Dialogue: Students are the asset, not the loan scheme

KANE STANFORD* says the Government will have to take more drastic action if it hopes to reduce student loan debt significantly.

The student loan scheme introduced in 1992 has grown to massive proportions. It is expected to reach $4 billion this year and increase by a billion dollars a year for the next 15 years, becoming, in the words of a recent Government report on the scheme, a significant Government asset.

The solution to this growing problem is simple. The Government must introduce policies to stop students getting into debt and introduce policies to help make student loan repayments easier.

While the introduction of the fee stabilisation and interest writeoff schemes is a welcome relief to both students and low-income graduates, these policies are at best a stop-gap measure if the Government is to have any hope of significantly reducing student-loan debt.

The interest writeoff scheme has, in fact, the potential to further increase student-loan debt. Debt that students borrowed from banks and parents, which would have been hidden debt under the old scheme, will now be borrowed from the state scheme because of the interest writeoff.

Furthermore, the fee stabilisation policy holds fees only at their year 2000 level. That means Auckland University students who cannot afford to pay tuition fees of between $3400 and $10,000 will again be forced to borrow.

There is also no guarantee that universities will freeze fees for 2002, especially when, on present domestic inflation and cost-increase projections, the university expects to be out of pocket by at least $4 million this year.

The Government must introduce significant tuition fee reductions, as well as discounts for payments upfront, if it is to have any hope of reducing the amount and number of people borrowing to finance their education.

However, one of the main reasons that student-loan debt is growing rapidly is a lack of access to student allowances. This has not been addressed by the Government for most students.

At present, single students under 25 are subject to a joint parental income means test unless the student gets married or is estranged from his or her parents. The stringent criteria for qualifying for an allowance mean that only a quarter of the 27,000 students at the University of Auckland qualify, yet the most significant cost that students face is living costs.

Students who do qualify for an allowance are also penalised through a low rate of abatement, a problem further compounded by the rate being calculated on weekly earnings rather than on the amount the student earns over the academic year.

Yet these earnings are vital to any student who does qualify for an allowance. A study done on the economic implications of tertiary fee rises for the University of Auckland Council found that students living away from home have to cover a shortfall between actual expenditure and the income of allowance of more than $2500 annually.

The allowance also has a time limit of 200 weeks of study, which discourages workers from lifting their skills or present students from pursuing postgraduate qualifications.

But if New Zealand is to become a knowledge-based society, any student-support scheme should have a commitment to the notion of lifelong learning, rather than penalising people with further debt for lifting skills or doing postgraduate work.

There are also very few equity funds or scholarships financed by the Government to support programmes of assistance to under-represented groups of students with the potential to succeed.

In the area of repayment of student debt, recent policy developments, such as the interest writeoff scheme for low-income earners and changes to the repayment of loans, which mean that half of compulsory repayments are taken off the principal loan rather than just servicing interest, will reduce the debt burden facing graduates.

However, other steps, such as incentives for early voluntary repayments, which operate under the Australian higher education contribution scheme, would also help those who can afford it.

But the biggest problem new graduates face is the high effective marginal tax rate caused by the compulsory repayment rate of student loans. This is charged at 10 per cent on any income earned over $15,000.

There is also no deferral of loan repayment in case of hardship or any provision for remission of debt unless a graduate declares bankruptcy or dies.

Thus, the staffing crisis emerging in New Zealand's hospitals and schools will continue unless ways are found to reward graduates who stay here. This could be done through a remission of debt for a certain amount of service done by graduates in hard-to-staff areas or wage and salary increases.

Yet the big question remains: how do we pay? Compared with other Western countries, New Zealand has neither the tax policies nor a culture to support large philanthropic donations to universities. Another option is to limit the number of places that the Government funds in tertiary institutions. This would increase the amount of funding per student without having to increase overall funding. However, it would mean that New Zealand would be left out in the knowledge revolution.

The third option is to follow the example of many other countries and reinvest massively in tertiary education. After all, it is not the student loan scheme that is a significant Government asset, but the thousands of people who owe the scheme money.

* Kane Stanford is president of the Auckland University Students Association.