29 Sep 2016

Student loan interest would harm graduates - Students' Union

11:46 am on 29 September 2016

The Union of Students' Associations (NZUSA) has dismissed the Productivity Commission's call for interest on student loans, saying it would cause further harm in graduates' lives.

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Loan repayments were already harming graduates' lives and interest would make that worse, say students. Photo: 123 RF

The commission's draft report on new models of tertiary education said the $300 million spent on interest write-offs each year could be better spent elsewhere and interest should be charged to graduates.

The report is the third time in recent months an organisation has questioned the value of interest-free student loans.

But NZUSA president Linsey Higgins said the organisation was still strongly opposed to the idea.

She said charging interest would hurt women graduates more than men.

"We know that that it inherently disadvantages women and other primary caregivers," she said.

"If they are forced to pay interest on their loan while they are being primary caregivers and not in the workforce, their loans are going to take longer to pay and they're going to have to pay more."

Ms Higgins said the cost of student loan repayments was already harming graduates' lives and interest would make that worse.

"We also know that young people are finding it hard to get started and buy a house and have children as it is today, and so adding interest is just going to exacerbate that problem."

The Productivity Commission's draft report said the charging of interest would save the government about $300m a year.

"Around $600m of debt is written off by the government each year: about half is attributable to the lack of interest cost; the remainder is various forms of non-repayment or default. There are many places in the education system where this money could be better spent."

The report said the cost of the scheme discouraged the government from taking steps that would increase access to tertiary education.

"Government should charge interest on future loans at a rate that covers the cost of the Student Loan Scheme. This will provide flexibility necessary to expand access to tertiary education."

In August, a report by the New Zealand Initiative think tank said the government could afford more help for poor students if it reintroduced interest.

And earlier that month the Child Poverty Action Group stopped short of recommending the reintroduction of interest, but said it might be time to evaluate if it would be worth trading the zero interest policy for more financial assistance for students while they were studying.

Meanwhile, the Productivity Commission's draft report said the tertiary system was slow to change and too focused on the needs of institutions, not students.

It said government regulations had created local monopolies and cartels and suggested an overhaul of the government agencies that oversee tertiary education, with less bureaucracy but tough penalties.

The report suggested dropping the University Entrance standard because some universities set a higher standard for entry, while others enrolled students who did not have University Entrance.

It also floated, but stopped short of recommending, a new way of funding tertiary education called a "Student Education Account".

The report said every 16-year-old would get an account worth $45,000 of tertiary education.

The Productivity Commission is an independent Crown entity, that provides advice to the government on improving productivity.

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