Student loans to remain interest-free

00:32, Mar 13 2012

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.

Key told a Colliers International event in Auckland this morning that while National would rein in the student loan scheme "in a big way", it was not considering changing its policy from keeping student loans interest free.

Student debt currently sits at $12.19b, according to the New Zealand Union of Students' Associations.

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."

In last year's election, National's education policy tightened conditions for student loan borrowers, including that they pass courses funded by a student loan in order to continue receiving lending.

National announced last year it would employ debt collectors to chase up the $2.3b of outstanding repayments due from borrowers living in Australia and the United Kingdom. It also cut the three-year repayment holiday period for offshore borrowers to just a year.