A very good policy
Labour’s tertiary education policy, released today, includes two very welcome measures. First, it will no longer charge interest on the student loans of graduates who live in New Zealand. Second, it will increase eligibility to student allowances to ensure that half of all students can access them.
The first proposal is an especially encouraging policy. It’s obscene that the Government has been collecting interest from graduates - in effect, making money off Kiwis who had borrowed in order to study and make ends meet while studying. Graduates will benefit greatly from this policy. Someone with a loan of $20,000 and currently earning $40,000 per annum will now pay off their loan three years quicker and save around $10,000 in interest repayments. That’s a considerable improvement. (Graduates who want to know how much they’ll save should plug their figures into Labour’s calculator.)
National - and its resident blogger - are worried that this policy will lead to students borrowing lots more money than they do now, so they can chuck it in a bank account, earn interest, and make a tidy profit. Student loan is going to skyrocket as a result of this policy, they’re bleating!
There are two reasons this is unlikely to happen. First: you can’t actually borrow big chunks of money from the student loan scheme. Your fees are paid directly to your university or polytechnic. Your living costs component is not paid in big lump sums, which might lend itself to chucking big sums in a term deposit account, but rather in weekly instalments of $150. Besides which, the fact that some students might try and take advantage of the system to make a few bucks is a pretty bad reason for clobbering all students with crippling interest repayments.
Second: the total amount of student loan debt will actually increase much more slowly under Labour’s policy than under the status quo that National’s defending. Why? For two reasons: all the debt that would have been incurred as a result of interest being charged will no longer be incurred; as the percentage of students receiving allowances increases, as Labour has promised, the amount of money being borrowed each year for living costs will decrease.
So, a very welcome policy. The Greens would like the Government to go further. For example, we’d like it to implement a debt write-off scheme so that no graduates take decades to pay off their loans. Nevertheless, this policy does show that the Greens and Labour are united in wanting to tackle student debt, and cutting how long it takes graduates to become debt-free.
July 26th, 2005 at 5:27 pm
Not being a student, nor having one in the family, I cannot be sure what a typical student might say in response to this announcement. To me, from the sidelines, I think it sounds excellent and a good step in the right direction. Joy.
July 26th, 2005 at 7:59 pm
Yahhh, about bloody time they got rid of this outrageous policy! My loan ballooned by $17 000 over the past few years as I’ve only just managed to start paying it off (using Pounds Sterling). I would have been better off with a bank mortgage! When I transferred $4000 the other day by credit card I noticed that the government and Westpac had the cheek to charge me a $100 fee for the trouble. And to rub it in they call it a bloody “courtesy fee”!
I’ll probably be able to get my traditionally Nat-voting Father to vote Labour/Greens because of this, if I haven’t already convinced him that Brash is a war monger.
Looks like I’ll be coming home sooner than expected too!!
(Frog, it might be worth pointing out to kiwiblog the countries that already have this sort of policy implemented)
July 26th, 2005 at 8:01 pm
Here’s a question though, what is defined as a graduate? What if you were offered a job a year and a half into your studies and never looked back? Am I still a “graduate”?
July 26th, 2005 at 8:03 pm
Labour’s calculator reckons I’d potentially save in the order of $40 000.
July 27th, 2005 at 12:52 am
does Labours calculator actually work?
we can’t get it to work in either firefox or safari
oh I see that it only works in IE.
aha. well they’ve lost my vote then!!
July 27th, 2005 at 10:02 am
Stuey: it works in Firefox for me and shows me saving loads of money over the course of my loan payments.
Joy: My wife and I, two graduates with big loans - hers still increasing because she’s studying again - squeal with glee in resonse to this policy. If I’d been an undecided voter it could easily have tipped me towards Labour.
July 27th, 2005 at 10:09 am
Frog argues against arguments I have not made. It ius naive to pretend borrowing will not syyrocket, especially when there is actual emperical evidence it did so the last time Labour made loans interest free, albeit just while studying.
Nio-one has claimed one can borrow a big chunk. Red herring. But you will be mad to pay your fees yourself rather than by loan, even if you have the money to do so.
As for total debt. The $300 million saved will be swamped by the extra borrowing. I am so confident of this, that I would be willing to bet a very large amount of money that if this policy is implemented, total debt will grow faster than any previous year.
July 27th, 2005 at 10:24 am
David: Well, when Labour forms the next government, perhaps we could have that bet
Anyway, given that student loans are already interest-free *while you’re studying*, it would already make sense under your logic for students who can afford to pay their fees and living costs out of their own money to get loans and chuck their own money in a savings account, and then pay the loan back on the day they graduate. Is there any evidence that this has happened since Labour introduced its interest write-off scheme in 1999? I don’t know the answer, I’m just asking… Becuase, by your logic, any students in a position to do this who hadn’t are “clinically insane”.
Presumably, if there hasn’t been a huge increase in the money borrowed since 1999, then the dangers you’re talking about aren’t actually all that likely. After all, if rich students wanted to be enterprising and make money off the student loan scheme, they’d already be doing so…
July 27th, 2005 at 10:57 am
David, how about forget the money and make a real wager? How about the loser creates a prominent link (the most prominent link on their website) to a dedicated page on their website whereby they make a public genuine apology (i.e. no “buts”, etc.) and grovel for forgiveness for making the mistake of being on the wrong side of the political spectrum?
July 27th, 2005 at 5:39 pm
That’s been my plan all along, Frog - pay my loan when I hand in my thesis with the money we’ve been saving and making interest on in the meantime. Still will, since we plan on heading overseas for a couple of years after that.
The other thing that noone has commented on much is that because of the student allowance scheme being extended to half of all students, that’s an added restriction on who can borrow and how much - it’s only possible to get combined living costs and allowance up to the weekly limit of $150. Obviously that won’t appease those who think students getting money at all is an almighty gip, but still…
I also think that because many students are going to want to go overseas regardless of the scheme, there’s an incentive there for people to pay off their loans faster than the minimum, before they head off. Maybe not many, but the incentive will exist for some.
And the blog is still playing up, which is how I come to be looking at older entries - postings are only showing up in the admin section, not on the front page.
July 28th, 2005 at 9:31 am
This is more economically irresponsible than Nationals student debt policy. With Debt anticipated to grow at faster rates than previously measured you very quickly see that a Universal Student allowance is the most fairest policy for lowering student debt. The Greens should be admonishing Labour for proposing this and pushing the Universal Student allowance.