How do we get graduates who move abroad to pay back their student loan?

Jul 28, 2014 by

Australia and the UK both struggle to recoup student loan repayments from graduates who’ve moved abroad. Nick Hillman says we need a stricter approach.

The Higher Education Policy Institute (Hepi) is running a year-long comparison of the Australian and English university systems. The objective is to reveal some lessons for public policy.

Given that new evidence is the bread-and-butter of academia, it’s been an unexpectedly bumpy ride. When we published our initial findings, one observer claimed, “Hepi’s suggestion that there are lessons to be learned from down under is particularly misguided“.

In fact, it undoubtedly makes sense to compare and contrast the two systems. They resemble non-identical twins: strikingly alike and strikingly different at the same time.

Moreover, the lessons run both ways. Australia has better support for postgraduate students, while England deals better with the living costs of full-time undergraduates.

But perhaps the critics have a point nonetheless. Restricting the comparison to just two nations gives an incomplete picture.

Take the issue of recouping payments from former students working abroad. Plenty of indebted Australian graduates leave the country soon after their studies. Similarly, many EU residents studying in England return home owing substantial sums to the Student Loans Company. Yet neither Australia nor England has found effective ways to collect the repayments of those who leave.

Australian graduates who have left the country owe hundreds of millions of dollars. Little is done to track them down. According to economist Bruce Chapman and senior lecturer Timothy Higgins, both at the Australian National University, the Australian loan system “seems to be the only income contingent loan policy which does not include any regulations designed to minimise losses for taxpayers from graduates going overseas”.

The English story is not much better. Around 6% of graduates are working overseas soon after graduating. But according to Margaret Hodge MP, the chair of the committee of public accounts, the Student Loans Company knows very little about them: “Will they ever pay back their loans? The Student Loans Company simply doesn’t know.”

The authorities are effectively playing a game of hide-and-seek in which those hiding can go anywhere in the world while those searching don’t have the resources to do it properly.

Even those critics who would like to see an entirely new student funding system want to see the non-repayment problem tackled. Toni Pearce, the president of the UK’s National Union of Students and a fierce critic of the current regime, has said: “I am a taxpayer and I am interested in making sure that the money is recouped.”

A third Anglophone country may hold the answer. New Zealanders typically set off on “the big OE”, or overseas expedition, shortly after graduating. When they do so, the government recalibrates their annual loan repayments so that they are obliged to pay somewhere in the region of 10% of their debt each year. In other words, their income-contingent loans come to look more like mortgage-style loans.

New Zealand also charges former students living abroad a real rate of interest that is not applied to others, and late payment interest can be applied too.

Those Kiwis who still manage to evade the system face more draconian action. They can even be barred from leaving their home country when they next go back to see relatives.

The authorities warn they will “request an arrest warrant to stop borrowers from leaving New Zealand next time they visit”.

As more countries build up sizeable student loan books, the problems of non-repayment may encourage cross-border collection agreements. Australia and New Zealand have already shown signs of starting to work together on the issue and, given the number of antipodeans who come to the UK each year, there is clearly scope to extend such co-operation.

In England, the problem of non-repayment by those who have left our shores will take on a new urgency in the months ahead. When the student numbers cap is removed next year, people in other EU nations will find it easier to come and study here, which will in time lead to an increase in the number of graduates from English universities who live elsewhere.

And were Scotland to become independent after this year’s referendum, there would be a whole new set of cross-border loan repayment challenges for policymakers to grapple with.

via How do we get graduates who move abroad to pay back their student loan? | Higher Education Network | Guardian Professional.

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