Getting overseas student debtors to repay

The promised legislation to recover HELP debt from people overseas was introduced today. In principle this is a good idea, with the main issue being how to implement it. As outlined in our Grattan doubtful debt report last year, both the UK and New Zealand experience significant difficulties in recovering student debt overseas.

We are starting well behind those two countries, because there is a basic problem in alerting people to the fact that they are obliged to repay. Because overseas repayment is a long-standing feature of the NZ and UK schemes, student debtors would have been alerted to their obligations when taking out a loan. Here it is widely (and correctly) believed that no repayment is needed while overseas, and it will take many years to correct that misconception, presuming that this bill gets through the Senate.

Existing overseas HELP debtors have until 1 July 2017 to notify the ATO of their situation. People leaving the country from 1 January 2016, with the intention of staying away for 6 months or more, will need to notify the ATO within 7 days of leaving. There is going to have to be a new departure card to warn people of this. I’m not sure how they will deal with people whose plans change while they are overseas. A change of mind will not be a valid excuse, as not supplying information to the ATO is an absolute liability offence, with a fine of up to $3,600.

Notification will be an issue with any requirement for overseas HELP debtors to repay. The other main issue is determining how much to pay. The UK has a complex scheme that tries to match the initial repayment threshold to living standards in other countries. After that, debtors pay 9% of their earnings above the threshold. NZ has flat repayments based on how much the debtor owes.

The proposed Australian scheme will rely on conversions of overseas income back to $A. Presumably there will have to be some $A value fixed in regulation to provide some certainty in advance as to thresholds. Debtors need to know roughly how much they will need to set aside for their repayment. However, given fluctuations in the $A there will still be some uncertainty about how much it will cost them in their local currency when the time comes to transfer the money. Debtors will be hoping that the $A stays low; bad luck if you are a HELP debtor during the next commodity price boom.

The minister’s media release indicates potential reciprocal arrangements with the UK and NZ on student loans, which may simplify things for debtors and increase compliance. However, in our Grattan report we reported on the locations of overseas graduates three years after completion. At that point, only about 30% were in the UK or NZ.

In the end, more draconian measures might be needed. NZ has the power to stop student debtors at the airport, although I don’t know if it has ever been used. The UK has the power to use legal action to recover all the debt at once, which would make legal action in overseas countries more feasible – it is not worth suing over a few thousand dollars in annual repayments, but could be to get tens of thousands. As most overseas HELP debtors are likely to return permanently, high penalty interest on the total debt might help. It would create an incentive to follow the rules while doing that stint in London, New York, Hong Kong or the many other cities that attract Australian graduates.

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