Joe Hendren

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Tuesday, July 26, 2005

Labour's 2005 tertiary policy

As part of their 2005 Tertiary Education Policy Labour have promised to remove all interest from Student loans from next year. This is a progressive step, but long overdue. In fact, the idea comes directly from the Alliance 1999 Education policy, which called for student loans to become immediately interest free, pending an inquiry into how to get rid of the rest of the debt.

National supporting blogger David Farrar is unhappy with the policy - I will deal with his criticisms point by point.

"1) You will be insane if as a student you do not take out a student loan. 100% of students will take loans out."

With fees and student living costs continuing to rise under National and Labour Governments attempting to portray the student loan scheme as "an option" simply is not credible. I desperately attempted to avoid a student loan while I was a student (1995-2000), as I regarded the whole system as immoral as well as representing a very bad financial arrangement. As costs increased every year it became more and more of a struggle to avoid the loan - if I had not taken out a loan in my final year I would not have been able to do honours. If I had been studying a few years later, I would now have 5 years of student loan to pay off. So much for the 'free market', if you want an education a student loan is now a 'forced sale'.

This is confirmed by the statistics. In 1994 64.4% of full time students took out a student loan. By 1999 this had risen to 73.7%*. For later figures I could only find (handy) the figures for all students, including part-time students who are more able to avoid loans through part-time employment. In 1994 39.6% of all students took out a student loan, rising to 47.9% by 1999, with around 60% of all students taking out a student loan in 2003.

"2) You will also be insane if you do not borrow the maximum amount. Even to stick it in the bank. Students are not stupid and like interest free money."

Which is a darn good reason to reintroduce a universal student allowance and limit student loan borrowings to just tuition fees and course costs. Better still, reintroduce free education.

It would be ridiculous for the Nats to run this kind of argument given that their initial student loan scheme allowed students to borrow thousands in big chunks at the start of term. Thankfully they stopped this and restricted living costs borrowings to every two weeks, but this did not stop the ideological idiots at the OCED expressing regret at this change.

"3) Likewise one would be insane to ever make a voluntary repayment. Given a choice of repaying a student loan or paying off a mortgage or even sticking money in a bank, there will be zero incentive to make voluntary repayments."

David is right that interest free loans will not encourage voluntary repayments. But this is not a crushing blow - there are many things that could be done to encourage repayments under an interest free system. For example the Government could introduce a $1 for $1 scheme (as Labour promised in 1996) or offer a partial or full writeoff of the interest accured on existing loans provided people made an arrangement with the IRD to make additional payments.

In any case I doubt many people are making voluntary repayments anyway, the only people I know making voluntary repayments are those currently living overseas.

While this policy is a step in the right direction students should not be blindly voting for Labour. Their slowness to make any real changes over 6 long years and other aspects of the policy indicate Labour still should not be trusted on tertiary education issues.

On the list line of the policy is a threat that should not be ignored. "Investigate the viability of a long-term savings scheme for parents saving for their children's education". By mentioning this they are testing the water for an idea that obviously has support among right wing Labour caucus members and United Future. At election meetings people have a chance to make it clear to Labour such a policy is yet another significant break with its social-democratic heritage and a very bad idea. Make sure those Labour MPs get the message - drop it!

Despite signaling some progressive moves today, student fees will continue to rise under Labour, they only promise a system of 'caps' (fees will be even higher under National). Labour want to keep the student loan scheme.

Those that want free education should vote elsewhere.

* Source: "Inquiry into Fees, loans, allowances and the overall resourcing of tertiary education", Report of the Education and Science Select Committee October 2001.

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11 Comments:

At 10:11 AM, Blogger David Farrar said...

You are wrong. Half of all repayments are voluntary. So repayments will drop in half.

Also only 55% of eligible students take out loans at present. The 45% who do not are going to diminish very quickly under this policy.

 
At 12:04 AM, Blogger Joe Hendren said...

The 60% figure was a 2003 figure, which is linked above.

55% was only a projected figure, based on more part-time, part-year students becoming elligible for loans in 2004. Or does your 55% figure come from somewhere else?

If it can be assume that the most significant group more likely to take up loans under a no interest scenario are part time students, as the high % of full time students already using loans suggests (as I quoted above), then any attempt to calcuate how much total student debt is expected to rise using an average loan (of all students) would result in an exageration, given that part-time students do not qualify for the living costs component of a student loan.

 
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Short Sale - You sell your property for less than you owe but your lender accepts it as payment in full.
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Bankruptcy - You have to file bankruptcy to protect yourself, but if you miss one payment you will be right back in foreclosure.
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21. I'm unemployed. My spouse does have a job, but her name isn't on the mortgage. Can I qualify for a Loan Modification?
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as the day before..

 
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