The Kiwis have set the cat amongst the pigeons by arresting a man accused of defaulting on his student debt.
New Zealand authorities detained Ngatokotoru Puna, 40, at Auckland Airport on Monday over the unpaid debt, raising concerns that expat graduates could be arrested if they returned home.
While the Australian government is working to recover mountains of outstanding student loans, local authorities are unlikely to resort to the extreme measures taken across the Tasman.
The failure of former students to repay their loans while living overseas has cost Australian taxpayers up to $800 million since the loan scheme was introduced in 1989. A loophole allowing graduates to leave their loans unpaid while based overseas has just been closed, potentially recouping $30 million a year.
The Australian Taxation Office said that before taking further action over unpaid loans, it would "encourage self-compliance" and work with people to manage their debt.
The Grattan Institute's higher education program director, Andrew Norton, said it was unlikely that people would be arrested in Australia over student debt, but the ATO can work to recover money via agreements with other countries and Australia is known to be in discussions with the UK and New Zealand.
New Zealand was in a different position to Australia when it came to student debts, Mr Norton said.
"New Zealand has a particular problem in that, due to the small size of their economy and easy access to other countries, especially Australia, a high percentage of the graduates spend time overseas," he said. "They also have to pay flat annual amounts when overseas regardless of income, so many more of their debtors are liable compared to Australia."
An estimated NZ$3.1 billion ($2.8 billion) is owed by around 110,000 expat Kiwis with student loans. New Zealand Inland Revenue (IRD) warned last year that it was examining 20 student loan defaulters for possible arrest if they tried to return to the country. Mr Puna is the first to be detained.
A maths teacher and father of five, Mr Puna has lived in the Cook Islands since obtaining a Bachelor of Arts degree at the University of Auckland more than a decade ago and was visiting New Zealand for a maths conference. Mr Puna, who said he was the nephew of Cook Islands Prime Minister Henry Puna, took out a NZ$40,000 ($37,000) student loan but, with interest, now owes about NZ$130,000 ($121,000).
Still dressed in the jandals, shorts and t-shirt he was wearing when he was arrested on Monday, Mr Puna faced Manukau District Court and was granted bail.
He represented himself before Judge Charles Blackie, who asked if he had learned anything. "I've learned I'm the first person to be arrested for this," Mr Puna said.
Speaking outside court on Friday, Mr Puna said he initially thought his arrest was a joke. "I've never talked [to] anyone from IRD," he said.
"When I went through customs and the lady said I have to sit down, I thought it was because of my emergency passport. I sat down and ate my three pieces of KFC that I bought from the KFC shop and then police said I was under arrest for my student loan. I thought it was some kind of joke."
Acting president of the New Zealand Union of Student Associations, Laura Harris, said expat students had been in touch with the union, worried about what could happen to them if they return home for funerals and family events. Parents were also concerned that they might not see their children again.
"We're not disputing that people should pay back their loan, it should just be easier for them, instead of scaring them into not coming home," she said.
An IRD spokesperson said the power to arrest at the border was "used as a very last resort, and would only follow strenuous efforts to contact the borrower to make repayment arrangements".
Australians repay student loans once they earn above a certain amount - $54,126 for the current financial year. From July next year, Australian residents with a Higher Education Loan Programme (HELP) or Trade Support Loan (TSL) debt who live overseas and earn above the threshold will have to report their worldwide income to the ATO and make repayments.
"From what we've seen, getting on top of a debt early helps to stop it from getting out of control in the future," an ATO spokesperson said. "If an Australian resident living or returning from overseas receives a large individual income tax debt due to HELP or TSL compulsory repayments, we will always try and work with them first to help manage their debt before taking further action."