Nearly 900,000 people have taken student loans since the scheme started, and more than two-thirds have not fully repaid the money.
A Ministry of Education report says only $6.4 billion of the $13.9 billion borrowed since students started getting loans in 1992 has been paid back.
The Government is trying to ensure outstanding loans are repaid, but Inland Revenue has had to write off millions of the debt because of death and bankruptcy and accepts that some of the money will never be repaid.
That portion is estimated to be loans given to about 12% of borrowers - more than 107,000 people - who have left the labour force, taken unpaid work or become ill or disabled and unable to work.
Tertiary Education Minister Steven Joyce said policy changes over the life of the scheme, such as the introduction of interest-free loans in 2006, had not necessarily encouraged people to repay the money.
International students coming to New Zealand, studying here on loans and then leaving the country after graduating, had also not helped. Changes were being made to alleviate this problem.
Another problem area was the number of New Zealand students living overseas and not repaying loans. The report says Inland Revenue had $325 million in overdue loan payments in the year to last June, more than half of it owed by nearly 35,000 New Zealanders living overseas.
Mr Joyce said many of those would be targeted in a pilot initiative whereby New Zealanders in Australia would be tracked down and spoken to about their debt. Repayment plans would then be put into place but it was too early to say what would happen to those who continued to avoid payment.
Mr Joyce said initiatives were also under way to try to reduce the level of unpaid loans, such as introducing performance-based loans. Statistics show students who graduate have a better repayment rate.
Last year, 199,000 people (71% of students) borrowed $1.389 billion in student loans. Nearly a third were new borrowers.
The report also found the median first-year loan was just over $6000 last year - about $100 more than in the previous year. Overall, most loans are under $15,000, with just over a quarter being under $6000. However, 2000 people owe more than $100,000 on their loan.
NZ Union of Student Associations co-president David Do said the report showed repayments were continuing to increase, in part due to interest-free loans which were "making it easier for New Zealanders to become debt-free faster".
He said keeping loans interest-free was a good incentive for graduates to stay in New Zealand.
