Editorial: Taxpayer will benefit from loan changes

Tertiary Education Minister Steven Joyce proposed that new permanent residents and Australians would have to live here for two years before they could get a student loan. Photo / Sarah Ivey

Substantial changes will soon be made to the student loan scheme. John Key prepared the ground yesterday when he suggested students needed to have more "respect for taxpayer funding". They did not, he implied, appreciate the scheme's benevolence. His comment underpinned earlier tilling by Steven Joyce, the Tertiary Education Minister, who proposed that new permanent residents and Australians would have to live here for two years before they could get a student loan, and that undergraduate students' access to such loans would be limited, possibly to six or seven years.

The Prime Minister was perhaps a little unfair to the many students who, he admitted, used the scheme as intended to get an education, then a job. Most, indeed, keep their borrowing to manageable proportions. It is student associations that are apt to gripe about debt burdens and the like. Mr Key's observation that students did not understand that taxpayers paid the overwhelming majority of sending them to university might, more appropriately, have been directed at them.

Either way, it is clear that the Government, having declined to do away with interest-free student loans, must find ways to reduce the cost of the scheme. It has to do this, first, because an alarming 41.5 per cent of the Government money placed in tertiary education goes directly to students as loans, allowances and interest subsidies. That is more than double the OECD average. Also, Mr Joyce, like other ministers, must find savings in his portfolio for this year's Budget. This year he took a first step by proposing that student loans should be conditional on students' success.

That was reasonable, if only because it moved the loans into the same territory as living allowances to students on age, income and residential criteria, which are not available to those who failed more than half their course the previous year. In the same vein, new residents already have to wait two years for a student allowance or a welfare benefit. There seems no reason for student loans to be different, and good reason for them to be aligned. Indeed, the Government would do no harm to investigate other areas where similar inequities exist.

If any exception is to be made to the proposed stand-down period for student loans, it should be for refugees. Most, by dint of their status, arrive in this country with virtually nothing. The scheme provides those who wish to study with a degree of independence. Clearly, refugees are not comparable to the new residents who Mr Joyce suggests swoop on student loans as soon as they arrive, whether or not they are committed to their studies or to New Zealand. In effect, signing on for tertiary courses provides them with funding denied them by the two-year benefit stand-down.

Students can hardly complain about Mr Joyce's plans to restrict access to the loan scheme. It has always had a far wider clientele than envisaged by its designers, who saw it as a means for putting students from low-income homes through tertiary institutions. Its generosity took another quantum leap when the loans became interest-free. This was the product of an election bribe offered by the Labour government in 2005. It provided every incentive for students to not only borrow but perhaps to even earn interest on the money.

At that time, Mr Key described Labour's move as rushed and reckless, and thrown together in desperation. He was right, but he pledged subsequently not to overturn it. Now, his Government must rein in the scheme's annual $1.5 billion cost by other means. Mr Key talks about "making surer the system is a bit fairer". Those who will lose easy access to funding will not see it that way. But it will certainly be fairer to the taxpayer.