Diminishing rolls and historic overspending are leaving some schools unable to repay loans, including one of more than $1 million.
The Education Ministry rarely grants loans to schools. There are currently 14, two of which are outstanding.
Naenae College, in Lower Hutt, was granted $1.6 million in 2004 to "recapitalise". It was the largest interest-free loan given to a school in seven years.
The college was placed under state management for two years, before the ministry expressed confidence that the board of trustees was managing its finances well.
However, only $40,000 has since been repaid by the decile 2 school, leaving it facing statutory intervention, closure or merger if it defaults on future payments.
It was offered a 20-year extension of its repayment period as long as the loan was repaid in full by 2030, but it declined, saying the $80,000 annual payments would be to the detriment of its pupils' learning.
A report to Education Minister Hekia Parata said deficits arose from equipping a performing arts centre, board-funded staffing, loss of revenue from foreign fee-paying students, and the cost of running an international student hostel at a significant loss.
When the school failed to meet annual $160,000 repayments, the ministry approved a three-year moratorium. By the end of it, in 2010, the board still refused to start paying, as it considered the school would be disadvantaged.
Board of trustees chairman Dean Bryant said the college got into financial difficulty as it attempted to adjust to a falling roll between 2000 and 2004, caused by changing Hutt Valley demographics.
Principal John Russell was brought in, and a new board elected, at the end of the statutory management period. The ministry then granted the repayment moratorium to allow the school to get back on its feet.
It had since made "excellent" academic progress, Bryant said. The roll was rising, achievement was up, facilities were improved, and the school was being "prudently financially managed".
The board had been negotiating with the ministry to repay the loan in a way that "did not impact negatively on the learning of this generation, or future generations of students", Bryant said.
"We expect to reach a final resolution of this matter early in the new year."
Northland College, in Kaikohe, has $135,400 of its original loan outstanding. Principal John Tapene took over the role in 2006, when its loan with the ministry - issued in 1995 - stood at $660,000.
But this year's 280-pupil roll and dwindling operations fund meant it was unable to meet any payments. In its heyday, the school had 1000 pupils.
The school also spent $170,000 on plans for a rebuild, but the ministry rejected the plans once they were completed.
Tapene said he was caught up in the middle of conflicting directions from the ministry, the Education Review Office and the School Trustees Association.
"Loads of things come in to it that mean we're unable to repay our debt."
A commissioner had taken over from the board of trustees to manage the accounts, and several cutbacks, including to staff, had been made.
"There are a lot of schools that do struggle. Northland College is not alone," Tapene said.
An Education Ministry spokeswoman said schools "very rarely" got into a situation where they could not meet loan repayments. It was working with Naenae College to find a repayment schedule they both agreed on.
There were 1055 schools operating deficits in the 2011 school financial year ended December 31.
- Sunday Star Times