Dialogue: Trust an old weapon for fight against unjust debt

The student loan scheme must be rendered inoperable so
the intergenerational fairness that once underpinned
society can resurface, writes DAVID STEVENSON.

The university students association report on burgeoning student debt highlighted the need for students to resort to the weapon relied on by other generations of New Zealanders to avoid social obligations.

That weapon is the family trust.

The Auditor-General, in a damning report last year, correctly labelled the student loan scheme a virtual bank. It then carried student loan debt of $3 billion, and that figure is projected to balloon to $20 billion by 2020. The objective for students must be to quite legally turn the virtual bank into an actual bankrupt.

On completion of their studies, graduates could use trusts and the whole raft of legal devices now associated with tax avoidance to avoid obligations under the loan scheme. Thus, they would never earn in their own names enough to trigger their repayment obligations.

In taking these steps, students and graduates would be escalating an intergenerational war that was not of their making. It is a war they must win if New Zealand is to be restored to a fair society based on a set of rights, obligations and values which span the generations.

The most damning part of the Auditor-General's report on the students loan scheme reads: "The Ministry of Education has conducted no research on the impact of student debt on life choices."

Let's consider the future of those who came straight to tertiary education from secondary school. After completing their studies and settling into a job, they face rejection when they apply for a housing loan because their student loan debt is too high. To quote the Auditor-General's report: "A survey of bank managers and loan officers by Otago University Students Association in 1999 showed that around half of the officers had denied people finance because of their student loan."

The path to reasonable prosperity and security in this country has always been through home ownership. Today's students may be denied this. They may never be out of debt; they may always be paying rent.

Regardless of whether they surmount this obstacle and get a house in their late 30s or early 40s, today's students will have to pay substantially more in tax to fund the baby-boom generation's superannuation and health care needs.

This is not just because of the high number of baby-boomers. It is also because those baby-boomers who have assets, and especially the well-off, have been scared by politicians into putting all of their assets into trusts.

When today's generation of students occupies senior positions in the health and welfare sectors, they will be confronted with people who live in a lovely home in Remuera, holiday overseas and drive a luxury car, presenting themselves as destitute when it comes to competing with the genuinely poor for health care and super.

The generation that blighted today's students' lives by selfishly opting out of paying for tertiary education are going to be on their knees beseeching their own student loan-burdened children to rescue them from their similar short-sightedness when it comes to paying for their health care and superannuation.

While today's students may relish the opportunity for exquisite revenge, it is important to identify who is to blame for the destruction of the social contract which existed between the generations for most of last century.

In fingering the culprits, we also provide the moral justification for students and graduates resorting to using trusts and other legal devices to bring down the student loan scheme.

For this part of the story we have to look not at the young end of the generational scale and the funding of tertiary education but at the other end and funding of super.

In the early and mid-1980s, good information was becoming available about the difficulties of funding superannuation for the baby-boomers when they started retiring early in the 21st century. The reaction of our politicians, across party lines, was not: How can we help New Zealand cope? It was: How can we save ourselves from the poverty in old age which awaits the mugs who vote for us?

The solution for our elected representatives was to unanimously pass, in six minutes one night in mid-1987, an extravagant super scheme for MPs which effectively immunised them from the fate in store for their constituents. In doing this they created a poison pill of selfishness which has leeched into every corner of society.

This foray into greed by the MPs sent a clear message to all New Zealanders that we are a help yourself, not a help each other, society.

Middle-class people, who until that time were not using trusts to any great extent, concluded that the only way to look after themselves was to barricade their assets behind family trusts.

It became as natural as night following day for the MPs to dupe the baby-boom generation into believing that it was perfectly all right and consequence-free to impose course fees and student loans on all future generations.

It was at this point that the MPs smashed the elegantly simple social contract whereby the working generation paid for the next generation's education, who, in turn, sustained that previously working generation in retirement.

The bulk of the responsibility for funding both education for the young and health care and superannuation for the old has, and in reality always will, rest with the current working generation.

How can students and graduates demonstrate to the politicians that they are serious about putting an end to the poisoned chalice which is the student loan scheme?

First, students' associations must create a common website accessible to all students and graduates. This website will not be called anything crass like a loan-buster but rather will have a prosaic name such as Website for the Welfare of Students and their Families. Under our law, trusts are not set up to avoid tax or other obligations but "for the welfare of families".

Loan-burdened graduates should chant this last phrase as a mantra because it is the mantra which is taking us to hell in a handcart as the various generations use trusts to withdraw from their social obligations while shrieking ever louder at the politicians for their entitlements.

On to the website would go standard trust documents and a how-to manual on setting up a trust along with all other known legal devices which avoid or minimise repayment obligations under the loan scheme. When downloading these documents, students and graduates should always chant the "welfare of families" mantra so as to cleanse their arrangements of any unworthy connotations of avoidance of loan obligations.

If enough students and graduates adopt the legal devices available or depart New Zealand within as little as three years, the viability of the loan scheme would be questioned.

The objective in taking these measures is to make the body-politic and the baby-boomers acknowledge that a society such as ours cannot work unless we have intergenerational fairness and an acceptance of the obligations this entails.

Quality education is the key to our economic prosperity. This, in turn, enables us to fund education for the young and superannuation and healthcare for the elderly.

This simple and elegant social formula worked well until the student loans scheme was introduced 10 years ago. We can and must make it work again.

* David Stevenson is a Wellington lawyer.