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Students heading away on their OE may soon face a nasty surprise, with new legislation poised to stop the worst loan-defaulters at the border.

The Student Loan Scheme Amendment Bill (No 3), which would allow for the arrest of those who have defaulted on student-loan repayments, passed its first reading by 61 votes to 59 in Parliament (under urgency) last week.

The Bill is an attempt to reduce government debt (the primary goal outlined in the 2013 Budget) by targeting overseas borrowers and those thinking of heading abroad. If implemented, the Bill would allow the IRD to issue arrest warrants at the New Zealand border for those who have refused to repay their student loans.

Revenue Minister Todd McClay has compared the move to preventing parents with outstanding child support payments from leaving the country, and claims that the threat of arrest would act as an efficient deterrent for those planning to travel overseas without repaying their student debt.

“Similar provisions for student loans would send a clear message to all borrowers that non-compliance is unacceptable, and there are real consequences for ignoring repayment responsibilities,” said McClay.

As well as imposing tougher measures on serious student-loan defaulters, the Bill proposes fixed repayment obligations for New Zealanders based overseas and suggests new thresholds that would increase repayment obligations. In order to enforce the new legislation, the Bill would see increased information sharing between government departments, with the contact details of those applying for passports being provided to the IRD.

This interdepartmental sharing would allow for greater exchange of the personal information of all students with loans. As the Student Loan Scheme Act 2011 does not allow for the sharing of contact details of borrowers not in default, the Bill contains an amendment enabling the Commissioner of the IRD to obtain the contact details of all those borrowing under the scheme.

McClay says that this is to prevent overseas-based borrowers from falling into default, and that “with accurate contact details, Inland Revenue can educate borrowers about their obligations and put early intervention [measures] in place.”

The Bill’s reception has been mixed, with Opposition Spokesperson for Revenue David Cunliffe stating that the Bill is “an erosion of civil liberties,” and Green Party MP Holly Walker labelling the policy “dangerous” and “unnecessarily punitive.”

One student spoken to by Salient, Zac Sanderson-Harris, views IRD issuing arrest warrants as “overboard” and “extreme.”

“It is fair to have to pay [student loans] off while overseas, but the new legislation could intimidate those with loans from dealing with IRD.”

The Finance and Expenditure Select Committee must now consider the Bill before further legislative progress can be made. Their report, which will affect the over 70 per cent of current tertiary students who have a student loan, is due by 27 February 2014.