Smart students ready to cash in on loan scheme

Experts are warning that entrepreneurial students may use the proposed interest-free student loan schemeto help them into the housing market.

Labour has promised to wipe interest on student loans for all borrowers living in New Zealand from April 1 next year. The policy will cost $100 million in its first year, eventually rising to $300 million a year.

However, there are fears the scheme could be abused by students, who might use money allocated for course and living costs to finance other things, such as apartments.

Course fees are paid directly to tertiary providers but the scheme allows borrowing of up to $150 a week for living costs and up to $1000 for course costs.

Living costs are paid direct to students each week, while quotes or receipts have to be submitted to gain course costs, with the amount credited direct to their bank account.

Auckland University of Technology's associate professor in economics, Alfred Oehlers, said the entrepreneurship of young commerce students shouldn't be underestimated.

Mr Oehlers had heard of students abusing the current system by using loan money to finance entry into the housing market, as they already had part-time jobs or family support to help ease living costs.

"I have heard of students using their student loans to fund a deposit to buy apartments in Auckland. They bank on a rise in house prices and try to sell them after 12 months, and maybe flat in them in between," he said.

With deposits for apartments advertised at just $1000 down, this would be an attractive option for some students under the no-interest scheme, he said.

He added that students might be attracted to pooling their weekly money to either start a company or invest it in stocks.

Auckland Chamber of Commerce chief executive Michael Barnett said he was in no doubt some students would seek ways to "rip off" the interest-free loans.

- Herald on Sunday