Editorial: Student loans should be for the successful

Students still studying late at night. Photo / Martin Sykes

Tertiary Education Minister Steven Joyce had barely opened the portfolio passed to him at the end of January before he floated a significant change. He proposes to make student loans conditional on the student's success. Living allowances available to students on age, income and residential criteria are not available to those who failed more than half their course the previous year. But loans are subject to no such test. From next year they could be.

And should be. The loan scheme attracts loud criticism from students' associations because unlike grants and allowances, loans must be paid back. They call the debt a burden when it is, in fact, a considerable benefit from the taxpayer. The loans carry no interest during the borrower's years of full-time study and repayments are not required until the recipient is earning an income.

When the scheme was introduced, it was intended to be a particular help to school leavers from low-income households who might not otherwise have been able to afford the course fees that were being raised at the same time. But the loans were subject to no income test and, in the usual way of these things, it was also taken up by better-off students and quickly became a contributor to a higher student living standard.

Indeed, once it was interest-free it would have been irrational for any student not to take it. They could earn interest on the money they would otherwise have used to pay course fees.

Little wonder, therefore, that Mr Joyce finds that 41.5 per cent of the money the Government is putting into tertiary education is going directly to students as allowances, loans and interest subsidies. The average for OECD countries is 17.6 per cent. He says he would like to transfer some of that money to universities to fund tuition for more students.

Since National promised at the last election to keep the loans interest-free, he needs to find another way to rein in their cost. Making them conditional on pass rates is an obvious and reasonable step. Concessional loans are a significant public investment in the student.

Fairness to the taxpayer requires that the value of each individual investment be kept under review. The performance condition should have been there from the outset of the scheme. Universities have welcomed the idea, understandably since it would increase their grants and give them greater control of the public investment. It is one more step back from the idea that the investment should follow the learning choices that students make. Not all institutions agree with Mr Joyce's wish to use the transferred funds to provide places for more students.

The University of Auckland would prefer increased tuition subsidies for present student numbers, arguing this would help it to compete with better-funded universities in Australia.

Auckland, the country's highest-rated university on some international measures, is right to put quality above quantity. The principle of "open entry", the idea that everyone has a right to attend university, has always been peculiar.

Higher education is expensive for the country and it would be reasonable to restrict it to school leavers who can pass an entrance test.

Mr Joyce should look beyond loan conditions and consider entry restrictions as he searches for the savings that all ministers are expected to produce from their portfolios for this year's telling Budget. Projected deficits and rising public debt have to be tackled this time. Nothing can be sacred, tertiary education is too costly to be an unemployment sump and too important. More public funds should be restricted to students who succeed.