 |
|
28 July 2005 Student support is already
generous The Government’s recent announcement
that it would scrap interest payments from April next year and widen
access to student allowances is part of a broader trend among New
Zealand political parties to dumb down the student loan scheme and
student support policy. As the Herald noted last week,
the extent of the student debt “problem” is much overstated. Much of the discussion of tertiary
tuition fees and student loans in recent years could be more fairly
described as hype than rigorous analysis. Tuition fees have many advantages
and reflect the high private benefits associated with obtaining
a tertiary qualification. None of the common criticisms of
the student loan scheme – size of debt outstanding, its impact
on migration, the sustainability of the scheme or its effect on
tertiary participation – have been supported by hard evidence. The so-called brain drain is often
cited, but a Ministry of Education report this year said that fewer
than 5 per cent of all those who have used the scheme were recorded
as overseas last year. The report said there was no evidence
of large numbers of New Zealanders leaving the country to avoid
repaying student loan debt. The Government’s proposed
scrapping of interest payments for students living in New Zealand
is unjustified, given that the loan scheme is, and has always been,
one of the world’s most generous: The scheme provides assistance
to cover fees, living costs and other expenses. The “posted” interest
rate, at 7 per cent, is already far below bank rates for unsecured
borrowing. The effective interest rate is less than half that level
because of existing interest write-offs. Students do not pay interest while
they are studying – any interest that accrues during this period
is written off. Some interest is written off for
those who do not earn enough (around $16,000) in any given year. The scheme is the envy of farmers,
small business people and entrepreneurs, who face far more risk
in their investments, yet cannot access money on such generous terms.
If they can’t pay their loans, they get a visit from the bank,
not an IRD notice that their interest has been written off. The student loan scheme has helped to lift tertiary education participation and open up opportunities for a broader range of New Zealanders, and tertiary education participation has risen across the board since it was introduced. Evidence worldwide suggests that
low fees do not necessarily generate high access. OECD data shows that in the six
countries with the lowest entry rates to tertiary-type A (higher
level) education in 1999, private sources of tertiary educational
spending was low. Countries with higher private contributions had
higher participation. Student loan uptake is increasing
in Australia as students take advantage of the new loan scheme there.
Enrolments at 31 Australian private colleges and universities have
risen 10 per cent this year as the scheme has opened up more opportunities
for choice about where to study. The Government’s proposed
changes will do nothing to lift quality in the tertiary education
sector, nor will it pay good staff more, help build New Zealand’s
research base or encourage more on-the-job training. The estimated $300 million annual
cost for the change to the loan scheme (at maturity) will mean less
money for other priority areas, including schools, hospitals, police
and tax cuts. The proposed changes will, for
the most part, benefit students from middle-class families and will
do little to widen opportunities for students from disadvantaged
backgrounds. How will the scrapping of interest for some graduates
help the 30 per cent or so of Maori students who leave school with
no qualification? The Government argues that scrapping
interest on loans will massively reduce repayment times. While it
will reduce the interest build-up for students, some of this will
be offset as more students are likely to borrow (and borrow more),
given that it is free money to them. The change does not appear to be
in line with the public’s interests. A recent Herald
poll found that only 1.2 per cent of survey respondents saw the
student loan issue as the most important election issue, placing
it 12th among 17 – well behind health (18.8 per cent), tax
cuts (14.9 per cent) and education (14.7 per cent). Instead of focusing on making an
already generous student support system even more generous, political
parties should focus on advancing the national interest through
the promotion of policies that will expand opportunity for everyone,
especially those who are most disadvantaged. Policies aimed at improving school
outcomes, along with flexible tertiary fees, more market-oriented
loans and grants targeted at disadvantaged students, offer a better
prescription for doing this than current political party offerings. Norman LaRocque is policy advisor to the New Zealand Business Roundtable. For more information, contact: Norman LaRocque Web: www.nzbr.org.nz |