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Economists getting it wrong on loans for years

Hon Trevor Mallard
Minister of Education

4 August 2005 Media Statement

Economists getting it wrong on student loans for years

A report released today by Treasury forecasting the take-up of student loans following the introduction of the no-interest-while-studying policy shows just how inaccurate forecasting of behaviour can be, Education Minister Trevor Mallard said.

"The December 1999 paper from the Ministry of Education, with Treasury involvement in checking the assumptions and costings, shows that when the no-interest while studying policy was introduced, it was predicted there would be a considerable increase in the percentage of students drawing down student loans. While there was a modest increase, it was nowhere near the projection," Trevor Mallard said.

"This paper highlights how out of touch with human behaviour some forecasters can be. Even this paper, which was reasonably conservative, got it badly wrong. This makes a further mockery of extremist economists who have used wildly inaccurate figures to bag Labour's proposal to scrap interest on student loans.

"New Zealanders are sensible people. We don't borrow money unless we have to. I think Kiwis are aware that a student loan is just that – a loan that has to be paid back. The suggestion by economists and the National Party that New Zealanders will all deliberately set out to rort the system shows just how little trust they place in people.

"There are very tight restrictions on how student loans can be used. Tuition fees are paid directly to providers, and living costs can only be drawn down in weekly instalments. This differs markedly to National's original scheme, which forced borrowers to draw down lump sums of at least $800.

"Labour's proposal to scrap interest on student loans has been welcomed up and down the country. Loans will be paid back much faster and thousands of dollars in interest payments will be saved. It's much better for kiwis than National's complicated tax rebate system.

Take-up of student loans following introduction no interest while studying policy

1999 2000 2001 2002 2003 2004
Projection 50% 70% 80% 80% 80%* 80%*
Actual up-take 50% 55% 56% 57% 60% 55%

* assumes forecasts would remain consistent in out-years


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