there is a big issue with students who subsequently go overseas. These people have over half of all the overdue debt under the student loan scheme," Mr Key said.

"We need to ensure borrowers understand that when they choose to access the loan scheme they are also taking on all the responsibilities that come with it."

Loans would remain interest-free but the scheme would be adjusted to make it more sustainable, Mr Key said.

"New Zealanders have indicated they are prepared to subsidise student loans by having them free of interest. But their generosity is currently being stretched."

Speaking to media later, Mr Key confirmed changes in next week's budget were likely to address the debt of those living overseas.

"It's ensuring that those that take out a loan act responsibly and pay that back, and what we know is that a number of people that go overseas actually don't pay back at the levels we would expect," he said.

Tertiary Education Minister Steven Joyce last month indicated the three-year "repayment holiday" currently granted to students who left New Zealand would be shortened, and said consideration was being given to using debt collection agencies overseas,

Loans to people aged over 55 was another big write-off area, Mr Joyce said.

"If you take out a student loan at 55 or 56 there's every likelihood that about 70 percent of that will be written off because you're at the other end of your working career.

"I think we always want to be able to provide some access, perhaps borrowing for fees. But borrowing for living costs and borrowing for the compulsory course costs is not necessarily where we want to be."