More on student loan calculators

July 28th, 2005 at 7:44 pm by David Farrar

I’ve just recalculated the scenario of someone earning \$34,300, whose income is \$34,300, and constant, and has a \$15,000 loan. The Labour calculator tells us it would take 25.5 years to repay their loan and have interest of \$11,891.

Now Labour have said their calculator allows for the repayment threshold to go up by inflation. Now inflation is targetted to be between 0 and 3% so the midpoint is 1.5% which I have used to see how much it changes from the IRD scenario of 14 years.

My simple excel spreadsheet, which doesn’t even allow for the possibility of interest writeoffs, has the loan paid off in 16 years. So still a 10 year time difference.

Note I am providing my calculations so they can be audited. Hopefully Labour will do the same.

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12 Responses to “More on student loan calculators”

1. Gman () says:

That’s because there isn’t a formula–there’s someone from the Labour Research Unit rolling a dice.

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2. Tiberias () says:

Hmmm, so you put in 1.5%? I take it you didn’t actually read the comments on your previous post? I quote:

“The Labour calculator is using a simplified model and is slightly wrong. However, this will be close to correct unless you have an increase in your salary of less that 2%. Those of us with eyes will have seen the instructions on the website tell you not to plug such a value into the formula. If you ignore this instruction (like DPF appears to have done) and therefore get garbage out of the calculator, you shouldn’t really be surprised.”

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3. Gman () says:

…or maybe a team of monkeys with calculators…

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4. David Farrar () says:

Tiberias is a confused wee boy.

The 1.5% is the inflation assumption for the threshold increases. This is not even listed as an assumption on Labour’s site – it has only been revealed now.

The 2% figure you refer to is for salary increases. And as the next post has shown there is still a huge discrepancy.

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5. Sally () says:

DPF

The difference between your excel and the Labour calculator is that you do not increase the repayment threshold by the rate of inflation.

Labour’s site clearly states that they assume inflation to be 2.8%. If you increase the repayment threshold by 2.8% in your excel (rather than the 1.5% you invented), you end up with **exactly** the same total interest figure as Labour – \$11,891. And the loan is payed off in the same year as Labour estimate.

The reason they are exactly the same, and not just similar, is that a person in the situation you outline is not eligible for an interest write-off.

That is the difference. Labour clearly stated their assumption about inflation, and by choosing to ingore their assumption you created this silly brouhaha.

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6. Archon () says:

DPF,

The first rule of getting out of a hole – Stop digging.

“They claim that someone with a \$15,000 loan balance who earns \$34,300, and stays earning that much would take 25.5 years to repay their loan and have interest of \$11,891. Plug it in and you will see.”

No they don’t. If you follow their instructions you will get 12 years 1 month.

Are you using a different calculator as everyone else???

The thing says YOU SHOULD AT A MINIMUM ESTIMATE THAT YOUR SALARY WILL GROW BY MORE THAN 2% PER ANNUM.

The calculator even defaults at 3%.

The only way to get your figures is to remove 3% and plug in 0%. EVEN THOUGH THE CALCULATOR SAYS TO PUT IN AT LEAST 2%

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7. David Farrar () says:

Archon you seme unable to read the part where I said and “stays earning that much” which means putting in 0%.

A calculator should be correct for whatever variable ones puts in, even if they are unlikely.

And as I have shown in the next post, even with a 2% salary growth, there are still huge differences.

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I agree with DPF, the calculator should be accurate no matter what figures are entered.

It is unacceptable for any party to announce a key policy and not have accurate figures about what the benefits are.

The same applies to any of the National policies.

Anyway Mallard is to put it kindly flexible with the truth at the best of times so lets have a debate and analysis on this issue.

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9. David Farrar () says:

Sally firstly nowhere did Labour say on their site that they are increasing the threshold by the rate of inflation.

But secondly it is absured to predict that the inflation rate will be 2.8% for the next 20 years, when there is a stated target of the midpoint of 0% to 3%, and it is historically well below 2.8%.

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10. tim barclay () says:

A student loan debt is really an unfunded tax liability and paid out of taxes. Mallard and co in building in growth predictions and inflation assumptions are really saying that you will be increasing your tax burdon over time hence pay off the loan quicker. Under a Labour Government with no adjustment for taxes then that may be so. Is that really what the Labour Party is saying.

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11. Paul () says:

Gman, monkies just sling their soft brown smelly stuff through the bars, Mallard is the beta male.

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12. Archon () says:

DPF,

The only way to score a hit on Labour on this is to show that students using Labours calculator are getting different results from IRD and sorted calculators.

The simple fact is that they aren’t.

I would love for you to be right about Labour misleading the electorate but they aren’t. To my mind, the “salary increase” is just a crude way of including inflation.

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