Raising Student Loan Interest Rates: A Short-Sighted Move That Exacerbates New Zealand’s Brain Drain articles

The New Zealand government’s decision to raise student loan interest rates for overseas borrowers to 4.9% from 1^st April 2025, and late payment rates to 8.9%, with further increases forecasted, is a policy misstep that will only deepen the financial distress of thousands of former students. In an already economically uncertain environment, this increase is poorly timed and risks driving more skilled New Zealanders away permanently. Moreover, the decision lacks a solid economic foundation and overlooks the real challenges faced by borrowers abroad. I have been dealing with many Student loan defaulters, all of them want to pay, despite having various financial, personal, and health issues, but they want to pay.

Many New Zealanders leave the country to pursue better career opportunities, but not all of them land high-paying jobs immediately. This takes time. The financial burden on these overseas borrowers is already significant, with many facing higher living costs and limited employment opportunities due to visa restrictions. Increasing their interest rate will only compound their debt and make it harder for them to repay. In some cases, borrowers struggle to find stable employment, and the government’s move to increase the interest rate makes it even more difficult to meet repayment obligations, leading to further financial strain.

One of the most damaging effects of this policy is its potential to discourage skilled Kiwis from returning to New Zealand.

Many overseas borrowers may see their student debt ballooning due to the higher interest rates and penalties, making it financially unfeasible for them to return home. A $20k student debt can balloon to $80k in 15-20 years with no end in sight, as the penalties and late payment charges are very high. Instead of encouraging the return of talented individuals, this policy could push them to remain abroad, further exacerbating New Zealand’s “brain drain.” New Zealanders who pursue advanced education — such as doctors, engineers, and researchers — often face the largest student loan debts. These individuals represent the future of New Zealand’s economy, and many are already burdened with high levels of debt due to their extensive studies in critical fields. Raising the interest rate unfairly penalizes those who have invested in high-level education with the intention of contributing to the nation’s development.

Additionally, some borrowers have already faced the extreme penalty of arrest for overdue student loans upon re-entering the country, a measure that has not only failed to encourage repayment but has also added to the financial and emotional toll.

Instead of driving borrowers away with harsh penalties and higher rates, the government should focus on creating incentives for returnees, allowing them to contribute to New Zealand’s economy and society once again.

Rather than burdening these high achievers, the government should consider targeted debt relief programs that focus on individuals who have excelled academically or entered fields that are vital to New Zealand’s future, such as healthcare, technology, and engineering. Such a measure would encourage skilled professionals to stay in New Zealand, rather than discouraging them with a policy that exacerbates their financial challenges.

This could lead to a vicious cycle where the government’s attempt to collect more revenue results in even fewer successful repayments. Moreover, the increased interest rates may also exacerbate compliance issues, as borrowers become less likely to engage with repayment systems, knowing that their debt will only grow due to the high interest rates.

Raising student loan interest rates at this time is a short-sighted policy that will drive away skilled individuals and make repayment even harder for those already struggling overseas. Instead of punishing borrowers, the government should focus on implementing smarter, more compassionate policies that encourage repayment while retaining talent in New Zealand. By adopting income-based repayment systems, offering targeted relief for high achievers, and providing incentives for returnees, the government can ensure that student loan policies support both borrowers and the nation’s long-term economic goals. A balanced approach will not only improve repayment rates but also strengthen New Zealand’s economy by retaining its brightest minds.