Which jobs and why?


Andrew Little is musing over wiping student loan debts for graduates who take public service jobs in the regions.

“I don’t have any particular promise to make. We’re looking at ways that we can assist students to effectively write off at least a part of that student debt, through things like taking a public service job somewhere outside of one of the main centres and for the length of period that you’re there let’s look at a write-off sort of regime.”

Five pound Poms, the British immigrants who came to New Zealand on assisted passages after World War II had to work in public service jobs wherever they were sent.

That was a long time ago when the public service was much bigger than it is  now which raises the question of which jobs is Little thinking of?

The government already has a scheme where graduates get their student loan debts written off for working in the regions in both human and animal health, doctors, nurses and vets for example, some of which are public service, some of which are not.

The other obvious public sector placement would be teaching, but it could be harder to fill teaching positions in Auckland than in the regions.

These days there aren’t a lot of other public service positions available in the regions that are likely to attract graduates with or without a debt right-off.

Then we get to why more taxpayer money should go to help people who have had around 70% of the costs of their education paid for and interest-free loans providing they stay in New Zealand.

Khyaati Acharya explains how much students get:

. . . Arguments then, in favour of free tertiary education ignore two considerations. The first is that governments face resource constraints which limit how much funding can be allocated to the tertiary sector. The second is that while an educated population may provide wider economic and social benefits, the greatest benefits accrue to the individual who undertook the education in the form of increased earnings, a higher quality of life and reduced unemployment.

Under the current scheme, for every dollar the government lends through its student loan scheme (as at 2014) a mere 58.17 cents is treated as an asset. This means that 41.83 cents in every dollar lent to a student is written off as an expense – largely the cost of the zero-percent interest policy.

In short, the Government expects that less than 60% of each dollar lent will be recouped. The difference then must be funded from taxes. . . 

Excluding the public subsidy inherent in the interest-free student loan scheme, the average university student’s share of the direct cost of higher education fell from 32% in 2000 to 27% in 2010. The reduced cost proportion for students was largely the result of fee regulation policies, like tuition caps, which dictate to what maximum percentage tertiary education providers may increase their fees. But take into account the implicit subsidy provided through the interest-free student loan scheme, and on average, students paid 16% and government 84% towards the direct cost of tertiary education in 2010. . . 

A better educated population has public benefits but the private benefit is greater.

Universities New Zealand gives the top 10 reasons a degree is a smart investment: 

  1. The more educated you are the more you earn. 
  2. The more educated you are, the less likely it is you will be unemployed.
  3. A typical university graduate will earn around $1.6m more over their working life than a non-graduate- this is much higher for a medical doctor ($4m), professional engineers ($3m) and information technology graduates ($2m).
  4. Arts graduates earn around $1m to 1.3m more than a non-graduate.
  5. About 10% end up in jobs that, on the face of it, probably don’t need a degree.
  6. If money and job security are key motivations, then the worst choices at university are the creative or performing arts or studying philosophy and religious studies – but they earn well above the median for salary and wage earners and have low unemployment rates averaging only 2-5%.
  7. Taxpayers get their investment back – graduates typically pay back all the costs of their education plus another $200,000 over their working life.
  8. It takes an average of 7 years to pay off a student loan – the average balance on graduation is $14K.
  9. A degree pays off by the age of 33, where net additional earnings from a degree exceed the costs of getting a degree and the income lost while studying.
  10. If you are interested in university study, there isn’t really a bad option.  Follow your heart and the evidence says you are likely to end up personally and economically better off.

Averages are averages – some will earn much more and some won’t get a financial benefit from their education, some will have smaller loans and/or pay them off quickly, some will have bigger loans and/or pay them off slowly.

But a tertiary education does pay off for most people and the average loan on graduation is $14,000 which is paid off within seven years.

Expecting these better educated, higher earning people to pay off the loans they incur for a very small proportion of the cost of their education is not a big ask.

The people who will benefit most from the policy Little is musing on are those best equipped to help themselves.

There are far more pressing needs for money that will have a greater public benefit and/or help those who are less able to help themselves.

Don’t need the government to tell you


Stephen Balme, is begging – please government tax me more:

I’m writing here today with a most unusual of requests: Can those in charge please charge me more tax? . . .

We didn’t have much in the way of direct tax cuts this budget, but we did have them earlier on during what was frequently referred to as a global financial crisis.

So, please, charge me more tax.

Who am I to make such a bold, selfless declaration?

I’m a male. I’m 28. I rent. I have a car. I have been in the workforce for three years. Prior to that I attended Otago University where I earned two degrees and a student loan of $37,000.

And finally we get to the crux of my submission.

When I graduated university, my income more than tripled over the money provided to me by my weekly student loan payments, but expenses remained exactly the same.

I have no family to support, very few bills to pay, and ultimately am in a golden age of disposable income that cannot possibly last.

This comfortable life I currently have is only made possible through the generosity of a student loan.

So, please, please start charging interest on my loan.

It’s basic economics to see that the longer I drag out my repayments the less the loan costs in real world terms (thank you inflation).

It seems fairly clear to me that this is an unsustainable cost. You could charge a set fee every year so the mental picture of free money in the eyes of new students is gone.

Adding interest at the rate of inflation is just too obvious to bother discussing all the pros, but once again, I would be willing to pay more than that to assist the future. . .

Interest-free student loans do provide an incentive for people to pay them off no faster than the minimum required, but there is no upper limit on the amount anyone can pay off a student loan.

He could pay his off much faster, he could pay it all off at once if he had enough money.

What’s stopping him?

He doesn’t need to wait for the government to take more from him.


Student loan repayments up 11%


The latest Student Loan Scheme annual report shows an 11 per cent increase in repayments and a decrease in the overall cost of the scheme, Tertiary Education, Skills and Employment Minister Steven Joyce says.

“The Government remains committed to interest-free student loans, but it is important the scheme is affordable for students and taxpayers, and sustainable for the country,” Mr Joyce says.

“The write-down on student loan lending reached 47 cents for each dollar lent in 2008/2009. We have now reduced that to 39 cents in the dollar, and are working to reduce the cost further.

“The Government has been getting more young people through higher levels of tertiary education, and student loans are a key means to help with that goal. Our recent policy changes have focussed student loans more on people who are likely to achieve qualifications and then earn enough to pay back their loan in a reasonable time.”

“While we have seen some success in reducing the cost of the student loan scheme to taxpayers, it still remains high. The Government is working to improve the compliance of overseas based borrowers, and that initiative together with policy changes made in Budget 2012 will both tighten lending criteria and increase the speed of repayments.

Labour’s 2005 election bribe was expensive enough, that it did little or nothing to ensure people repaid their loans made it worse.

Every dollar not repaid by those who owe it is a dollar more the country has to borrow and a dollar further away from a return to surplus.

The report’s findings include:

  • The cost of lending has fallen 17.5% over the last three years. The cost fell from 47 cents per dollar in the 2009 valuation, to 39 cents per dollar in the current year.
  • Repayments increased by 11% to $767 million in 2011/2012
  • The median repayment time is 6.7 years and it reduces to 5.5 years for those who remain in New Zealand until repayment
  • The valuation of the loan scheme increased by $286 million in 2011/2012
  • The loans uptake rate by students was 74%, up from 73% in 2010/2011
  • Inland Revenue is chasing borrowers overseas who aren’t meeting their repayment obligations. So far, they have gained $19.4 million, which is $12 for each dollar spent on the project.

The full report is here.

Loans not interest-free for people overseas


One of the criticisms of the government’s determination to have graduates repay student loans a little bit faster is that it will give them another incentive to go overseas.

But Tertiary Education Minister Steven Joyce points out the flaw in that argument:

. . .  the ones that go overseas pay interest on their loans, Paul.  The moment they leave, they’re paying interest on their loans, so that’s actually yeah, it’s actually a disincentive for people to go overseas, because if you go overseas, you’re paying interest on your loans and it accumulates while you’re overseas.  If you stay in New Zealand, you can pay it off under the system.  Yes, it will cost a little bit more, but they’ll pay it off on average four to five months faster and well get the money back for loans, and meanwhile were chasing those overseas, which the previous government dismissed as a too-hard approach.  They said, Oh, if they go overseas, well catch them when they come back. . .

The loans are only interest-free while the borrower is in New Zealand. Going overseas might – and might is the operative word – enable some people to earn more than they can here, but that is less attractive when compounding interest on student loans is taken into account.

The video of the interview is here.

Bad policy good politics


The 2005 election was very, very expensive.

Helen Clark threw everything she could at it including large amounts of public money.

Graphs of government spending tell the story – a slight increase from 1999 to 2005 then a steep incline from 2005.

Among the expensive 2005 election bribes was interest-free student loans which, as John Key says was good politics (in the sense that this policy helped Labour wint he election) but bad policy.

He said the scheme was politically popular, even if it “may not be great economics”.

“That is about the only thing that will get [students] out of bed before 7 o’clock at night to vote, but it’s not politically sustainable to put interest back on student loans. It may not be great economics, but it’s great politics.

“It is a bit of a tragedy because it sends the wrong message to young people, it tells them to go out and borrow debt.”

It’s not just students who voted for the policy, a lot of their parents and grandparents did too.

Once people have been given something like this it’s very difficult to take it away.

The only way to make a sustainable change to the policy would be with cross-party support and that is unlikely.

The government is making a much more concerted effort to get money back from people who have gone overseas and perhaps the publication of graduate incomes might make some students think before they incur large debts.

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