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Should student loan defaulters be treated like tax evaders and benefit fraudsters?: New HEPI study of higher education in New Zealand and its lessons for the UK

  • 28 July 2016
  • By Sam Cannicott

HEPI is today publishing a major comparative study entitled Higher Education in New Zealand: What might the UK learn? It has been written by Sam Cannicott, an education expert who until recently worked at Regent’s University London and who now works for Statistics New Zealand.

The New Zealand higher education sector is small compared to the UK’s, but it performs well in international league tables and New Zealanders have given deep thought to issues from which the UK must learn. These include:

  • ensuring graduates who move overseas pay their student loans back;
  • providing a red carpet to international students; and
  • protecting quality when liberalising student number controls.

Commenting on his report, Sam Cannicott said:

‘New Zealand’s no-nonsense approach to collecting student loan repayments from graduates overseas highlights the timidity of the steps taken in the UK. Former students who fail to make repayments face arrest at the New Zealand border, which is proving to be a strong deterrent.

‘Breaking the link between income and loan repayments for graduates who head overseas, as New Zealand has done, removes bureaucratic barriers that make it difficult to chase repayments. Brexit presents an opportunity for the UK to learn from New Zealand because there is less need to ensure the repayment terms of EU students are the same as those for domestic students.

‘The UK is missing a trick by concentrating international student recruitment at the tertiary level. By following the New Zealand model and opening up the school system to international pupils, the UK could develop a useful pipeline for higher education institutions.

‘New Zealand’s experiment with abolishing student number controls was short-lived. It blew the tertiary education budget and serves to highlight the risks of the approach being pursued in England. At the very least, New Zealand’s experience suggests British policymakers are right to be cautious about relaxing number controls around alternative providers and sub-degree provision.’

Nick Hillman, the Director of HEPI, said:

‘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. Whitehall has never gripped this problem fully but New Zealand’s experience suggests strong enforcement action works.

‘If the Government is serious about wanting to sell off the student loan book to the private sector, tougher penalties for non-repayment would also increase its value. Given that the £9,000 fees regime is now maturing and that postgraduate loans are being introduced, a new repayment regime for those living overseas should be a more urgent priority than ever before. Ministers, MPs and peers should consider amending the Higher Education and Research Bill currently before Parliament to ensure higher repayment rates.

‘The New Zealand experience also shows how tough migration rules can be counterbalanced by a genuinely warm welcome for international students in all parts of the education system. Responsibility for higher education was recently put back inside the Department for Education and I hope Justine Greening will learn from New Zealand’s joined-up strategy for education exports.

‘We could also learn from New Zealand’s experience as we diversify the range of higher education providers. Removing student number controls has enabled a welcome range of new opportunities. But we should learn from New Zealand’s “bums on seats” experiment to ensure we avoid our own homeopathy-for-pets sort of scandals.’

Notes for Editors

  • New Zealand’s higher education system faces similar challenges to those in the UK. But New Zealand has: reduced the cost of student loans by increasing the repayment rate above that in the UK; adopted a tougher approach to recouping student loan payments from graduates overseas; and developed a more coherent international recruitment strategy. New Zealand has also encountered problems from which Whitehall could learn – in particular, the removal of student number controls led to an explosion in low-quality courses.
  • In 2015-16, EU-domiciled students owed £1.3 billion of the English loan book – 11% (8,600) of them are in arrears and clarification of repayment status is needed for a further 13% (9,900). In addition, 88,300 English borrowers are resident overseas and 21,100 are in arrears, with clarification of repayment status needed for a further 38,100 (
  • New Zealand’s approach to collecting student loan repayments from graduates overseas is more robust than the UK’s approach. The measures for overseas borrowers include: breaking the link between income and repayments; introducing an online repayment mechanism; sharing contact information when borrowers apply to renew their passports from overseas; setting collection targets; imposing a real rate of interest; making it a criminal offence for overseas borrowers ‘to knowingly fail, or refuse, to make reasonable efforts to pay’. Borrowers who are in default can be arrested at the airport on their return to New Zealand.
  • New Zealand’s international student recruitment strategy covers the whole of education from primary to tertiary and is co-ordinated across Government. A Code of Practice for international education providers  includes sections on student wellbeing and resolving grievances. Tough sanctions apply for failure to comply.
  • Graduates who stay in New Zealand do not accumulate any interest on their student loans. This adds big costs to the New Zealand loan scheme and explains why ministers increased the repayment rate for graduates, thereby ensuring shorter repayment terms. This was hailed by the New Zealand Prime Minister as ‘good news’ for students.

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