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Student loan scheme 'very generous and not a barrier' University students protested this month against tuition fees and loans saying total debt had reached $10 billion, but research shows the student loan scheme to be very generous and not a barrier, the Education Forum argues. In a speech to a Hamilton Rotary club this month, Education Forum policy advisor Norman LaRocque said recent television footage showed students protesting theatrically over tuition fees in makeshift soup kitchens and cardboard box 'cities', but international evidence suggested increasing fees did not hinder access and was a good way to improve education quality. Mr LaRocque said OECD data showed that New Zealand and Australia had a combination of ‘high’ tuition fees and significant public subsidies and also had among the highest entry rates into tertiary ‘Type A’ (advanced) education. The United States, Netherlands and United Kingdom had similar fee/subsidy combinations and were also around or above the OECD average for entry rates into tertiary 'Type A' education. "While significant tuition fees on their own might deter access to tertiary education, the combination of tuition fees and significant public subsidies – as exists in New Zealand – does not. "Indeed, the government introduced interest-free student loans in 2000 and then extended it in 2006, and the data now show more students taking on loans," Mr LaRocque said. He said the number of borrowers under the scheme rose by 8.4 percent and the value of loans outstanding – the so-called ‘debt mountain’ – grew by nearly 12 percent between 2005 and 2006. This occurred despite a decline in the number of government-funded students, as more students took out bigger loans to take advantage of the lack of interest. "The 'two-step' abolition of student loan interest has been a policy failure, if a political success story," Mr LaRocque said. Drop in loan repayments The abolition of interest had led to a sizeable drop in loan repayments made directly by students, dropping sharply from $239 million in 2004/05 to $173 million 2005/06 and $142 million in 2006/07. Moves to make the student loan scheme more generous had significantly lifted the 'economic cost' – loan write-offs, doubtful debts and the timing of repayments – of the loan scheme to the government, Mr LaRocque said.
Borrower repayments and borrower repayments as a proportion
of total repayments, 1993–2007. High student support According to a 2006 New Zealand Vice Chancellors' Committee report, New Zealand stood out compared with other countries in terms of the proportion of the tertiary education budget spent on student support:
Share of tertiary education budget spent on student support, various countries, 2002. The committee estimated that the New Zealand figure was likely to rise to 55 percent because of interest free student loans. Loan scheme comprehensive and generous "The student loan scheme is both comprehensive and generous and would be the envy of any entrepreneur borrowing funds to finance an investment," Mr LaRocque said. He said the scheme was generous to students because:
Economic cost on the rise Throughout the 1990s, the economic cost of the scheme was estimated at around 10 cents per dollar of loans drawn down. The decision in 2000 to write off the interest of students who were studying led to a more than doubling of the economic cost of the scheme – to an estimated 23 cents per loan dollar drawn down. The 2006 'interest-free' policy change will have increased this significantly. According to the Treasury, student loan interest-write-offs totalled $558 million in 2006/07, up from just $20 million in 1999/00. Money spent on student loans was money that could have been available to finance other government priorities – including building New Zealand's research base, financing quality improvements and attracting and retaining top flight academic staff, Mr LaRocque said. Mr LaRocque's speech is online as a PDF document. A New Zealand Herald story on the student protests is at this web page. |
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