"If the IRD try repeatedly to collect an undisputed debt, and hardship is not an issue, we should not be surprised. In fact, as taxpayers of New Zealand, we should be grateful they take action preventing these people from leaving New Zealand and leaving the debt behind.''
• Student overseas feeling debt stress
The issue was brought to a head recently when a Cook Island resident was arrested at the New Zealand border for not repaying his student loan or accumulated interest, despite Inland Revenue saying it had sent numerous reminders to the person.
On Sunday, Labour leader Andrew Little announced a free education policy for tertiary education which will not take full effect until 2028 at a cost then of $1.2 billion.
Yesterday, Mr Little said Prime Minister John Key should be ashamed for overseeing a 50% blowout in student loan debt on his watch.
Student loan det had risen from less than $10 billion in 2008 to $15 billion today.
Average debts of $20,000 were a big disincentive for struggling families and a reason why student numbers had fallen by 20% under National, he said.
Mr Turner said if Inland Revenue did not make people living overseas pay the amounts correctly due, taxpayers living in New Zealand would have to pay more.
"This is particularly true to overseas loan borrowers who will be using the education they received in New Zealand to earn income overseas and not contribute to the New Zealand tax base.
"I know this is an emotive issue so it is critical the IRD do their homework and follow a good robust process. Provided they do, I don't think anyone should be surprised or critical of them doing their job.''
In July last year, the Government said it was planning to collect $100 million per year from overseas student loan repayments and would target first-time defaulters, tracking and tracing more borrowers overseas and using legal action if necessary.
Current interest rates for overseas borrowers were 5.3% but interest on late payments was a "whopping'' 9.3% a year and it was easy to see how those loan balances could quickly escalate, Mr Turner said.
"Collecting $100 million from people living and working overseas means they won't be looking to collect $100 million in tax from those of us living here.''
Later this year, a new information-sharing agreement with the Australian Tax Office in respect of student loans would come into force, giving Inland Revenue easy access to contact information about borrowers living in Australia.
"The message from all this seems to be clear. As with any debt with the IRD, ignoring it will not make it go away. The best course of action is to make contact with IRD to come to a payment arrangement. It is possible to apply for a repayment holiday for student loans of up to a year, but this won't stop interest accruing.''
Ultimately, the arrest had become a big talking point and if it brought in the defaulters IRD was seeking, there would be some people in Wellington patting themselves on the back for a job well done, Mr Turner said.
