Strict collection regimes: from student to loan evader?
Should student loan defaulters be treated like tax evaders? The New Zealand method could gain traction in the UK as loan debt rises to £70bn.
The UK 'problem' of non-repayment of loans lies with graduates, primarily EU and British nationals, who avoid repayment by moving overseas after finishing their qualification.
The Higher Education Policy Institute (HEPI), the UK's independent think tank on higher education, has proposed that detaining and arresting these individuals upon re-entry at the border would both act as a deterrent and be the most efficient way to recover the money owed.
The UK government recently proposed a new sell-off of student loans, covering £4bn of loans that became eligible for repayment between 2002 and 2006. It would be the first of a four-year programme of sales of loans issued before 2012.
Research by HEPI suggests that implementing harsher consequences for non-repayment will return millions of pounds to the public. However, tougher regulations would also likely increase the value of the student loan book for the private sector.
The New Zealand experience
Defaulting on student loans has been a criminal offence in New Zealand since 2014, targeting those who either return or emigrate to Australia after graduation. Another 20 individuals were being monitored for possible arrest on return to New Zealand in 2016.
A comparative study by HEPI highlighted that New Zealand’s total student loan debt sits at around £6.8bn, totalling 6% of the country's GDP, while the UK's accounts for approximately 16% of GDP at a value of £70bn.
Only three arrests have been made in the history of the New Zealand policy, but for every dollar invested in prosecution, the authorities collect $22.20.
“The policy is like a fruit machine that pays out twenty-two times the stake on every spin," said Nick Hillman, Director of HEPI and former special advisor to the Minister for Universities and Science. “I cannot remember coming across any policy that was so efficient during my three-and-a-half years in Whitehall.”
Roughly 11% of former students from the EU have failed to repay their loans after graduation with no current policy forcing them to pay when they move abroad. Critics point out that this situation results in the taxpayer making up the difference.
Given that the £9,000 fees regime is now maturing and postgraduate loans are being introduced, a new repayment regime for those living overseas should be a more urgent priority than ever before. - Nick Hillman, HEPI
Nick added: “Tax evasion and benefit fraud rip taxpayers off. Defaulting on your student loan could be regarded as just as bad. Yet it is fairly common among both Brits and EU citizens who study in the UK before working abroad."
Will the taxpayer get a good deal?
The sale of the UK student loan book is hoped to recoup £12bn, but concerns are rife over whether the taxpayer will get a good deal.
Professor Nicholas Barr of the London School of Economics said: “First, loans issued before 2012 included an interest subsidy, correspondingly reducing the sale price of the debt.
"Second, loans have income-contingent repayments, which means that – unlike conventional debt – the repayment duration is uncertain. The market has little experience of buying debt with an uncertain maturity date and will therefore price such debt conservatively.
“For both reasons, it is open to question whether the price for which the government can sell student debt represents good value.”
Which loans have been proposed for sale?
The current proposed deal covers £4bn worth of loans that became eligible for repayment between 2002 and 2006 and is the first of a four-year programme of sales of loans issued before 2012.
Private company Erudio Student Loans took previously took over 250,000 loans from the Student Loan Company, and have faced allegations of early repayment demands and sharing loan information with credit agencies.
England has the highest level of student debt than any other English-speaking country in the world at almost £45,000 per graduate. New Zealand’s graduates have the lowest at just £23,300.
“Given that the £9,000 fees regime is now maturing and postgraduate loans are being introduced, a new repayment regime for those living overseas should be a more urgent priority than ever before," said Nick.
"Ministers, MPs, and peers should consider amending the Higher Education and Research Bill currently before Parliament to ensure higher repayment rates.”
What do you think about defaulting on student loans leading to arrests and a possible criminal record? How would it affect the UK economy? Leave a comment below