Student loan repayments hiked, allowances restricted
Is the Government right to push for quicker repayment of student loans?
Student allowances will be limited to four years of study and automatic loan repayments will be bumped up to 12 per cent of income, the Government has announced.
In a pre-Budget announcement, Tertiary Education Minister Steven Joyce has revealed major changes to both the student loan and allowance schemes.
Joyce says the changes will slice $250m off the loan book and create $60m to $70m per annum savings for the Government, which would be re-invested in the tertiary sector.
The changes would be:
- Compulsory student loan repayment rate increased from 10 to 12 per cent.
- Likely cancellation from March next year of National's loan repayment incentive scheme, which offered a 10 per cent discount on voluntary repayments.
- Four year freeze on the parental income threshold for eligibility to student allowances.
- Allowances for any study over four years cancelled.
Joyce said New Zealand was an "outlier" by international standards in the way that it funded tertiary education. The Government wanted to rebalance spending away from student support and more towards "the actual tertiary space".
"We're going to encourage those that have completed their tertiary education to pay off their loan faster to assist those that are coming through next," he said.
The parental income threshold for allowances had been increasing "rapidly" ahead of the rate of inflation. Freezing the threshold would bring it "back in to balance over time".
The voluntary repayment bonus was being "looked at very closely" for cancellation from March next year.
It had "not created the increase in repayment that we had hoped". It had created a number of repayments but it most of those would probably have occurred anyway, Joyce said.
"In the current fiscal environment, that's something that we are looking at again and just deciding that, I think, for the $12m or so that it costs us annually, that would be better invested in the tertiary system."
Altogether, the changes would save "reasonable sums of money" - there would be a "one-off" revaluation of the student loan scheme "in the order of $250m". And about $60m to $70m per annum would also be saved an be re-invested "in a number of areas".
The changes have been immediately attacked by Opposition parties.
Labour's deputy leader Grant Robertson said the changes would "dampen demand" for tertiary study.
"The repayment rate for student loans needs to be a balance between timely repayment and allowing graduates to meet their cost of living," Robertson said.
"Increasing it to 12 per cent changes that balance and will put graduates - already facing increasing costs of living - under further financial pressure."
Graduates were also parents, looking to buy homes and or start families, he said.
"This will act as a disincentive for them to stay in New Zealand," Robertson said.
Green Party spokeswoman Holly Walker suggested the average couple could expect to lose about $15 per week from the changes.
About 40 per cent of couples with children aged between 18 and 24 had student loan debt and about 30 per cent of those aged 25 to 34 were also paying off student loans, Walker said.
"This group is already shouldering a completely unreasonable burden and rightly feels it's the victim of an intergenerational attack by this government," she said.
"A person on the average full-time wage for someone with a tertiary qualification ($59,000) would lose half their tax cuts from an increase of the repayment rate from 10 per cent now, to 12 per cent. That's a loss of more than $15 a week."
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