Student loan policy 'bad for universities'

Student debt is an emotive issue and Labour's loan policy has been backed by students - but not academics. File Picture / Mark Mitchell

Some academics have warned that Labour's plans to drop interest on student loans could damage universities.

Prime Minister Helen Clark announced yesterday that interest on student loans held by borrowers living in New Zealand would be wiped from April 1 next year.

About 460,000 students owe a total $7 billion at an average $14,800.

But Auckland University vice-chancellor Stuart McCutcheon said New Zealand was out of step with other developed countries, and was spending heavily on student financial aid.

The Government estimates that wiping debt will eventually cost it about $300 million a year, and Prof McCutcheon said what was needed was a $300 million boost for tuition subsidies.

"I think it is reasonable to anticipate that a decision of this kind is likely to limit the ability, or the willingness, of the Government to invest in tuition," he said.

Jonathan Boston, a professor at Victoria University who helped design the loan scheme when it was introduced, also disagreed with the Government's decision.

"An extra $300 million has been allocated to the tertiary sector, and they've decided to give it to former students to reduce debt rather than increase the subsidy rate to improve education provision," he said.

"It would have been better to have done the latter."

Helen Clark said it would slash repayment times and strike a blow to the brain drain of New Zealand graduates heading abroad.

Labour's policy goes much further than National's promise last week to partially write off interest for graduates working in New Zealand.

National education spokesman Bill English said Labour's scheme was an unprecedented election bribe that would "push student debt through the roof".

Whereas National's scheme provided tax relief for hard work, there was no such incentive in Labour's policy.

"The idea of an interest-free loan will be too much for most students and many parents to resist. This policy will see the country's debt burden skyrocket."

There was a case for doing something to help students but Labour's policy was "irresponsible".

Education Minister Trevor Mallard said the Government was budgeting on student debt rising by around $300m to $400m in the short term but said student debt will be paid off more quickly under its plan.

Under the new policy, the average repayment time was expected to be about seven years, Mr Mallard said, compared with nine years now.

- NZPA