The government is being urged to give stronger consideration to prosecuting borrowers who seek to avoid paying back student loans by moving abroad, with an independent think tank claiming the Treasury could recoup £22 for every £1 spent on collection
The Higher Education Policy Institute (HEPI) has outlined proposals for the UK to adopt a similar policy to New Zealand, where student loan defaulters who have left the country can face arrest and charges on their return.
The think-tank’s director, Nick Hillman, 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.’
Hillman highlights New Zealand’s decision to adopt a tougher approach to borrowers overseas who fail to pay. The Inland Revenue Department (IRD) first began a pilot of measures in 2010, starting with using private providers to track and trace borrowers, easy-to-use offshore payment mechanisms and online advertising to raise awareness. Within nine months, the pilot had received a return of NZ$5 (£2.85) for every NZ$1 (57p) spent on collections.
In March 2014 New Zealand passed legislation whereby a returning citizen who was in default of student loan repayments could be arrested at the border when trying to re-enter the country. At that point, the scheme was returning NZ$11 for every dollar spent, with returns growing to NZ$16 by the end of that year.
HEPI says following the first arrest of a defaulter in January 2016, there was a 31% increase in repayments from overseas borrowers, and phone calls on the issue were 55% up on the previous year. The think-tank says that by September, the IRD was collecting NZ$22.20 for every dollar invested.
Hillman said: ‘The policy is like a fruit machine that pays out twenty-two times the stake on every spin; I cannot remember coming across any policy that was so efficient during my three-and-a-half years in Whitehall.’
In February this year Jo Johnson, the minister for universities, science, research and innovation, announced plans to strengthen the capability to trace borrowers and pursue and recover outstanding student loan debt.
At the time, Johnson said: ‘We will take stronger action to trace borrowers including those overseas, act to recover loan repayments where it is clear that borrowers are seeking to avoid repayment, consider the use of sanctions against borrowers who breach loan repayment terms and, if necessary, prosecute.’
Johnson announced a joint repayment strategy bringing together the Student Loans Company, HMRC, the then department for Business, Innovation and Skills (BIS), and the devolved administrations.
The focus is on a reduction of the proportion of the student loan book (11.3%) that is in arrears or where borrower details are unconfirmed.
The strategy document stated: ‘Given the current size of the loan book small improvements to the effectiveness of keeping borrowers in repayment and collecting money due will result in many millions of pounds of additional future repayments - recovery of an additional 0.1% of outstanding borrowing will bring in around £74m.’
The document said around £8.3bn of loan balance is held by these non-paying or unverified borrowers, of which around £457m relates to those living overseas. Not all unverified borrowers will owe money. While some do, others may not be working, may be in receipt of benefits, not earning enough to repay or may be between jobs.
Johnson said the government is currently establishing a data sharing exercise with Australia, as this is the most popular international destination for UK borrowers, with correspondingly the largest total debt outstanding from those living overseas. Data sharing projects previously established with Sweden and the Netherlands have resulted in improved collection rates there, and the UK has coordinated further discussions to facilitate a wider European approach to data sharing.
However, there are no current plans to introduce prosecutions for returning defaulters, in line with the New Zealand approach, although Johnson said the joint group working on student loan collection will keep the strategy under review and will be reporting annually on progress.
HEPI’s commentary on New Zealand’s approach to student loan collection is here.
