$11b student loan debt a disaster, says Key

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Fresh calls have been made for interest to be reintroduced on student loans after Prime Minister John Key said student debt was a disaster economically.

"If you're an investment banker – not that I am these days – you'd say it's a disaster of a loan book," he told students at Victoria University's Weir House yesterday.

"It's $11 billion, roughly, at the moment and we collect 53 cents in the dollar, that's it. Fifty-three cents in the dollar. If you just sat there, logically, you'd say there has to be a better way of doing it."

The Government has already announced moves to tighten access to the student loan scheme.

Tertiary Education Minister Steven Joyce has admitted it was a "political call" for National to back interest-free student loans during the 2008 election and Mr Key, in Opposition, described the policy as irresponsible.

Mr Key said yesterday that the policy was "politically charged" so it would stay. "But economically, it doesn't really stack up."

More than half a million New Zealanders have student debt.

The chairman of the vice-chancellors committee, Derek McCormack, said the Government should at least open the door to the idea of putting a low level of interest on to student debt. "A low level of interest would net quite a significant amount of money, which could be reinvested into more places in tertiary education," he said.

Changes announced in the May Budget, such as a 50 per cent pass rate requirement and an increased annual loan fee, were "fiddling rather than fixing" the scheme.

"Obviously, the whole country doesn't want to see the burden on students go up to the point where it becomes an impediment for them getting tertiary education.

"Equally, if people understood the implications, they would be as concerned that their young people got quality education," Mr McCormack said.