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Student loans: the sky's not falling

14 September 2005

Student loans: Hey Chicken Little, the sky's not falling

Anti student loan debt publicity is scaremongering with no basis in fact and ignores the great successes of the loans scheme, says Education Forum policy advisor Norman LaRocque.

In response to the negative publicity over figures released today showing student loan debt at $8 billion, Mr LaRocque said the student loan scheme has served New Zealand well and has created opportunity for thousands of New Zealanders.

"Those who clamour for more interest write-offs and full student allowances ignore the fact that neither of these policies would make the cost of tertiary education disappear. They would merely transfer these costs to taxpayers, who already provide subsidies of almost $11,000 per full time student and subsidise around 70 percent of the cost of tuition.

"The student loan scheme provides comprehensive assistance to tertiary students on terms that are the envy of every other sector in society that must borrow money to invest."

For example, students get:

* an effective interest rate of around 3.5 percent (compared to an average interest rate of 18.8 percent for other forms of unsecured borrowing such as credit cards); and

* no interest while studying and interest write-offs for graduates on low incomes. Graduates who cannot repay their loans receive an interest write-off. Those who borrow from a bank - including farmers, homeowners and entrepreneurs - face foreclosure.

"The concern being expressed about the amount of debt is just pure hype - like 'chicken little' claiming the sky was falling," Mr LaRocque said.

The $8 billion in outstanding student loan debt pales in comparison to the $128 billion in mortgage, consumer and credit card debt outstanding in July 2005.

Recent policies - such as the write-off of interest for students introduced in 2000 - have contributed to the growth of outstanding debt. The government's own figures estimated that the policy change in 2000 would lead to a 30 percent increase in the amount of student loan debt outstanding in 2020.

The Labour Party's proposed 'no interest' policy on student loans could have the same effect by encouraging more borrowing and discouraging voluntary repayments (which constitute almost 50 percent of all student loan repayments).

Rather than making the scheme more generous, political parties should be focused on rolling back the interest write-off for students introduced in 2000, concluded Mr LaRocque.

A recent speech by Norman LaRocque and other information on student loans can be found at www.educationforum.org.nz

ENDS

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