Norman LaRocque: Student support is already generous

The Government's recent announcement that it would scrap interest payments from April next year and widen access to student allowances is is part of a broader trend among New Zealand political parties to dumb down the student loan scheme and student support policy.

As the Herald noted last week, the extent of the student debt "problem" is much overstated.

Much of the discussion of tertiary tuition fees and student loans in recent years could be more fairly described as hype than rigorous analysis.

Tuition fees have many advantages and reflect the high private benefits associated with obtaining a tertiary qualification.

None of the common criticisms of the student loan scheme - size of debt outstanding, its impact on migration, the sustainability of the scheme or its effect on tertiary participation - have been supported by hard evidence.

The so-called brain drain is often cited, but a Ministry of Education report this year said that fewer than 5 per cent of all those who have used the scheme were recorded as overseas last year.

The report said there was no evidence of large numbers of New Zealanders leaving the country to avoid repaying student loan debt.

The Government's proposed scrapping of interest payments for students living in New Zealand is unjustified, given that the loan scheme is, and has always been, one of the world's most generous: The scheme provides assistance to cover fees, living costs and other expenses.

The "posted" interest rate, at 7 per cent, is already far below bank rates for unsecured borrowing. The effective interest rate is less than half that level because of existing interest write-offs.

Students do not pay interest while they are studying - any interest that accrues during this period is written off.

Some interest is written off for those who do not earn enough (around $16,000) in any given year.

The scheme is the envy of farmers, small business people and entrepreneurs, who face far more risk in their investments, yet cannot access money on such generous terms. If they can't pay their loans, they get a visit from the bank, not an IRD notice that their interest has been written off.

The student loan scheme has helped to lift tertiary education participation and open up opportunities for a broader range of New Zealanders, and tertiary education participation has risen across the board since it was introduced.

Evidence worldwide suggests that low fees do not necessarily generate high access.

OECD data shows that in the six countries with the lowest entry rates to tertiary-type A (higher level) education in 1999, private sources of tertiary educational spending was low. Countries with higher private contributions had higher participation.

Student loan uptake is increasing in Australia as students take advantage of the new loan scheme there. Enrolments at 31 Australian private colleges and universities have risen 10 per cent this year as the scheme has opened up more opportunities for choice about where to study.

The Government's proposed changes will do nothing to lift quality in the tertiary education sector, nor will it pay good staff more, help build New Zealand's research base or encourage more on-the-job training.

The estimated $300 million annual cost for the change to the loan scheme (at maturity) will mean less money for other priority areas, including schools, hospitals, police and tax cuts.

The proposed changes will, for the most part, benefit students from middle-class families and will do little to widen opportunities for students from disadvantaged backgrounds. How will the scrapping of interest for some graduates help the 30 per cent or so of Maori students who leave school with no qualification?

The Government argues that scrapping interest on loans will massively reduce repayment times. While it will reduce the interest build-up for students, some of this will be offset as more students are likely to borrow (and borrow more), given that it is free money to them.

Graduates will also have little incentive to make voluntary repayments under the loan scheme, a significant issue given that some 46 per cent of repayments since the scheme began have come directly from borrowers, rather than employers' compulsory deductions.

The change does not appear to be in line with the public's interests. A recent Herald poll found that only 1.2 per cent of survey respondents saw the student loan issue as the most important election issue, placing it 12th among 17 - well behind health (18.8 per cent), tax cuts (14.9 per cent) and education (14.7 per cent).

Instead of focusing on making an already generous student support system even more generous, political parties should focus on advancing the national interest through the promotion of policies that will expand opportunity for everyone, especially those who are most disadvantaged.

Policies aimed at improving school outcomes, along with flexible tertiary fees, more market-oriented loans and grants targeted at disadvantaged students, offer a better prescription for doing this than current political party offerings.

* Norman LaRocque is the policy adviser to the Education Forum.