One in five people with student loans have fallen behind on their payments and the Inland Revenue Department is unable to trace many of them.

IRD estimates 120,000 borrowers are in arrears on repayments and official figures indicate the total amount on loan will rise from $9.5 billion to around $15 billion in five years.

Revenue Minister Peter Dunne says a large proportion of the loan holders are overseas and it has been very difficult to keep track of their addresses.

Prime Minister John Key says the situation is out of hand.

"You've now got quite a lot of people who are overseas, in serious default and quite frankly, are virtually tax exiles. They owe so much and the penalties are so high that they can't afford to come back and it's crazy."

Mr Key hopes that recent changes allowing online loans payments will help to reduce the problem.