Student loan repayment thresholds
Student loan repayment thresholds need a new benchmark
The Aotearoa Tertiary Students' Association (ATSA) is disappointed that the government continues to use the domestic purposes benefit as the income threshold for student loan repayments. The association advocates use of the average wage as a less arbitrary and more logical benchmark.
"We have nothing but praise for those beneficiaries who are studying while also care giving," ATSA president Julie Pettett stated today. "But to link the student loan repayments of tens of thousands of non-benefit receiving borrowers to the domestic purposes benefit seems to be a crude and muddled method for managing over five billion dollars of student debt."
"ATSA has calculated that the 3.02% increase in the repayment threshold (from $15,496 to $15,964), for a bachelor qualified borrower with a $12,643 student debt, will save $47 per year," Pettett stated. "If the government sees that as a meaningful commitment to reducing the cost of study, they are living in fairy land."
ATSA believes that repayment thresholds need to be based on logic, rather than arbitrarily fixing them according to one type of government benefit. Once borrowers are in the workforce, they repay their loans according to income earned. It would make more sense to use a measure of earned income, rather than the domestic purposes benefit, to define borrowers' repayment commitments.
The benchmark measure best suited to this purpose is the average wage, as reported in the Labour Department's Quarterly Employment Surveys. This is also used for the calculation of New Zealand Superannuation payments, which are set at a minimum 65% of the average wage. In the August 2002 quarter, the average wage, adjusted to a 37.5 hour week, was $37,143 per year. Sixty five percent of this sum is $24,143. ATSA believes that these two income levels comprise a more coherent and just basis for setting student loan repayment thresholds than the method currently used. The differences in the two methods are summarised below:
Tax Year 2002/03 2003/04 ATSA Proposal Repayment threshold $15,496 $15,964 $24,143 Base interest write-off threshold $25,378 $25,909 $37,143
"By benchmarking repayment commitments to the average wage, there is a logical connection between the user-pays ideology underpinning the Student Loan Scheme and the realities of the marketplace," Pettett stated. "Our proposed approach removes the economic contradiction inherent in using benefit-based thresholds, and helps clarify the much vaunted relationship between tertiary qualifications and post study income opportunities."
"ATSA believes that the Student Loan Scheme will eventually be abolished," Pettett concluded. "It is economically and socially unsustainable. A wise government would plan for that day by steadily reducing the debt burden carried by current borrowers. Offering small tokens based on arbitrary benchmarking with the domestic purposes benefit is not a sensible approach."