Is $13,300 a good investment for a degree?

November 17th, 2014 at 7:00 am by David Farrar

Stuff reports:

For the rest, student debt – or “deferred tax liability” as one financial adviser likes to see it – has become a fact of life with over $14.3 billion now owed to the state.

But the ubiquity of student loans does not lessen their impact on individuals. Indeed, the sums borrowed continue to rise. The average amount borrowed by students in the 2012 year was just under $8000, up more than $520 from two years earlier. It probably would have been more if not for the fees “stabilisation” enforced on tertiary education providers by the Government.

The average loan at the end of June was over $19,000 – though the median was just over $13,300. At that rate, average balances of $20,000 or more appear likely to become the norm.

It’s a large debt overhang to start a working life with, though, in theory, a quality education should more than pay for itself in higher earnings.

So the median debt is $13,300. Does the extra earning cover that cost?

Well if you do not get a post-school qualification your median weekly income from wages is $729 a week (Stats NZ June 2014) which is $38,012 a year.

If you do not get a degree your median weekly income from wages is $1,055 a week (Stats NZ June 2014 for a bachelors) which is $55,011 a year.

That’s a difference of $16,999 a year. Over say a 40 year working life post study that is around $680,000 before tax in extra income. For a median student loan balance of $13,000 or so that’s a superb investment for most people.

It’s very had to argue that hard working truck drivers and builders should pay more in taxes, so accountant and lawyers leave university with less of a student loan.


A $14 billion bribe!

September 13th, 2014 at 12:00 pm by David Farrar

Stuff reports:

Free tertiary education and a universal student allowance could be delivered immediately if they were prioritised over tax cuts, the Internet-Mana Party says.

Details of the party’s free tertiary education policy have been released, which it says would stop the growth of the level of student debt – currently more than $14 billion.

Co-leaders Laila Harre and Hone Harawira said the policy was aimed at increasing New Zealand’s knowledge base without crushing students, parents and graduates under a mountain of debt.

Internet-Mana has pledged free education at public institutions and a universal student allowance.

It would also increase the earnings threshold that triggers compulsory repayments, and write off debt for those on parental leave for up to a year at the rate they would have repaid it if they had been earning.

A shortfall in employment over the summer period when students are not at university would be addressed through the establishment of a summer jobs programme.

Details of a debt forgiveness programme would be developed, with funds already tagged to progressively write off existing student debt.

So they would write off all existing debt progressively, and also provide free allowances and tuition to everyone who wants it.

Taxpayers’ Union spokesman Ben Craven said writing off student debt would benefit professionals such as lawyers and doctors who had large student loans, but were also likely to be on good incomes.

Forgiving the entire amount of student loan debt currently owed would cost an average of $8374 per household, and was likely to be more expensive than the election policies of all the mainstream political parties combined, Craven said. 

Imagine how high the tax rates will be to fund all this.

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Dom Post on loan defaulters

May 20th, 2013 at 3:00 pm by David Farrar

The Dom Post editorial:

There is a good argument for getting tougher with those living overseas who won’t repay their loans. Too many have decided to ignore their obligations.

Now the Government will require them not only to repay more quickly, but it also warns that persistent defaulters may be arrested at the airport.

This is punitive, unpleasant, and likely to be unpopular in a democracy that prefers the carrot to the stick. But nobody can complain.

The Government, after all, has taken a gradual approach. It offered amnesties and a chance to come to an arrangement with the IRD. It has also made it technically easier and cheaper to transfer the money home.

Many have responded reasonably: $64 million in outstanding loans has been repaid. However, some have ignored the offer and refused to repay. That can’t continue.

After all, if the people concerned had a low income and found it genuinely hard to repay, they were free to argue the point and try to make a deal with the tax-gatherer. Others could easily repay their loans but simply ignored the Government’s inquiries.

Those who have refused to do anything now face the threat of the bailiffs and, if they persist, of arrest. It’s hard to know what else the Government could do. Those who refuse to respond are breaking the social contract.

The social contract has responsibilities on both sides.

Students, after all, do not pay the full cost of their tertiary education. Even with the loans, they are being subsidised by the taxpayer. In return for that aid, however, they must make a contribution themselves.

This does not threaten the hallowed institution of OE, as Labour claims, or make it less likely that our high-fliers will return to the nest. Those who do their OE can’t just leave their fiscal obligations behind them. And highly -skilled people who stand to earn big salaries during their lifetimes can expect no sympathy if they default on their loans.

Repaying a loan should not be seen as optional.

The editorial however criticizes students aged over 40 having to get loans, instead of allowances.

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Poor students

March 3rd, 2013 at 11:00 am by David Farrar

The HoS reports:

University Students Association president Pete Hodkinson said graduates with loans would spend less and businesses would suffer.

The changes to loan repayment rates mean someone earning $1000 a week will pay an extra $658 a year. “This, for most people, will mean things like not going out to dinner (as often),” Hodkinson said.

Oh dear, the grind of poverty. Someone on $52,000 won’t be able to go out to dinner as often.

“If 200,000 people are now not spending money in an industry like hospitality … think about the economic impacts.”

Oh Good God – save us from wannabee economists. They are repaying student loan debt. This means the Government is not borrowing so much money. Debt fueled consumption is not sustainable.

People choosing to pay back loans quickly will no longer be rewarded.

Currently, people making voluntary payments of $500 or more a tax year on top of obligatory repayments earn a 10 per cent bonus, credited to their loan account.

Auckland University Students Association president Daniel Haines said scrapping the bonus was “unfair and harmful” to students.

This is ironic. Do you know why?  When National announced this voluntary repayment bonus policy, it was attacked by NZUSA. They said:

“We question why National has created such a narrow policy that will merely reward the rich and leave everyone else to struggle”

So let’s be very clear. NZUSA attacked the policy when National announced it, and now attack National for scrapping it.

This confirms my perception that most of the time NZUSA is not about actually advocating for the welfare of students, but promoting Labour and advancing the political careers of wanabee Labour MPs.

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Post-grad allowances

January 30th, 2013 at 2:00 pm by David Farrar

The Dom Post reports:

Wellington mum Tracy Merson has been forced to abandon her studies just short of a master’s degree – for a possible career as a psychologist – after new student allowance legislation whipped the financial rug out from under her.

As far as I know you don’t need a masters to be a psychologist? Who not start the career with the bachelors and then gain your masters?

Because she is on a domestic purposes benefit, she does not qualify for student loan living costs, and the $172.50 maximum a week would not be enough to support her daughters, aged 12 and 13.

I do wish the story would make clear what the figure refers to. Most would take that as being the DPB is only $172.50 a week . The DPB pays $33.01 a week gross or $293.58 a week net. On top of that you get $157 WFF family tax credit so that is around $450 a week in the hand. There may be accommodation supplement on top of that and it is unclear if one can also get $172.50 student loan on top of all that also.

This is not to say it is challenging to be a post-grad student, especially as a sole parent. But we need to have clear facts on what the financial situation is, to accurately judge the adequacy of policy settings.

UPDATE: I’m told you now need a Masters to practice. It used to be a BA Applied was sufficient, but obviously times change.

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Student Loan facts

January 12th, 2013 at 1:00 pm by David Farrar

Journalists should be careful about taking assertions as facts. The Herald reports:

When Matthew Fraher left for Australia in 2000, he says, he was required to pay back as much on his student loan as his entire income, within a year.

Wrong. Impossible.

Now, after incurring penalties, his loan balance is six figures and could grow to almost $1 million by retirement age, even if he keeps up minimum repayments, he says.

Only because he has moved overseas.

Mr Fraher said he contacted the Inland Revenue Department (IRD) when he first left NZ in 2000 with a student loan of about $70,000.

The requirement for him was to pay 15 per cent of the principal and all of the interest in a year, he said – about $15,000, though Mr Fraher recalled the amount was $23,000.

The income from his first job would not have covered it, even if he had lived homeless and ate at soup kitchens, he said.

This is not what the law at the time was. Repayments were never based on the size of the loan – they have always been based on your income. 10% of your income above the $15,000 or so (then) threshold. So if you were on $55,000 you would be paying $4,000 a year interest.

And the law also said that after an adjustment for inflation, at least 50% of your repayments would go on reducing your principal, with interest written off above that. This was to stop the principal always increasing.

So say you were on $75,000 and had a loan of $70,000 (I’d love to hear how a loan that large was incurred back in the 1990s). Repayments would be $6,000 a year. If inflation was 2% then $1,400 would go towards inflation indexing the loan effectively. Of the remaining $4,600 $2,300 would reduce the principal and $2,300 would be interest.

This is massively different from either $15,000 or $23,000 as cited.


Student loan costs

December 5th, 2012 at 7:00 am by David Farrar

Steven Joyce announced:

The latest Student Loan Scheme annual report shows an 11 per cent increase in repayments and a decrease in the overall cost of the scheme, Tertiary Education, Skills and Employment Minister Steven Joyce says. …

“The write-down on student loan lending reached 47 cents for each dollar lent in 2008/2009. We have now reduced that to 39 cents in the dollar, and are working to reduce the cost further.

  • The cost of lending has fallen 17.5% over the last three years. The cost fell from 47 cents per dollar in the 2009 valuation, to 39 cents per dollar in the current year.
  • Repayments increased by 11% to $767 million in 2011/2012
  • The median repayment time is 6.7 years and it reduces to 5.5 years for those who remain in New Zealand until repayment

That’s a pretty useful improvement in the loans scheme. In an ideal world we’d scrap interest free loans but that would be political suicide, and just be reversed at the next election. The changes Joyce has made though are sustainable and worthwhile.

The annual report for the scheme is here. Some facts:

  • Average amount borrowed $7,633 and median $6,709
  • Average loan balance $18,507 and median $12,849
  • 29% of the adult population have taken out a student loan at some stage
  • 24% of loan balances are under $6,000, 41% under $10,000 and 56% under $15,000. One third are over $20,000
  • 0.2% of loan balance are over $100,000



Student loan savings

September 7th, 2012 at 9:00 am by David Farrar

Stuff reports:

The Government has squeezed hundreds of millions of dollars in savings from the student loan scheme through a series of changes.

Tertiary Education Minister Steven Joyce and Revenue Minister Peter Dunne today announced the write-off on student loans had fallen to 39 cents in every dollar borrowed.

It had been about 48 cents in every dollar when the former Labour-led Government took interest off student loans, Joyce said.

”When we came into government, we committed to get that cost down and initially targeted getting it under 40 cents in the dollar,” Joyce said.

“I’m pleased to be able to say that changes over the past three budgets have helped reduce that cost from 48 cents to 39 cents in the dollar so far. 

That’s good At 48% write-off, the loans scheme was approaching becoming an ATM scheme. The idea of having loans is that they get repaid. It costs the Government money to borrow, to loan it in turn.

Hopefully over time the proportion written off will fall below a third.



NZ Herald on student loans

May 8th, 2012 at 10:00 am by David Farrar

The Herald editorial yesterday:

More than 40 per cent of the money that the Government puts into tertiary education goes directly to students as allowances, loans and interest subsidies. The average for such spending in OECD countries is close to 18 per cent. 

Steven Joyce said we have the most generous student support scheme in the world, except maybe Scandinavia.  We also have the most generous pension scheme in the world, as it has no income testing and no asset testing and is linked to the average wage.

The Prime Minister says the changes will be “modest”. That is as it must be. A sluggish economy would be done no favours if the repayment of loans became so onerous that graduates could not afford to take out mortgages and suchlike. Or if students denied allowances responded by taking on a great deal more debt. Modest adjustments ensure students and graduates will not be subjected to serious hardship. It says much for the scale of the spending, however, that such relatively small steps will save the Government tens of millions of dollars.

John Key says this saving will be reinvested in the research and teaching capabilities of universities to help raise their world rankings. That represents a change of tack. Previously, the Government had talked of transferring this money to universities to fund tuition for more students.

Not before time, it has recognised that something must be done about the sliding international ratings of the country’s universities, and that the throwing open of entry to them has been an important factor in this.

Also pleased to see Steven Joyce plans changes to the PBRF.

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Why not loans for all?

May 8th, 2012 at 7:00 am by David Farrar

A reader e-mails:

Hey David, was just reading about possible changes to student loans and was wondering why all young people not working don’t have to draw down a loan for a living allowance. Surely they are all expected to get a job in later life, and most should be able to pay back what they have taken from the State? Why should students be treated differently to their unemployed peers?

Personally, I think the parents income test doesn’t work and all young people not working should have to draw down a loan. Anyone with a child who is a student not getting an allowance has stories of other students with asset rich parents getting an allowance.

The concept could probably be taken further to anyone temporarily unemployed, but where would you stop? 

My son is living at home for free and studying.  We were even paying him a small allowance for a while but now he is drawing down his loan which is sensible since we still have a mortgage on the house. 

An idea worth debating.


Net income after student loan changes

May 7th, 2012 at 9:00 am by David Farrar

I’ve prepared a table below showing what the net income will be for graduates with student loans, after the changes take effect, and comparing them to the impacts of tax cuts.

     Income Apr-08 Oct-08 Apr-09 Oct-10 Oct-12       Increase
$10,000 $8,470 $8,750 $8,750 $8,775 $8,775 $305
$20,000 $16,278 $16,898 $16,898 $17,050 $17,032 $754
$30,000 $23,178 $23,798 $23,798 $24,162 $23,944 $766
$40,000 $29,838 $30,698 $30,698 $31,274 $30,856 $1,018
$50,000 $35,538 $36,398 $37,358 $38,141 $37,523 $1,985
$60,000 $41,238 $42,098 $43,058 $44,027 $43,209 $1,971
$70,000 $46,338 $47,798 $48,758 $49,913 $48,895 $2,557
$80,000 $51,438 $52,898 $53,958 $55,509 $54,291 $2,853
$90,000 $56,538 $57,998 $59,158 $61,105 $59,687 $3,149
$100,000 $61,638 $63,098 $64,358 $66,701 $65,083 $3,445

The six columns are:

  1. Net income after tax and student loan deductions in April 2008 before tax cuts
  2. Net income after tax and student loan deductions in October 2008 after Labour’s first round of tax cuts
  3. Net income after tax and student loan deductions in April 2009 after National’s first round of tax cuts
  4. Net income after tax and student loan deductions in October 2010 after National’s tax switch package. To recognise the increase in GST, a 2% deduction is made from net income.
  5. Net income after tax and student loan deductions in October 2012 (presumably) after the student loans repayment rate lists from 10% to 12%. Note this still includes the GST adjustment.
  6. The difference between Oct 2012 and April 2008, before tax cuts started to occur.

This shows that all graduates will have higher net incomes than in April 2008, even after the repayment rate increases. In fact they will also have higher net incomes than in October 2008 and in April 2009.  So all graduates will still have higher net incomes than before the tax switch, and considerably more than before the other tax cuts.

The other factor of course, is that you keep the tax cuts for ever. The additional student loan repayments means you pay the loan off quicker, and end up paying the same amount – just over a shorter time-frame. It will means things are tighter for graduates while the loan is repaid, but still not as tight as if we hadn’t had tax cuts.

The Greens have suggested that the repayment rate should increase as income increases. I think there is some merit to this. You could have a 12% repayment rate from $20k to $70k and say a 15% rate above $70k.


Student Loan repayments

May 2nd, 2012 at 7:31 am by David Farrar

Vernon Small at Stuff reports:

Half a million Kiwis with student loans face a cut to their take-home pay in the Budget as the Government looks at ways to raise income to help balance its books.

Prime Minister John Key said yesterday the May 24 Budget would increase the current repayment rate, which is set at 10 per cent of income over $19,084, to force students to pay off their loans more quickly.

Mr Key said the change to the repayment regime would be “modest”, but it would have an impact on the 500,000-odd people who have a student loan and were earning above the threshold that required them to repay.

The savings would be reinvested in the research capabilities of universities to help raise their world rankings. The Government had reduced the writeoff on loans to 45 per cent of student borrowers and aimed to reduce it to nearer 40 per cent by continuing to chase overseas borrowers and through faster repayments.

Mr Key would not be drawn on the new rate, but said it would raise “tens of millions of dollars”.

Figures supplied by Inland Revenue show that at the 10 per cent rate that applies now, $690.6million was received in student loan repayments in the year till June 30, 2011.

That would suggest the rate will increase to just 11% or 12%.

New Zealand Union of Students Associations president Pete Hodkinson said a lift in the repayment rate was a tax increase because it was taken straight out of pay, like PAYE.

No it is a repayment. Union fees are also taken straight out of pay. That does not make them a tax.

“It’s outrageous that graduates should have to pay higher taxes to pay for a budget shortfall that has been caused by the tax cuts that the National Government gave to high-income earners.”

And how the NZUSA President lies about what has caused the budget shortfall. He also ignores that the higher repayment rate means the loan is paid off faster – the graduate does not pay off any extra money.

Labour deputy leader Grant Robertson said the change would put more financial pressure on graduates. The rate should balance the need for loans to be paid off quickly with the need for graduates to meet their costs and be able to take out a mortgage. The increase put that at risk.

Grant is right it will put some financial pressure on, and it is a balance. But if the increase is modest the impact should be modest also.


Can someone explain this?

March 19th, 2012 at 9:23 am by David Farrar

Stuff quotes NZUSA:

The NZUSA presumably has a few budding economists at its fingertips and has calculated putting interest on a $50,000 loan would see it grow to a $90,000 repayment, yet the extra value to the Government would be only $3000 out of the extra $40,000 paid.

So who would the extra $37,000 go to? Can someone in NZUSA provide their calculations, because on the surface,  I don’t see how this works.

Maybe they are saying that students would end up spending the $40,000 on goods and services, which would generate economic activity which would produce $37,000 of income for the Government? Any economists out there want to take a stab?

UPDATE: NZUSA have kindly responded:

The $50K becoming $90K if interest was added (and taking 15 years to repay instead of 8) was John Key’s. You’ll have to ask him where he got those numbers from.

According to IRD’s student loan calculator, to pay back a $50K loan in 8 years requires a salary of just over $80,000 – about twice the (university) graduate average. Of course as we all remember from 2005, IRD’s calculator doesn’t have income growth – or growth in the repayment threshold – built into it.

$70+2.5% gets a similar result.

The average graduate salary is around $40K. $45K – $48K if you believe the marketing on the NZ Immigration website. Not sure about salary growth rates in the midst of the Great Recession.

 The Net Present Value of $50K in 8 years is ~$29K; that of $90K in 15 years, is ~$32K. Hence $3,000. That’s at a 7% discount rate. Key’s interest rate seems to be higher than this, but it always was much higher than the actual cost of capital.

 These are terminal payments. Of course this is an unlikely scenario. However, since it depends on the actual cashflow, it is hard to know without the Prime Minister’s numbers. If the money comes quickly, high starting salary, low growth (to still get the repayment time), then the difference between the two would be greater, if it came later, lower starting salary with high growth, then the difference would be relatively smaller, especially if there was a break in payments – unemployment, travel overseas. These could likely be quite reasonably be factored in.

Okay this makes more sense.  What would be good is to model an actual scenario based on actual repayment times for say the average graduate. I don’t think any policy change is likely here (which will please NZUSA) but it would still be good to understand what the “cost” of no change is.


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Interest free student loans

March 13th, 2012 at 4:00 pm by David Farrar

Stuff reports:

Student loans will remain interest free, despite forecasts the national student loan bill will grow to more than $14 billion in the next three years, Prime Minister John Key says. …

Charging interest would bring in considerable extra revenue for the Government, but Key said he would be voted out if National did so.

“Bluntly, if you want me to be really crude about it there are 565,000 student loans out there. If we add interest back on the student loans, it doubles repayment time of the loan.

“If your loan is $50,000, and it’s estimated it will take you eight years to pay it off, we effectively turn it into a loan that is about $90,000 with interest that takes you about 15 years to repay,” Key said.

“That is about the only thing that will get [young people] out of bed before 7 o’clock at night to vote, but it’s not politically sustainable to put interest back on student loans. It may not be great economics, but it’s great politics. It is a bit of a tragedy because it sends the wrong message to young people, it tells them to go out and borrow debt.”

Sadly this is right. Labour’s bribe in 2005 was too big to undo, and we will be paying for it for many years. I’d like to see interest charged at least at the level of CPI, so that loan balances don’t actually reduce in real terms despite no repayments (hence discouraging repayments). But that could only happen if Labour agreed not to reverse it. If National did it unilaterally, it would lead to a change of Government and then the policy would revert back.


A speech by John Key

May 11th, 2011 at 12:36 pm by David Farrar

John key’s speech is here. Key points:

  • WFF, interest free loans and KiwiSaver costing $5b a year, and why we now have a structural deficit, and all has to be borrowed from overseas
  • All changes will take place after election, so there is a mandate for them
  • KiwiSaver will be changed so that over time employees and employers contribute more, and the Government less
  • KS changes will lead to an improvement in the rate of national savings and reduce foreign debt by 2% of GDP over the decade
  • Will reduce amount spent on WFF, but target a greater proportion at the most vulnerable families
  • For every $100 of student loans, taxpayers get only $55 back
  • Half of the overdue student debt is students living overseas – will make sure they live up to their responsibilities

The exact details will be in the budget. To me it looks like a good step in the right direction.

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Editorials 20 April 2010

April 20th, 2010 at 11:00 am by David Farrar

The Herald supports proposed student loan changes:

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.

t 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. …

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.

I agree that the two year stand down for new migrants should exclude refugees. Refugees are admitted for humanitarian reasons, not economic reasons.

The Dom Post talks terrorism:

Hence, terrorist threats to Olympic and Commonwealth Games are not just an attack on the athletes, or host countries, but an attack on international fellowship – an attempt to stop nations and peoples co-operating and getting to know each other.

The reasons for the weekend bomb blast outside the Chinnaswamy Stadium in Bangalore, venue for an Indian Premier League cricket match, are not yet known, but the amateurish nature of the devices that injured 17 people suggests it may have been the work of disaffected locals rather than al Qaeda, which early this year warned international competitors to stay away from the World Hockey Cup, the IPL tournament and the October Commonwealth Games in New Delhi.

But, whatever the case, Commonwealth governments and sporting associations are doing the right thing by not being panicked.

And the ODT supports safer driving measures:

Something must be done about youth driving.

The statistics are oft-quoted but they bear repeating because they lie at the heart of the Government’s move, among other things, to raise the driving age to 16.

Take comparison with Australia: New Zealand drivers in the 15-19 age group suffer an average of 21 deaths a year for every 100,000 of population, compared with Australia’s rate of 13.

Further, young drivers between the ages of 15 and 24 in this country comprise 16% of all licensed drivers but in 2008 they were involved in around 37% of all fatal crashes and 38% of all serious injury crashes. …

Road crashes in fact are the highest single killer of 15- to 24-year-olds and the leading cause of their permanent injury.

Broadening out the international comparisons, 15- to 17-year-olds in New Zealand have the highest road death rate in the OECD and 18- to 20-year-olds the fourth highest.

The Government’s moves in the area of youth driving are widely supported as long overdue.

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Editorials 9 March 2010

March 9th, 2010 at 12:00 pm by David Farrar

The Herald says student loans should be linked to success:

Tertiary Education Minister Steven Joyce had barely opened the portfolio passed to him at the end of January before he floated a significant change. He proposes to make student loans conditional on the student’s success. Living allowances available to students on age, income and residential criteria are not available to those who failed more than half their course the previous year. But loans are subject to no such test. From next year they could be.

And should be. The loan scheme attracts loud criticism from students’ associations because unlike grants and allowances, loans must be paid back. They call the debt a burden when it is, in fact, a considerable benefit from the taxpayer. The loans carry no interest during the borrower’s years of full-time study and repayments are not required until the recipient is earning an income.

And now the loans carry no interest, ever.

Since National promised at the last election to keep the loans interest-free, he needs to find another way to rein in their cost. Making them conditional on pass rates is an obvious and reasonable step. …

Higher education is expensive for the country and it would be reasonable to restrict it to school leavers who can pass an entrance test.

Mr Joyce should look beyond loan conditions and consider entry restrictions as he searches for the savings that all ministers are expected to produce from their portfolios for this year’s telling Budget.

I would also get rid of the stupid fees maxima policy.

The Dominion Post wants the whaling slaughter stopped any way possible:

The messy dispute now taking place between opponents of whaling is about tactics, not aims. That is what the critics of New Zealand’s willingness to explore a diplomatic solution that allows for some limited commercial whaling are refusing to acknowledge.

Labour foreign affairs spokesman Chris Carter – whose own government had no success in nine years stopping the Japanese – lambasted the Government yesterday as “an active advocate for the resumption of commercial whaling” adding it “simply doesn’t care about marine mammal conservation”. That owes more to rhetoric than realism, and fails to acknowledge the need for practicality as well as principles.

I suspect some opponents of whaling would be horrified if it stopped, as they would then have one less thing to protest about.

Foreign Affairs Minister Murray McCully has been suitably cautious over any arrangement. He is quite clear that the Government’s aim is to stop whaling in the Southern Ocean. He told Radio New Zealand those seeking a diplomatic solution had no mandate to do any deal, but were to see if they could come up with a solution “that the New Zealand Government and then the New Zealand people can consider”.

The Government is right to be cautious, but it is also right to allow Sir Geoffrey to explore all options.

In any negotiation, there has to be concessions from both sides. Otherwise there is nothing to negotiate.

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Student Loans access

February 27th, 2010 at 8:11 am by David Farrar

The Herald reports:

Tertiary students who fail more than half their courses may lose their student loans as the Government moves to crack down on abuse.

Only 50 per cent of domestic students who started studying for bachelor’s degrees in New Zealand in 2004 finished their degrees within five years – suggesting that up to half of the country’s 145,000 bachelor’s students will fail or drop out.

Student allowances are chopped if students failed more than half of their courses in the previous year, but there is no requirement to pass courses to keep getting student loans.

I can see this changing very soon. However I think one will want some ability to access loans if say a student drops out, enters the workforce, but a few years later wants to return to finish their degree.

Mr Joyce pointed to research showing 41.5 per cent of New Zealand’s tertiary education budget went into student loans and allowances, compared with an OECD average of only 17.6 per cent.

He told the Weekend Herald he wanted to shift funding to pay for more tuition places. “I’d like to see more money going into actually training EFTSs (equivalent fulltime students) and I’m looking around for opportunities to deliver that in 2011,” he said.

The budget will be interesting.

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Interest on Student Loans

November 12th, 2009 at 1:00 pm by David Farrar

The ODT reports:

The Government needs to consider adding “a little bit of interest” to student loans to ensure it has enough money to better fund universities, University of Otago vice-chancellor Sir David Skegg says.

And he is right. Of course it won’t happen, as National promised not to reverse the policy, but logically interest should be charged at least at the rate of inflation – maintaining the value of the loan in real terms.

Prof Skegg said the “massive cost” of student loans meant little money was available for other forms of tertiary funding.

Yep – that’s it for this generation. The bribe was so huge it chewed up all the disposable money. Without it, one would have a decent chance at abolishing parental means testing but that is off the table for at least a decade also.

The university council yesterday adopted a string of fee and levy increases for most students next year, and introduced a capital development levy of $50 to help fund improvements to student social facilities such as the University Union building.

Otago University Students Association (OUSA) president Edwin Darlow “somewhat reluctantly” supported the increases, which will add $190 to $600 to most Dunedin students’ bills next year.

The other student representative on the council, Simon Wilson, opposed the increases, saying they would lead to students increasing their loans.

The capital development levy was “essentially just an additional charge on students” because the university was unable to increase tuition fees beyond the level allowed by legislation, he said.

Prof Skegg agreed.

The problem is the silly fees maxima policy. The Government is controlling both the amount of funding from the Government, and the amount a university can charge in tuition fees. Of course it will end in tears – or with universities finding a way around it. It was one of the stupider policies of Labour and should not be continued by National.

National promised not to charge interest on student loans, and that promise should be respected. But it promise on the fees maxima was simply “Retain restrictions on the amount by which institutions are able to annually increase fees for publicly funded courses” which allows the Government to increase the amount institutions can charge, while still having some restrictions.

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Student Loans for Over 65s

July 6th, 2009 at 1:23 pm by David Farrar

The Dom Post reports:

Scrapping financial help for students aged 65 and over would put retraining out of reach for many older workers, senior citizens say.

Education Minister Anne Tolley said last week she had asked for advice about scrapping student loans and allowances for senior citizens.

Ms Tolley said although she supported lifetime learning, “in tough economic times we do have to carefully consider how and where our investment in education is best placed.”

About 150 people over 65 got a student allowance in the first three months of this year and 655 received a student loan.

Grey Power national president Les Howard said cutting funding for older students was discriminatory and ignored the increasing number of people choosing to work past retirement age.

The reality is that if you take out a student loan at age 65, you will probably never pay it back, and it is ridicolous to think that in these tight economic times the priority should be totally free tertiary education for people who have mainly retired from the workforce. The state subsidises tertiary education partly because a more educated workforce has an economic return to it.

The latest student loans annual report has the percentage of borrowers aged over 50 having increased from 0.4% in 1992 to 4.3% in 2007.

The former President of Grey Power was not as greedy as his sucessor – he agreed it was perverse:

“I struggle with the concept that money will be lent to people who are not working and can’t pay it back,” said Grey Power national president Graham Stairmand.

And Dr Cullen also said it was an issue:

Tertiary Education Minister Michael Cullen told the Herald he was aware of the issue and was looking into it.

He told National MP Pansy Wong in Parliament last week: “One of the slightly stranger features of the student loan scheme is that once one reaches a certain age, in effect one does not have to pay the loan back.”

If someone over 65 wants to do tertiary study then good on them. The taxpayer is still going to subsidise 70% or so of the cost of their course – which is bloody generous. But by giving them a student loan they will never repay, we are effectively increasing that subsidy to 100%. If you are over 65 and want to study you should pay for the course fees yourself – not borrow off the next generation of taxpayers. I hope the Government does change eligibility.


Quoting Bill English

June 4th, 2009 at 1:31 pm by David Farrar

NZPA has a story (not onlne yet) quoting Bill English taking questions at a post budget speech.

He is talking about how he wants to make it easier for graduates, especially overseas, to pay off their loan. His exact words:

For example, he said it was extremely difficult for students to get information about and repay loans, especially when they were overseas.

He said graduates were computer literate and handled banking on-line so should be able to make payments to their loans the same way.

“If you are overseas with a student loan it’s very hard to even find the IRD’s phone number anywhere,” Mr English said.

“For any other service you just go on your laptop and they’ve got their pirated movies, and they’ve got their music downloads and they’ve got their email from mum.

“It’s all there — so why aren’t their student loans there? Then they’d repay them.”

So Bill is saying it should be as easy to pay off your student loan, as it is to pirate music and movies :-)

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10% off

March 24th, 2009 at 6:48 am by David Farrar

From the 1st of April, any voluntary repayments over $500 towards your student loan, will get you an additional 10% knocked off the balance.

And as the Herald reports, this will apply to everyone with balances – not just those still in NZ.

The interest free students loans policy is fundamentally flawed. It provides an incentive for students to borrow more than they need, and to pay it back as slowly as possible.

The voluntary repayment discount is a good way to counter one of those problems, as it will now give an incentive for early repayments.

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Making money from interest free loans

March 14th, 2009 at 9:29 am by David Farrar

The ODT has a story of a student who made free money from his interest free loans. Now there were bank loans, not the government student loans, but the principle is the same in terms of highlighting why it is a bad idea.

Of course the interest free bank loans are a deliberate loss leader to try and get students to join their bank, hoping they will remain with them. And it tends to work as a strategy.

At school I banked with Wesptpac after winning a bank account (and some money) in an Australasian maths competion. But at university went with BNZ for the interest free overdraft and have stayed with them ever since.

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The voluntary bonding scheme

February 24th, 2009 at 7:12 am by David Farrar

National’s voluntary bonding scheme was made public yesterday, with this fact sheet. Key details for the health sector are:

  • Open to any doctor, nurse or midwive who has graduated since 2005
  • Doctors have to work in a hard to staff area for two years and then commit to a hard to staff speciality (which may move them to a different area)
  • Nurses need to work in a hard to staff speciality while midwives in a hard to staff location.
  • Hard to staff areas for Doctors are Southland, West Coast, Whanganui, Northland, Wairarapa, Lakes DHB, Tairawhiti DHB, Wairau Hospital, Whakatane Hospital and Thames Hospital
  • Hard to staff specialities for doctors are GP, General Surgeon, Internal Medicine, Psychiatry and Pathology and for nurses are Theatre, Intensive Care and Cardiothoracic
  • Doctors will get $15,873 gross or $10,000 net a year. Midwives $3,500 net and Nurses $2,833 net.

The NZ Herald editorial praises the scheme:

The use of voluntary bonding in many countries bears testimony to its effectiveness. It is timely that the Government has introduced a comprehensive scheme here, not just for doctors as it promised before the election, but also for nurses, midwives, teachers and veterinarians. …

During the latest junior doctors’ dispute, bonding was often mentioned as a means of stopping the drift to Australia. The National Party made it part of its election manifesto. Commendably, it has enacted its proposal quickly, adding cash incentives for those who do not need student loan writeoffs. Some may quibble at these extra payments but they are, in reality, compensation for compromised career paths. As such, the Government scheme should go some way to solving the country’s medical and educational staffing woes. Whether it is tailored sufficiently well to have the maximum impact is another matter.

It will be interesting to monitor how many people take it up

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Faster student loan repayments

February 7th, 2009 at 10:43 am by David Farrar

Treasury has suggested that the Government should use the tax cuts to increase the minimum repayment rate on student loans, correctly noting that there are little incentives o pay back loans faster at 0% interest.

At present, everyone earning more than $18,000 a year must contribute 10 per cent of their earnings to repaying their loan.

Treasury officials recommend new thresholds be set at 12 per cent for people earning more than $40,000 a year and 15 per cent for those on more than $60,000.

Planned income-tax cuts would offset the effect of the increases, the Treasury said.

Sounds sensible to me. It will lead to less student debt, and faster repayment times – both something student associations have complained about.

It recommends an overhaul of the repayment scheme and measures that “could include requiring students to pass a certain number of their courses or limiting the number of years students can borrow for”.

Also sensible. Good bye to life time students.

New Zealand Union of Students’ Associations co-president Sophia Blair called the Treasury suggestions ” ludicrous”.

“This would take much-needed money directly out of the pockets of struggling families,” she said.

This is ironic. I don’t recall NZUSA campaigning for tax cuts to help struggling families who earn above the average wage.

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