Struggling to keep our best and brightest

One graduate owes $250,000 to the student loan scheme, nearly 450,000 New Zealanders have some type of student debt - and between them they owe more than $6.6 billion.

The latest student loan quarterly report from the Inland Revenue Department reveals the size of the debt mountain that Labour and National have made a key election battleground.

It shows that on June 30 this year there were more than 445,000 people in debt to the scheme.

Of those, 64 per cent owe less than $15,000. But almost 600 people have debt above $100,000 - a 68 per cent increase from the same time last year.

The average level of debt is $14,989, almost a $1000 rise since June last year. Of the 25,000 living overseas, the average is closer to $22,000.

The concern is that high levels of debt can force social change and unseen consequences.

Lengthy, high-cost courses mean medical students are among the hardest hit by the loan scheme.

Dr Ross Boswell, chairman of the Medical Association, said junior doctor debt had been a "major factor in medical workforce shortages".

It is a similar story in other key employment sectors.

Dr Sholeh Maani, an associate professor of economics at the University of Auckland, said that as long as a student loan was an investment in the future it was "not a problem in itself".

"But there are problems when people have difficulty paying it back, or are discouraged from staying in New Zealand, or from buying a home."

Professor Maani said OE (overseas experience) had always been important to New Zealanders, but it was becoming a more permanent move.

For many who went through the tertiary system during the infancy of the loan scheme and have since paid off their debts, or struggled through without borrowing, it will be galling that politicians are only now tackling the debt mountain.

But the figures today, and their implications, make worrying reading. Almost half of first-year doctors are putting off having children as they struggle to repay an average debt of $65,000, according to one report.

More than 90 per cent of teachers graduate in debt, says another.

One in three of last year's graduates planned to leave New Zealand almost as soon as he or she removed cap and gown, a survey revealed last December.

Professor Nigel Haworth, president of the Association of University Staff, said the problems were not confined to graduates.

Evidence suggested some potential students were deterred from university study by the cost of their education.

"Others have their educational progress compromised by having to work at the same time as they study," he said.

In a CM Research poll in 2000, the student loan scheme was voted the biggest blunder of the 1990s.

The level of debt has risen meteorically. The scheme was introduced in 1992 and by June the following year 44,000 students had borrowed a total of $170 million.

By 1995 almost $800 million was owed in student loans and the following year, the figure surpassed $1 billion.

The scheme was introduced by National, but Labour introduced tuition fees, which have contributed to today's monster debt.

The big question now is how high it will rise.

The overall level of debt is sensitive to assumptions made on the numbers participating in tertiary education and borrowing from the scheme.

Labour claims under its no interest policy, the debt growth will slow.

The party's prediction is shaped by the belief that there will not be a huge increase in the numbers taking out a loan. Labour bases that position on past record - when loans were made interest-free during study in 2001 it was argued there would be a massive increase in borrowers. But overall take-up rose from 50 per cent to just 55 per cent between 1999 and 2004.

However, that overlooks a 2003 increase in the numbers eligible for a loan, when the figure was closer to 60 per cent.

National said it had not produced specific forecast figures, but expected the level of debt would be similar, but a little above the ministry prediction if the current status quo was maintained.

Westpac chief economist Brendan O'Donovan said students had to borrow "with their eyes open".

High debt levels could force social change, but an investment in education was the same as any investment. "If it's a bad investment is it society's fault or does the borrower have to take a look at himself or herself?"

ABC of loans

Q: When did they start?

A: The Student Loan Scheme was introduced by the National Government in 1992 to open up tertiary education to everyone who wanted it.

Q: What are they for?

A: * Living costs (to $150 week).

* Tuition costs (unlimited, except a maximum $6500 at private providers).

* Course costs (to $1000 year).

Repayments begin once students earn over $16,588, with 10 per cent of all income above this figure taken from wages.

Q: Who runs the scheme?

A: The Ministry of Education is responsible for strategic policies.

StudyLink (a division of the Ministry of Social Development) gets loans to students during the year of study.

Inland Revenue collects repayments from the year after the money is borrowed and administers interest write-offs.