It’s time to set student loan limits

Tertiary Education Minister Steven Joyce indicated recently that the Government will look at tightening the “boundary” of eligibility for student loans.

He said his Ministry was considering measures such as introducing a “lifetime limit” on how much people can borrow and how long they have lived in the country before receiving the funds.

The current interest-free student loan policy was introduced after the 2005 election, and it has had a number of unintended consequences, making it worthwhile for the Government to re-examine the policy and its affordability.

The policy has given students little incentive to repay their loans.

Most students repay the minimal amount required each year, letting inflation and time erode their debt, at the government’s expense.

Well-off students, who do not require student loans, can exploit the facility by taking the interest-free loan unnecessarily and using it as capital to invest and earn their own interest. Young school-leavers who might otherwise have gone into trade or meaningful employment, sometimes find university an easier prospect, knowing they will be subsidised by interest-free government money.

This does them a disservice if they are not cut out for the university learning environment and may be better suited to more practical professions.

The difficulty with the interest-free student loan is that, like milk out of the bottle, it is incredibly difficult to reverse.

The Government should tighten its belt on fiscal spending, but would be extremely unpopular with students and graduates if they were to reinstate interest on student loans.

Therefore, the steps being indicated are small.

Canterbury University Vice-Chancellor and former Deputy Governor of the Reserve Bank of New Zealand suggests that the Government should go further by adjusting the loans for inflation so that students do not benefit from drawing out their repayments. According to him, the Government can save up to $200 million a year on this account, based on an assumed two percent inflation.