Making money from student loans
The Press has an article about how student debt is up and repayments are down since student loans went interest-free.
I was interested to see Duty Minister say this:
Duty Minister David Parker said people using the interest-free loans to make money for themselves was “deplorable behaviour”, but it was not widespread.
It is not deplorable, but common sense. If you hand out money and don’t have any incentives for people to pay it back when are able to, then of course some will use it to invest. Dr Cullen should be pleased that people save it instead of spend it.
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January 2nd, 2008 at 2:14 pm
If every year 11 high school student was given $1,000 interest free at the start of the year with a full and final repayment obligation for the last school day of the year and the results of the successful students vs the students that had no means to pay it back were compared – this would be a good lesson.
Easier to criticise the initiative of smart people than to educate the slow learners – David Parker at his finest.
January 2nd, 2008 at 2:40 pm
Not expecting people to take advantage of opportunities to make or save money is denying human nature. Besides those who work out mild scams are likely to be the businessmen of the future.
January 2nd, 2008 at 2:42 pm
Parker is clearly lying, because Cullen told us that no-one would ever do this.
January 2nd, 2008 at 2:45 pm
Errr… I don’t think the numbers support that claim!
January 2nd, 2008 at 2:55 pm
If education was free you wouldn’t have this problem.
January 2nd, 2008 at 2:57 pm
Spam he probably meant to say that it reduced the time it would probably take some one to pay off their loan. Works in theory, but you have to assume that repayments stay the same.
January 2nd, 2008 at 3:06 pm
Well, I don’t even think it works “in theory” – certainly not if you assume students are rational.
January 2nd, 2008 at 3:44 pm
I have four siblings who between them have racked up ten or so degrees and spent nearly 25 years at universities around the country. The whole lot was on the state, including every penny they could claim in student allowances, so I support any young people who can work the system to their advantage.
Me, I’m the dumb arse of the family with trade cert and a registration.
January 2nd, 2008 at 3:46 pm
I’m a tertiary student, and most people I know borrow and re-invest. Students will do anything to earn money and this is a particularly easy way to do so. Just like many use their $1000 interest free overdraft and transfer it straight into a savings account.
January 2nd, 2008 at 3:53 pm
SK
People have been using their interest free overdraft as an investment for years and years. It’s called using your initiative, unless of course it makes a mockery of election bribe policies, then it’s… well it’s something that won’t happen! Doooh!
January 2nd, 2008 at 4:04 pm
Indeed Burt, it’s nothing new. It has always been done, and anyone who believed it wouldn’t happen with student loans is either stupid or incredibly naive. I invest both my overdraft and any excess from my student loan into a savings account, or shares. I work 30 hours a week, and am paying back my loan at 10% of my wages, but I don’t make volutary repayments because I prefer to have that money sitting in my account doing something useful.
January 2nd, 2008 at 4:20 pm
“If education was free you wouldn’t have this problem.”
It never has been or ever will be….someone always pays….usually a violated taxpayer with no choice in the matter.Privitise all education and then you eliminate all the rorts and scams.
January 2nd, 2008 at 4:28 pm
So when the bribe kicked in it was never going to happen, then it there was no correlation between common sense and increases in loans and now it’s the fault of students and graduates. i would be insane to pay anything more than the minimum back – hell it’s about the only way i get anything back for my taxes.
January 2nd, 2008 at 4:53 pm
Bring back interest on student loans. I was a uni student in the 1990′s, yes I graduated with debt, within 2 years I paid it off and that was that. Why should young school leavers who choose to go into the workforce instead of higher education, have to subsidise others education which in the end is really another form of private investment?
January 2nd, 2008 at 7:19 pm
Why should young school leavers who choose to go into the workforce instead of higher education, have to subsidise others education which in the end is really another form of private investment?
Er, because it gets votes?
January 2nd, 2008 at 7:52 pm
“deplorable behaviour”,
What Labour Minister was the deluded Parker Pen creep talking about ? Steve, David, Phillip or Trevor ????
January 2nd, 2008 at 7:52 pm
Sadly, Lee C, your right. Fairness , effective policy and careful us eof taxdollars aren’t the benchmark for this govt- will it get votes,is the only one they follow and if National don’t show a bit more balls, they will end up becoming just like them.
January 2nd, 2008 at 8:01 pm
You must own balls to show balls .
January 2nd, 2008 at 8:53 pm
Parker’s words are coming right out of the far left’s playbook.
Introduce a policy that run counter to the market (people’s common sense), then blame the people when the policy fails miserably for using their common sense.
Being used throught out history bt the likes of Mugabe,Chavez and Stalin
January 2nd, 2008 at 10:40 pm
Lee C
I asked a couple of university students if all
eighteen year olds should have the same
amount spent of them, they seem to believe
it was wrong to treat peasants as well as
uni students were treated.
NZ has no class system, we have one and it
is based on a white collar fallacy.
As the law graduate said to the electrician,
you want chips with your burger.
January 2nd, 2008 at 11:19 pm
I see it as taking it out a loan now, paying it back later, then over my life as a tax payer, paying back the aditional that I would have paid on a standard bank loan. Of course half of you coudl be bull shitting and are only interested in preserving the class system.
January 3rd, 2008 at 12:36 am
Why should young school leavers who choose to go into the workforce instead of higher education, have to subsidise others education which in the end is really another form of private investment?
Perhaps we should talk about why people are leaving school at such a young age? Or why they feel that personal upskilling is unnecessary? While I don’t agree university is for everyone, surely most people could get something practical (or vocational) out of tertiary study after high school.
University graduates far and away create more opportunities for wealth, pay more taxes, and are more employable than school leavers. I don’t think they should pay less tax than they currently do, but they should not have to pay interest on loans.
Leave the politics of envy at the door.
For those thinking that this is a massive rort, you must be joking. $150 is nowhere near enough survive on in one week, anywhere in the country. Hell a bedroom in an Auckland can cost just that per week. Paul Hutchison should be focused the ever increasing amount of extra-curricular work that students are expected to perform just to survive (in addition to their loan).
January 3rd, 2008 at 4:50 am
I wonder if there are any statistics on the numbers of graduates who have defaulted.
That was one of the prime reasons for interest free loans, is they also needed to introduce an amnesty for defaulters but wanted to keep an incentive for honoring the system.
Any government will still have the problem to try and attract graduates to return and work in New Zealand.
Incidently, the country where I study at the moment has fees of 800 dollars a semester. The universities are much better as well and the standards demanded of students a lot higher.
January 3rd, 2008 at 4:51 am
“Why should young school leavers who choose to go into the workforce instead of higher education, have to subsidise others education which in the end is really another form of private investment?”
We should introduce full fees for the 6th and 7th form then or whatever years they are now.
January 3rd, 2008 at 4:53 am
Final point:
We need to keep interest free for NZ based graduates but add incentives for voluntary payments from NZ based people.
Perhaps a 7% discount.
January 3rd, 2008 at 4:54 am
Just a thought, I expect all the folks doing the investing on their loans are National’s current youth constituency.
January 3rd, 2008 at 6:58 am
I was up to my neck in debt as a student. In my final year I used to get up at 4.00 am work a job cleaning floors, get into the Lbrary as it opened at 10.00 study through till it closed at 8.00 pm, go home, goto bed, get up early the next day for my cleaning job.
I wanted to pass my exams and be a credit to my parents.
Interest-free loans would have helped. But if my folks had been richer and able to help, then maybe i wouldn’t have been in such debt.
Then if they had been richer, I would have taken the interest free loand and stored it away for later when I wanted to buy a house or a car. Because mummy and daddy still would have helped me out.
The policy of interest free loans is free money for the (shrinking) middle classes.
January 3rd, 2008 at 7:37 am
When I was at secondary school, tertiary education was free. When I got to tertiary education, I had to pay, but I could get a student loan which was charged interest from the day I took that loan. When I finished tertiary study, interest was only charged on student loans on completion of study. 2 years after I had paid my loan back, with interest, having resided in NZ for the entire period, the no interest policy on student loans for those living in NZ was announced.
I’m sure that I am not the only person in that situation. I recall a number of fellow students around me at the time. I’m guessing they are just as angry about the situation as I am.
January 3rd, 2008 at 7:58 am
I’ve read the comments since my last post, all very interesting, especially since some seem to start by quoting me! but I would like to come back to my original point about interest on student loans- going onto to higher education following secondary school (which I think should still be free, it is after all illegal not to receive a school education of some kind!) is a personal choice for personal gain, e.g: to become qualified for a higher paid job or profession.
I didn’t go to uni for altruistic reasons, I went there to improve my circumstances in the long term. I was only the second person in either my mothers or fathers family to have ever gone to uni, the first being my sister the year before. Some years later I am going to change my job, so I’m studying part time right now through the Open Polytechnic while I work full time as well and paying for it myself.
So why should kids who, for whatever reason who don’t want to do further study and choose to go straight into the work force have to subside those who do? Why should they have to provide free money to someone else based on their personal choice? Reintroducing interest on student loans would at the very least be an acknowledgement that there has to be fairness in the system.
I might add the taxpayer is still shielding students from the full real cost of their education and provides student allowance for those from lower income brackets.
This post has got a bit long so I’ll just finish by saying perhaps concentrating more education dollars at primary and secondary school might be more use in producing skilled young Kiwi’s and improving their lot and reducing failure rates rather than lavishing free money for those who’ve already done well at school and usually come from high decile schools.
January 3rd, 2008 at 8:04 am
The corridors of power thing too Richard…. rather than go into ‘work’ and pay taxes like their peers, some will surely be seduced into a mentality of living on the public tit for life, when they see what benefits can be attached to being a loyal party member. I can see that mentality appear in more than one of the trolls who appear on kiwiblog from time to time….
January 3rd, 2008 at 8:16 am
Policy Parrot – Sorry as much as you might try to defend it interest free student loans is a sh*t policy designed to get votes for Labour and entrench a voting base in Government dependence.
If you agree with the principal behind student loans then it is easy to achieve the same thing at the same taxpayer cost with fewer negative externalities.
Like reintroducing the universal student allowance, or matching repayments or …
Otherwise under the “interest free loans” it makes good economic sense to borrow as much as possible, for as long as possible, making as few repayments as possible. Great training for people with their first major debt in a country with negative savings habits. You truly have your head up your ass (or Cullen’s) if you remotely believe this is a good idea.
January 3rd, 2008 at 8:46 am
Indeed. So why do you then write:
Says that guy who thinks that school leavers should not have to subsidise university students, but that university graduates should have to subsidise school leavers.
January 3rd, 2008 at 10:03 am
interest free student loan…
with a fkn 10.55% float home loan rate, 8.5% 3 month term deposit interest, what do you expect? i would have borrowed every cent i entitled, and not paying back 1 cent more than my legal obligation.
either put interest rate back (but not much more than inflation rate), or give discount to ppl making voluntary payment. or both.
January 3rd, 2008 at 10:17 am
erm…Spam I think your confused: I said “why should school leavers..” etc and Policy Parrot said: “University graduates far and away create more opportunities for wealth, pay more taxes..” etc.
Policy Parrot was displaying what I said and then responding to it. PP wasn’t agreeing with me. I’m not really sure of your last point but since going to school is the law then we may as well make it a decently funded education while their there. Everything after that is a matter of choice and shouldn’t be used as a justification to bleed their fellow Kiwi’s dry.
January 4th, 2008 at 12:28 am
Duty Minister Dave certainly has the low down on how money works……as long as he brings his sophistication to bear on his personal investments only…. we’ll get on fine.
Here’s a new year heads up for Dave.
When you subsidise anything, Dave, you get more of it.
January 19th, 2008 at 11:19 pm
Hmmm, interesting comments everyone. Some of you seem to think that students are bludging off society but that if interest was charged on the loans all our problems would be over. While charging interest would definitely provide an incentive to pay back the loans, the actual money that students pay back seems insignificant next to the amount the government subsidises the education in the first place. While looking up the prices of my courses at University next year, I was intrigued to discover that they were four times as high for international students as for kiwis.
I have been told that this is because the government uses taxpayers dollars to fund a large amount of tertiary, which students (excepting international students) do not pay for. Only a quarter of this is paid back by students as a loan.
For example, say I decided to do a course that required a $60,000 loan. The actual cost of training me would be $240,000. The Government would give me a loan of $60,000 (which I would have to pay back) and write off interest of about $4000 a year. I may then invest this money and recieve about $5000 in interest off it.
So the real question imo is not “should the government allow me to make $5,000 a year off taxpayers money instead of paying it back?”
The real question is “should the government be spending $240,000 of taxpayers’ money on me and not getting me to pay it back? And if the government will subsidise my education in this way, how is it then fair for them to demand an international student to pay back the cost of their education in full?”