NZ student support most generous in OECD

May 2, 2012

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.

No surprises Budget

May 19, 2011

Jane Clifton wrote in her column in The Listener:

“It has been a couple of decades since any Budget truly surprised anyone. All the measures are carefully explained in advance – as they should be – and only the fiscal details, again, containing few surprises are kept secret .  . . by Budget day, there are only two questions of any real novelty: what colour tie will the Finance Minister wear and will there be sausage rolls?”

She got it right. Today’s  Budget held few surprises – increased spending for education and health, necessary support for Canterbury earthquake recovery, much needed, but pretty restrained, changes to Kiwisaver, student loans and Working for Families, some partial sale of assets . . .

There was no sign of the usual election-year lolly scramble but there was good news. The Budget will return to surplus in 2014/15 – a year sooner than forecast in December.

This is a significant achievement given the impact of February’s earthquake since the forecast was made. We’ll all benefit from the reduced need for Government borrowing and the lift in national savings.

We’ll also benefit from the escape from a credit rating downgrade:

Standard&Poor’s has made no change to New Zealand’s credit rating and says the Government must achieve its fiscal targets for its external position to improve.

Last November the credit rating company placed the outlook for New Zealand’s AA plus rating on a negative outlook.

Today it said that the contents of the Government’s 2012 budget were “consistent with the assumptions that feed into our sovereign ratings on New Zealand”.

Finance Minister Bill English said:

Budget 2011 builds a strong platform for jobs and growth, sets a credible path back to surplus by 2014/15 and helps increase national savings . . .

“This is a responsible and balanced budget for the times,” Mr English says. “It ensures New Zealand will build faster growth based on savings and exports, so New Zealanders have the jobs and higher incomes they deserve.”

It will not surprise regular readers that I agree with that.

As for the tie – I couldn’t see it on the radio and I don’t know whether there were sausage  rolls.

No broken promises

May 11, 2011

Labour has been trying to say that National will be breaking the promises it made about Kiwisaver, student loans and Working for Families.

Those promises applied to this term.

John Key’s pre-Budget speech makes it clear any changes will not take place until after the election.  People will be able to take the proposed changes into account when deciding whether or not they give National a second term.

Mr Key said the Budget will contain changes to KiwiSaver, Working for Families and interest-free student loans – programmes which collectively cost almost $5 billion a year.

“These programmes were introduced during a debt and consumption-driven economic bubble, and it is clear that they are unaffordable,” Mr Key said.

“None of the changes we will be making will affect people before the election so New Zealanders will be voting with all the information they need and can make their own choices.”

The Government intends to reduce the amount of money it has to borrow from overseas to put into KiwiSaver, and increase the amount of genuine savings from the private sector.

It makes no sense for the government to borrow to help other people save nor to help those who could and should be looking after themselves.

Mr Key said Working for Families will also be better targeted at lower-income families, who have a much greater need for assistance, and a little less generous to families higher up the Working for Families scale.

“We will do this gradually, in a way that minimises the impact on families,” Mr Key said.

The student loan scheme will also be adjusted but will remain interest-free.

“The changes we are making in the Budget will make all of these programmes more affordable and ensure they survive into the future,” Mr Key said.

WFF should never have been given to upper income families. A three year repayment holiday on student loans for people who go overseas was also far too generous.

There was no justification for welfare for wealthy people when the government’s books were in surplus and there is even less for it now they’re in deficit.

It will be very interesting to see how opposition parties react to this. It won’t be easy to convince people that borrowing to give money to wealthy families and people who’ve left the country is a good idea.

The full speech is here.

They’re loans not gifts

April 18, 2011

Student loans might be interest free while studying and for those who stay in New Zealand afterwards but they’re not gifts.

They are required to be repaid and, for those who go overseas, with interest.

Tightening up the rules around who gets a loan, how much they can claim and the requirement to repay it is long over due.

People who with overdue fines are stopped at the border if they try to leave the country. There would be an uproar if people with student loans were treated that way but when the 15% of those with loans are overseas and owe 55% of the debt they are an obvious target for tighter rules.

Suggestions by Tertiary Minister Steven Joyce are reasonable. Giving those who’ve had loans and go overseas a three year holiday before they’re required to start repayments is far too generous:

. . . we have this thing called the three-year repayment holiday right now, which the previous government started, which seems to have been a pragmatic decision that they made that they weren’t collecting it anyway, so let’s pretend that we won’t collect it. I’m concerned about that. I think it sends the wrong message that somebody can sit overseas for three years and not make any commitment at all towards repayment. Now, when you go on your OE, perhaps you go six months or a year without getting an income, but, actually, once you’re over there for about a year, you’ve got to be living on something, and we’re thinking that we might change the length of that repayment holiday. . .

. . . Everybody who goes overseas automatically gets it, and I’m thinking maybe we’ll look at something like an application requiring them to leave a contact in New Zealand, for example, and actually limiting the period of time to a lot less than three years.

 Using debt collection agencies and recalling the whole loan if people ignore requests to make repayments; and allowing people over 55 to take loans for fees but not living costs is also sensible.

Interest-free student loans was an election bribe before the 2005 election. It was one of the dead rats National swallowed during the 2008 campaign.

Swallowing it doesn’t mean the government can’t tighten the rules to make it a bit easier to digest.

These changes will do that, saving money without imposing unreasonable costs on graduates.

Shock horror – students forced home to work

January 3, 2011

TV3 reports Cost of living forces some Auckland students home for summer:

University students are supposed to be on holiday, but instead of taking a break, many are being forced to move home and find extra work to save money for the new academic year.

Supposed to be on holiday? Being forced to move home and find extra work?

Back in the late  1970s when my generation was supposedly getting a “free” education that was normal.

We finished exams in November, found jobs and worked until early to mid February when we returned to university. We didn’t feel entitled to three months holiday and we didn’t see it as being “forced” to work. It’s just what we did to ensure we had enough money to live on while we were studying because while we paid little in fees we still had rent, food, books and other expenses.

We also regarded it as part of our education. We learned new skills, gained an appreciation of what other people have to do for a living and motivation to study so we didn’t have to do those sorts of jobs for ever.

At least one of today’s students doesn’t understand that. Med student James Shand says:

“I’ve got friends in Dunedin who’re paying $100 a week, and we’re paying literally $60 a week more than that,” James says. “And that’s eating up our entire student loan, which they’ve got money to buy food, and travel expenses, and stuff.

The weekly difference sounds big but the annual one isn’t nearly as great. Almost all Dunedin flats are rented for 12 months. Most students come from out of town and go home or elsewhere to work for the summer but still have to keep paying rent while their flats are unoccupied. They can’t, as Auckland students can, give up their flats for three months.

“For us, we literally have to have jobs over summer just to try and sustain us throughout the year, whereas they can sort of get by without that.”

Student loans are supposed to help people while they’re studying. They are not supposed to allow them to stop taking responsibility for their own finances.

Money earned from holiday work can be used to reduce the amount students need to borrow.  Or, if they use the incentive to borrow the maximum which the interest-free loan provides, they can invest what they earn and use it to help repay the loan faster when they graduate.

Fortunately for the future of the country the attitude of the student quoted isn’t universal.

We spent last evening with students whose work ethic was obvious. They all had holiday jobs, accepted them as a normal part of student life and as something to add to their CVs to make them more employable when they are looking for work when they have completed their studies.

A tale of two students

October 21, 2010

Their parents agreed to pay for their accommodation and fees when they went to university.

Both chose to also borrow the maximum available under the student loan scheme.

She finished her first year with nothing left over. He finished his first year with * several thousand dollars in the bank.

This post was prompted by A lifetime of debt? at Kiwiblog.

When student politicians complain about fees and other costs of tertiary education and the burden of student loans, they always assume that everybody has to borrow the maximum amount available to enable them to study.

They don’t. Some get parental help, some win scholarships, some get additional allowances from the state.

Most have the choice of working before they start study, during holidays and at least part time while they’re studying to reduce the amount they have to borrow.

The example I’ve given also shows they have some choice over how much they spend.

* I’ve said “several thousand dollars” because I can’t remember the exact number but it was definitely more than a couple.

Someone has to pay for free money

May 6, 2010

Interest free student loans are interest free to the student but they come at considerable cost to taxpayers.

In spite of that the suggestion that students pay a $50 administration fee has already been met with howls of anguish from the usual suspects who think we don’t do enough.


“If we take into account student allowances and the student loans we lend to students to pay for fees and living costs, we spend a total of 42% of our total tertiary budget on student support,” says Tertiary Education Minister Steven Joyce.

In comparison, Australia spends about 31% of its tertiary budget that way and the OECD average is 19%.

Mr Joyce says a big reason is the way we handle our student loans. 

“Taxpayers are currently writing off about 47 cents in every dollar that is advanced on a student loan.  We remain committed to interest-free student loans but we are looking at a number of things at the margin that will promote equity and fairness between students and taxpayers.“They won’t change the world but they will give us more funds to do more in the tertiary sector.  Final decisions will be detailed in the Budget later this month.”

Student leaders and others who complain about the government not helping students enough can’t realise that we’re spending more than twice the OECD average on student support.

Most students will be taxpayers, many already are. The more they get as students the greater the burden they’re faced with as taxpayers.

All of us would be better served if  tertiary funding was rebalanced to provide more for improving the quality of education rather than the quantity of student support.

Requiring students who have loans to make a token payment towards the cost of them would be a good start.

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