Student Loan Changes Widely Misunderstood
Government changes to the student loan scheme announced in November last year - and then again last week - are perhaps one of the most poorly communicated government announcements in recent times.
Either that or people have automatically shut out when hearing that the changes aren't scheduled to take effect until 2001. It has to be one of these because the changes the government announced are significant, yet hardly anybody, students included, seem to have even heard of them.
Indeed it wasn't until I read a speech of the Prime Minister's last week where the changes were mentioned that I realised changes were being made at all. A quick call to the PMs office for more information on this 'breaking news' had me disappointed quickly.
The changes were announced late last year, a spokesperson told me, but they would be happy to send some information because very few people had picked up on the news.
So what are the changes, how will they affect borrowers and why does nobody seem to know about them?
There are several changes relating to the rate of repayment that the government estimates will reduce student debt in 2024 by $4.7 billion, or about 20 per cent of the then forecast total debt.
Firstly, compulsory repayments will not repay interest in the first instance. Instead half of each compulsory payment, minus the inflation adjusted interest, will automatically pay off outstanding loan principle. If half of the repayment obligation does not cover the base interest charged then the student would have the remainder of their base interest written off by the government.
For most borrowers under the scheme this will reduce the amount of interest the scheme accrues as well as the total time to repay the debt.
The bottom line is that from 2001 onwards once a minimal threshold is reached - covering the cost of inflation - compulsory repayments of student loans will see the amount of the loan decrease over time. At present, while interest over the cost of the compulsory payment is written off, in effect many student loan borrowers find themselves going nowhere as their compulsory payment does not cover the base interest on their loan.
There has been considerable concern over students being charged interest on loans while still studying, with no opportunity to begin repayments. The government has decided up to 25 per cent of students' base interest will be written off while the student is still studying - in effect reducing the interest rate from its present rate of around 8% to around 6%.
The government claims these changes will ensure most borrowers will pay off their debt faster and pay less interest. They say most borrowers with low income relative to their debt will no longer make repayments without reducing their outstanding principle debt.
The government says this move addresses the concerns that under-represented groups like Maori and Women, who tend to have lower incomes, take a great deal longer to pay back their debts.
Karen Skinner of the New Zealand University Students' Association says that changes to the interest repayments will require legislation which so far the government has not introduced. She says this is because if the National Party are returned to office it will be with ACT who would not support such a move.
She says most students are not aware of the changes because, quite simply, they will not effect them. "The government looks set to lose this election," she said, "and as a result these proposed amendments are largely irrelevant."
Skinner notes that these changes were part of a much wider package launched in November last year, "right in the middle of exam time which is probably another reason why students don't know about them".
"The changes which were designed to save the government money, such as cutting amounts available for course costs, drip feeding living costs and axing borrowing for student association fees were introduced immediately and have had a devastating effect on students," she said. "The changes which were likely to cost the government money or reduce its revenue were very cynically postponed until after the election."
Skinner says that regardless, the government has been forced into making changes "because they have been made to see that their scheme was an unsustainable disaster".
She says NZUSA has done calculations which show that under the new rules it would still take a woman 29 years to repay a loan that a man would repay in 15 years.
It is clear the government has finally realised there are a number of very real problems with the student loan scheme and they have been forced to do something about it. The steps they are proposing do address some key areas of concern but now it is a question of scale. Will anyone else do any more?
Student loans have made a huge impact on this country through landing tens of thousands of young people with, quite often, lifetimes of debt. The government has proposed smoothing off some of the hard edges of the scheme but one must be cynical about their timetable. The scheme is still a monster and the impetus now goes onto Labour to show the country to what extent they recognise that.