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Govt. Response To Student Loans/Allowances Inquiry

GOVERNMENT RESPONSE TO

REPORT OF THE EDUCATION AND SCIENCE SELECT COMMITTEE

ON

INQUIRY INTO STUDENT FEES, LOANS, ALLOWANCES AND THE OVERALL RESOURCING OF TERTIARY EDUCATION

Presented to the House of Representatives

in accordance with Standing Order 248

GOVERNMENT RESPONSE TO

REPORT OF THE EDUCATION AND SCIENCE SELECT COMMITTEE

ON

INQUIRY INTO STUDENT FEES, LOANS, ALLOWANCES AND THE OVERALL RESOURCING OF TERTIARY EDUCATION

INTRODUCTION

1. The Government has carefully considered the Education and Science Select Committee’s (“the Committee’s”) report.

2. The Government responds to the report in accordance with Standing Order 248.

3. The Government is able to respond positively to the Committee’s recommendation. Work is already underway, and further work is planned, which supports the Committee’s recommendation.

RECOMMENDATIONS AND GOVERNMENT RESPONSE

Background

4. The Committee began its considerations on 2 March 2000 and called for submissions by 24 July 2000. The Committee heard 96 submissions in Auckland, Wellington, Christchurch and Dunedin. A total of 401 written submissions were received. There were also 2,459 form submissions.

5. The Committee received advice from:

5.1. Ministry of Education;

5.2. Ministry of Social Development;

5.3. Inland Revenue Department;

5.4. Ministry of Women’s Affairs; and

5.5. Ministry of Youth Affairs.

6. The Committee sought submissions on the following matters:

6.1. the strengths and weaknesses of the current system of student fees, loans and allowances;

6.2. the future social and economic impacts of student loan debt, including the sustainability of the scheme;

6.3. the implications of the current funding model on the quality of education, course selection, skill availability and the brain drain; and

6.4. any other matters to do with the resourcing of tertiary education.

7. The Committee tabled its report on 30 October 2001 and made one comprehensive recommendation:

that the Government undertake a significant, extensive and high-quality research programme into tertiary education resourcing to be conducted as a matter of priority by all relevant government agencies.

8. The Committee stated that the work programme must provide in-depth analysis of the economic, social and educational implications of the current system operating in New Zealand and extensive comparative analysis of the systems of comparable jurisdictions.

9. The Committee also stated:

9.1. their concern at the lack of availability of quality research in the area of tertiary education resourcing;

9.2. their concern at the failure of several Ministries and government departments to conduct extensive research in the area of tertiary education resourcing; and

9.3. that because of 9.1 and 9.2 above, and because the members of the Committee represent different political parties and hold different views on future policy directions, the report represents a narrative of the submissions made and related evidence and research. No policy changes are recommended.

Comment on the Committee’s Recommendation

10. The Government endorses the Committee’s concern over the quality of information available. It is worthwhile considering recent initiatives in the area of student support including:

10.1. initiatives the Government has implemented to make tertiary education more affordable for students;

10.2. the Government’s response to the Auditor-General’s report on student loans including the establishment of a longitudinal dataset (known as the data integration exercise) from the various agencies responsible for the Student Loan Scheme to improve information on the scheme; and

10.3. ongoing work on student support following the Committee’s report that will lead to a public discussion document.

Initiatives the Government has implemented to make tertiary education more affordable for students

11. The Committee’s report has highlighted the concern of a number of submitters about the cumulative effects of student loan debt on individuals. The Government is aware of this public concern and is determined to make tertiary education more affordable for students. The Government recognises the fundamental role of tertiary education in equipping New Zealanders with skills and knowledge essential for this country’s development as a knowledge society, and is committed to investing in tertiary education and to increasing this investment over time.

12. The Government has already taken a number of steps to increase the affordability of tertiary education. The following student loan initiatives were implemented to address the issue of debt escalation as a result of interest compounding on loans while borrowers were studying and the burden of long repayment periods faced by some borrowers:

12.1. full-time, full-year students and low-income students now pay no interest on their loans while they are studying;

12.2. new repayment provisions mean that 50 percent of the compulsory repayment obligation is credited to the base-interest charged, with any excess being written-off. The other 50 percent (together with any amount from the first 50 percent that exceeds the base interest charged) is credited to the interest adjustment (CPI) charged and principal. This will accelerate repayment of the principal and therefore reduce the length of time that it will take for borrowers to repay their loan; and

12.3. the Government has set the student loan interest rate at 7 percent for the 2000/01 and 2001/02 income years. This rate is significantly less than rates that apply to other forms of non-secured borrowing.

13. The Government has also addressed increasing tertiary tuition fees through the fee stabilisation policy for 2001 and 2002. This means that in 2001 and 2002, students at all of our public tertiary education institutions are, and will face, tuition fees which are no higher than they were in 2000.

14. The Government is also implementing a number of initiatives over the 2001/02 summer vacation period to support students. The Government acknowledges that despite efforts to increase the supply of quality student jobs over the vacation period, there will still be tertiary students who need income assistance over summer. The initiatives include:

14.1. re-launching a communications strategy, to coincide with the 2001/02 vacation period, to ensure that students are aware of the assistance available to them, particularly the criteria for eligibility to the Unemployment Benefit (Student Hardship). The Government first launched the communication strategy to coincide with the 2000/01 vacation period;

14.2. establishing a separate Student Work Start Grant programme which in certain circumstances can assist students in the cost of moving into significant holiday employment; and

14.3. stimulating the availability of quality summer jobs for students, which is aimed to benefit both students and businesses. This involved the launch on 16 August 2001 of SNAP. This is an initiative to help tertiary students find and undertake career related work projects over the vacation periods, and to better inform businesses of the benefits of hiring students over this period.

The Government’s response to the Auditor-General’s report on the Student Loan Scheme

15. The Auditor-General’s report was released on 23 June 2000 and identified two key areas for improvement:

15.1. Clarifying responsibilities and improving information availability by addressing capability and accountability issues; and

15.2. Improving financial reporting requirements for the Student Loan Scheme.

16. In response to the Auditor-General’s report, the Government has been working to improve the financial reporting requirements, clarify responsibilities, and improve the information available to the public about the Student Loan Scheme.

17. The key to meeting many of the Auditor-General’s concerns about the Student Loan Scheme, and indeed many of the concerns reflected in the Committee’s report, lies with putting into place a dataset from the various agencies responsible for the Student Loan Scheme, which Statistics New Zealand will integrate.

Data integration

18. Data from the Ministry of Education regarding students' educational (and some demographic) information would be integrated with data from the Ministry of Social Development regarding loan drawdowns and data from the Inland Revenue Department on post-study income and outstanding loan debt. This will form a longitudinal record for each borrower, held under the security of Statistics New Zealand, showing incomes post-study, periods with low income, repayment times, amounts of write-off received and periods spent overseas, for different groups of student loan borrowers.

19. This research will underpin future policy development and will provide accurate and timely information for:

19.1. forecasting;

19.2. reporting of the student loan asset in the Crown accounts;

19.3. understanding the cost of the scheme to the Crown;

19.4. costing policy changes; and

19.5. assessing some socio-economic impacts, including estimations of the return on investing in tertiary education and information on borrowers going overseas.

20. The project, for example, will be able to provide better information to help answer policy questions such as:

- What is the average post study income level after controlling for non-borrowers of the same age?

- What is the effective interest rate by age, gender and ethnicity?

- Which groups get interest write-offs?

- What are the expected repayments by age, ethnicity and gender?

- What are the differences in income by age, ethnicity and gender?

- What is the total debt by gender, ethnicity and age?

- What are the total interest write-offs by gender, ethnicity and age?

- What proportion of borrowers are going overseas? and

- What is the proportion of borrowers who are overseas who repay their loans by age, gender, ethnicity and debt level?

21. A proposal for funding will be prepared once the remaining privacy issues and technical issues are worked through. The current schedule is that the integrated data set will be compiled by mid 2002.

22. There is also the possibility that the integrated data set could be extended to provide information on other tertiary student support areas, such as the inclusion of students who receive student allowances.

23. It is anticipated, however, that some of the analyses will not be possible for some time, as the time series in the integrated dataset will not be fully developed. While an integrated data set will provide a wealth of information that will help us improve our understanding of the impact of the scheme, it will not answer every question that may be raised about the socio-economic consequences of student loan debt. For instance it will not tell us about the effect of loans on wages in terms of the differentiation of wages by occupation, or any effects of student debt on home ownership or fertility trends. This is because the information required is not currently held on administrative databases.

24. The data integration project will be the Government’s initial priority in terms of gauging the impact of student loans. When this is completed, specialist research could be undertaken to build on the information obtained through the project.

25. The Government also recognises that there are difficulties in evaluating the cause and effect of the Student Loan Scheme given that we do not know what situation we would be facing now had an alternative policy direction (with no Student Loan Scheme) been taken.

Improving information and financial reporting

26. The Government recognises the value of more and better information about the scheme being available for students, providers and the general public. Improved information will enable students, for instance, to make more informed decisions about their investment in tertiary education.

27. There are a number of initiatives that will make a difference in terms of improving information on student loans, before the data integration project gets up and running. Initiatives already made or underway include:

27.1. quarterly reporting of information about repayments and student loan borrowings through departmental websites;

27.2. tabling the Student Loan Scheme Annual Report in Parliament in December 2001; and

27.3. future financial forecasts and costings including assumptions and risk assessments from 2002 onwards.

28. The Annual Student Loan Scheme Report will be improved by including the best estimate of the total cost of the scheme to the Crown and a set of desired socio-economic indicators, which is currently under development.

Clarifying responsibilities

29. Responsibilities between agencies have been clarified to ensure that appropriate information is made available in a timely manner. The Ministry of Education takes the lead on reporting on the financial aspects of the scheme, providing information on the socio-economic impact of the scheme to the extent that information allows, and for advice on how to minimise fiscal risks within current policy constraints.

30. The Treasury will be responsible for analysing the scheme in the wider context of the Government’s balance sheet. A separate organisation with overall responsibility for strategic risk management and financial reporting of the scheme was considered, but would not be cost-effective.

Ongoing work on student support following the Committee’s report

31. The primary objective of student support is to ensure that people with an interest in, and the capacity to benefit from, tertiary study are not prevented from studying because they cannot afford to do so. Student support currently takes the form of allowances targeted by income (including parental income in some cases) and loans to be repaid when the borrower earns more than the income threshold.

32. The Government is currently examining the tertiary funding system in response to the Tertiary Education Advisory Commission’s (TEAC) fourth report entitled “Shaping the Funding Framework”. A Tertiary Education Strategy is also being developed which will determine the Government’s desired priorities and outcomes for the tertiary system.

33. It is important that the effectiveness of student support policy settings are considered alongside work on this other work. The tertiary funding system and the tertiary support system are linked together as a package to support the Government’s objectives for tertiary education. Decisions made in any one of these areas will impact on the other.

34. The Government has developed a work programme for student support that will set out:

34.1. a framework for considering issues;

34.2. some constraints and issues;

34.3. a number of options and alternatives; and

34.4. a comparative analysis of student support systems in comparable jurisdictions.

Timelines

35. The proposed timeline for this work is:

35.1. for officials to report to Ministers in late April 2002 on options for inclusion in a document for public consultation; and

35.2. for officials to finally report to Ministers in October 2002 including the results of the data integration project and public submissions, both expected in late June 2002.

Conclusion

36. The Government has made a number of changes since coming into office to make tertiary education more affordable to New Zealanders. The Government acknowledges the need for more and better information on the Student Loan Scheme to inform policy development and to monitor the effects of student loan policies. A number of initiatives have been put in place, and a number are currently underway, to address this issue. A key initiative, which will help meet the concerns of both the Auditor-General and the Committee, is the data integration project currently being developed between agencies.

37. In response to the Committee’s report a work programme has been developed to investigate options for tertiary student support. The major focus of the work programme is to; examine the effectiveness of student support policy settings in light of ongoing work strands; propose an analytical framework for considering student support issues; and to identify alternative approaches to student support and assess these within the analytical framework developed. This work will lead to a document for public discussion.


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