The value of student loans forgiven on death has tripled in a decade

In 2024, almost 2,000 New Zealanders died carrying student loans, and the Revenue Commissioners had to write off $28.8 million in outstanding debt.

Government data shows that both the number and value of loans written off due to the holder’s death have tripled over the past decade. In 2014, IRD lost $9 million in outstanding loans held by 720 people. In fiscal year 2024, a total of 1,787 loan holders died of outstanding debt of $28.8 million.

A key factor in this growth is the aging student loan demographic. New Zealand’s student loan program was introduced in 1992, around the time that higher education became user-pays.

A student who was 21 when he took out one of these first loans in 1992 would be 54 this year, well below New Zealand’s average life expectancy of 82 years.

Since 1992, 1.5 million people have taken out a student loan, and students have borrowed a total of $34.3 billion. Borrowers repaid a total of $23.3 billion, with 934,000 repaying their loans in full.

The rise in the number of New Zealanders carrying lifelong loans comes at the same time as annual higher education fee increases and a cost of living crisis.

The latter is regulated by the government in the form of an annual maximum rate of change in fees. This has been set at 1.1% in 2021 and 2.75% in 2023 for the university year 2025 this ceiling was raised to 6%..

Jake Lilley, senior policy advisor at Fincap, says that in many circumstances, student loan debt is productive debt because it provides opportunities that can help an individual secure a stable financial future.

However, there is a disconnect with the government’s broader policy framework for debt creation and recovery, which may “hinder the achievement of the aid objective in the first place.”

“There are many rules about why you, as a government agency, take on debt and when certain collection practices should be used for debt that is not being repaid. He says that if someone is in a difficult situation and has no hope that it will be repaid, it should be written off.

“This does not appear to be current practice for student loans.

“Given someone’s situation, if it turns out to be unaffordable, should it really be a loan or should it just be a grant?”

Current or former students can apply for a reduced repayment, installment arrangement or financial relief if they are struggling to repay their debt. However, Lilley says one factor that could contribute to payment delays is that “it’s quite difficult to contact the IRD”.

“It is therefore quite difficult to take advantage of the available hardship relief that the tax office should be offering.”

The Department of Education’s 2024 annual report on the student loan program shows that of borrowers who graduated in 2003, 83 percent have fully repaid their loans.

Katrina Sutich, director general of higher education policy at the Ministry of Education, says some people will not earn enough to fully repay the loan and that an inherent feature of the program is debt cancellation in the event of death or bankruptcy.

Sutich doesn’t think college student debt is too high.

“New Zealand borrowers pay no interest on student loans and their repayment obligations are income-tested, with repayments required when borrowers earn above an income threshold,” he says.

“The scheme also includes hardship provisions to help borrowers who are struggling to meet mandatory repayments. For those eligible for hardship relief, their annual liabilities may be replaced by a future repayment arrangement.

The ministry works with actuaries who model the value of the program and take into account deaths and bankruptcies, according to the age profile of borrowers and the observed mortality experience of student loan borrowers.

The IRD spends millions each year paying off student loan debt. The department was allocated $116 million in the 2024 budget to improve compliance and enforcement, with a portion of that amount specifically earmarked for student loan debt.

Jake Lilley says IRD systems are not “people-centric” and can be difficult to use, especially for people trying to access financial aid information for the first time.

“Financial mentors are great people to reach out to when you don’t know where to start,” he says.