Editorial: No need for concern at student debt

The estimated debt of the student loan scheme hit $7 billion this week, a milestone that brought another round of barracking from the national students' association. "It is a horrific amount, threatening our society and economy," said co-president Fleur Fitzsimons. "We think it is unfair that students are the only section of society who must borrow to live." The last statement is not strictly true. All sorts of people who invest in their own efforts must live on borrowed money until their business begins to earn a regular income.

Often the investment takes years of concentrated effort before it turns a profit and it can take many years more to pay back the borrowings. Young people entering tertiary education are more fortunate than most. A dedicated loan scheme enables them to borrow against their future earnings on terms that any other investor would envy.

Student loans carry no repayment obligations until the borrower is receiving an income of at least $16,173 a year. It is, in other words, a personal enterprise that does not have to meet its establishment costs unless and until it begins to generate a profit. Furthermore, these loans carry no interest while the borrower is studying. Part-time students can earn up to $26,140 a year and still borrow at no interest during their years of study.

It is only when the borrower has completed tertiary education, and is presumably putting its fruits to work, that interest is charged at 7 per cent a year. Repayments are deducted by Inland Revenue as a small proportion of income over the $16,173 threshold. The repayment rate is so gentle that some former students are paying only the interest, making no dent in their debt. This is a cause of concern to them, as it might be to taxpayers who provide the loans.

But in truth the $7 billion debt is not a cause of concern. The minister in charge of tertiary education, Steve Maharey, is advised that the debt level compares well with similar schemes in other countries. Nearly $2 billion has been repaid in the 12 years the scheme has been running. The average student borrower owes about $13,000 and it is taking graduates an average of 9 1/2 years to repay their loans. All of this hardly adds up to the crushing burden so often claimed.

Those who lament the debts carried by the newly educated are really objecting to the level of fees now charged for tertiary courses. They believe, by implication, that higher education should remain nearly free, as it used to be. But they do not acknowledge the entry restrictions that would then be needed to keep control on the costs to the taxpayer.

Tertiary education was nearly free in an era when it was the preserve of an academic few and trade training was provided on the job. These days training in many a craft has been turned into an academic course, thanks largely to the entrepreneurial efforts of the education profession. Policy-makers and polytechnics designed courses that displaced apprenticeships. Trainees who used to be paid a low wage while they learned must now pay to learn.

That pendulum has probably swung too far. The Government has promised to revive apprenticeships and it has begun to challenge the mantra of recent years that all school leavers need tertiary education to acquire employable skills. It is that notion that makes student fees necessary and feeds the growth of the loan scheme.

If most trade training was taken back from institutions, and the cost to the public of tertiary education was reduced, there could be a case for returning to low fees. But for as long as academics are content to enjoy the employment institutionalised workforce training has generated, they cannot credibly join the criticism of student loans. For students the scheme is a financial necessity and most of them seem to be handling their loans very well. They have learned that education is an investment.