Interest free loans too expensive

Otago University Vice Chancellor Sir David Skegg wants the government to consider charging a little bit of interest on student loans.

Otago University was in the same situation as others in New Zealand. It was doing everything it could to increase income and balance the books to avoid staff redundancies, Prof Skegg told a university council meeting yesterday.

“These are testing times for universities. What I am saying is perhaps a little bit of interest [should be added] to student loans… so the Government can fund universities more and we can keep our tuition fees down.

If the question is, what is the best use of public funds for tertiary education?,  interest free student loans aren’t the answer.

They’re too expensive for the taxpayer and they fund a greater quantity of students rather than a better quality education.

They also make education more expensive. Money spent on interest free loans is money not available for funding universities which, as Otago did yesterday,  have to increase fees and levies. That means students then have to borrow more.

That’s not good for them as individuals and it’s not good for us as a country.

There is no such thing as free education.

I was one of the generation who paid almost nothing for my university studies but tax rates were up to 66% to fund that largesse.

Students forget most of them are at university or polytech for only three or four years and spend the rest of their lives paying tax.

They, and the rest of us, would be better off if they received less while they’re students and paid less tax when they graduate.

They’d also get a better education because at least some of the money which now goes to interest-free loans could be spent on improving the teaching.

Bonding graduates rather than indiscriminately funding students would be much better use of  scarce public funds.

That way money would go to people who graduate and stay here to work, not just anyone who starts studying at a tertiary institution who may or may not complete their studies and may or may not work in New Zealand when they graduate.

It might also do something to correct the imbalance we now have with many more graduates in media and communications than in agricultural science. More of the latter would be much mroe likely to add to economic growth which in turn would make more money available for education.

4 Responses to Interest free loans too expensive

  1. murrayg1 says:

    You’re right about needing more in the sciences – I’d take them from economics – it’s run it’s course now (pun intended). Which undermines your first comments – Business as usual is gone now – won’t ever (can’t ever) manage another ‘doubling time’, so the ability to repay debt has gone too.
    Hard to grasp, I know, but those of us who thought about it (rather than just assuming that things would go on forever) got to figuring what would happen beyond the Hubbert peak of things – and particularly of energy.
    We could only see a fiat collapse, and a general debt forgiveness (whether agreed/voluntary or via collapse is immaterial).
    With not enough physical material left to underwrite the fiat wealth ALREADY out there, there will be no underwriting of extra.
    I’m not sure that some folk will ever undestand this….even when it crashes around their ears, they’ll blame the bankers, or Aunty Helen, or those Greenies….
    Meantime, those students have to be equipped for their future, not for our past. I don’t mind paying for that – my generation had a pretty good ride, and left them a mess.


  2. dave says:

    Otago is not in the same situation as Massey, for example. Most of its students are extramual students. Imagine if Massey was to charge a $50 fee purely because the university was unable to increase tuition fees beyond the level allowed by legislation – to maintain buildings they don’t use.

    As far as I`m aware no Otago students study extramurally.

    Also, I very much doubt this fee would be waived if interest was introduced, as it would only open up more money once the interest was repaid, so Cleggs argument is pretty weak.

    Finally the quality of the teaching is to do with the lecturers and tutors, not the money they get.

    Perhaps a better idea would be to charge interest on those who enter degrees and post graduate courses and do not graduate.


  3. scrubone says:

    Otago does have extramural students, several papers are offered over the internet in various subjects.

    I always wondered at the old anti-debt slogan, “Tax me but leave my children debt free”.

    Because that’s exactly the result of the loans system – it stopped the government debt that was passed onto the next generation, by adding what amounted to a tax on one’s wages.


  4. murrayg1 says:

    But we had the resources – per-head and ultimate – to pay with.

    They won’t, and our physical debt doesn’t appear on the balance sheet.


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