NZ student support most generous in OECD

The government is committed to spending in priority areas. Doing that without an overall increase in spending means a reprioritising of some funds.

One of these is support for students:

The Government remains committed to keeping  student loans interest free but we are also determined to reduce the  cost of the overall loan scheme to taxpayers.

The scheme is very large, and not so long ago the Government was effectively writing off 49 cents of every dollar that was lent.

With previous changes we’ve made, we’ve so far managed to bring that down to 45 cents.

And we intend to get it closer to 40 cents in the future by continuing to  chase overseas borrowers and through the faster repayment of loans once  people have finished their study.

As in previous Budgets, some of  the savings we make will be reinvested in improving teaching and  research within our universities and other tertiary institutions for the next generation of students.

A write off of nearly 50% on loans is unsustainable. It is also unfair to graduates who do repay their loans, to taxpayers who pay the cost and to others whose need of public support is greater.

Chasing overseas defaulters and expecting faster repayments is sensible and moderate, though the New Zealand University Students Association doesn’t think so:

“Increasing the repayment rate is a tax increase for the 500,000 New Zealanders who have student loans. Student loan repayments are a tax, since they are collected by IRD, straight out of your pay, just the same as PAYE. It’s outrageous that graduates should have to pay higher taxes to pay for a budget short-fall which has been caused by the tax-cuts that the National government gave to high income earners,” said Pete Hodkinson, president of the New Zealand Union of Students’ Associations.

Good grief – if that’s the standard of logic and economic understanding of students, the very generous taxpayer support for students is being wasted.

And generous it is – the PM gave the numbers at the Mainland Conference on Sunday and if memory serves me correctly, about 40% of tertiary funding goes in student support, more than twice that in Australia.

What NZUSA doesn’t appear to understand is the money students borrow without interest is money the government has borrowed – with interest. The more that is borrowed, the more that will have to be repaid – with interest, from tax.

NZUSA would be the first to complain if the government didn’t invest enough in teaching and research.

If there is no increase in overall spending, any increase in one area must come from savings in another and expecting graduates to repay their loans a little faster is fair and reasonable.

5 Responses to NZ student support most generous in OECD

  1. Roger Barton says:

    The messages on student loans have been too slow to change.
    No interest charged on student loans has been an apalling policy for NZ’s oldest teenagers to learn about financial management.
    Our 4 children (youngest just started at Otago) have all entered the fray with loans because it has been prudent to do so. They have also made a real committment to paying debt off when the time arose. Key and Co have signalled a fair change. I would have taken it further!

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  2. Alistair Shaw says:

    You’re falling into a trap of believing lies just because they’re spoken. The right-off of loans is not because people don’t pay them but because they take time to pay, and the problem really is (1) low wages in NZ (and poor returns to tertiary education – amongst the worst in the OECD) and (2) 15% of borrowers living overseas. NZUSA has consistently said that those who borrow should understand their obligation and should pay back their loans. It’s unfair that those in NZ have had their repayment rates racked up – to the highest of any income-contingent loans scheme – because some don’t pay at all.
    We know by comparing rates that NZ student support is nothing like the most generous in the OECD. The measure seems to be that student allowances are tertiary expenditure in NZ, while youth allowances, that Australians get, are benefit payments to young people and are identified as welfare spending not tertiary spending. It seems to be the same in the UK.
    In fact the most recent OECD report shows that at 37.5% of the total cost, NZ students contribute the fourth greatest percentage of the total cost of their education in OECD, the 62.5% paid by the government is 19th/27.

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  3. homepaddock says:

    Alistair – Most other countries impose interest on student loans. Giving them interest-free increases the benefit to students and cost to taxpayers.

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  4. JC says:

    http://www.educationcounts.govt.nz/publications/series/2555/58406/4

    Scroll down to table 2 to expose the BS put out by students.

    JC

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  5. homepaddock says:

    Thanks JC.

    The table shows:
    Table 2 Distribution of government spending on tertiary education in 2006:

    New Zealand

    Institutions: 58% Student loans: 30% Scholarships/other grants: 12%

    OECD average

    Institutions:81% Student loans: 9% Scholarships/other grants10%

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