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Faster Repayments, Less Interest for Students


Hon Max Bradford
Minister for Tertiary Education

Hon Nick Smith
Minister of Education


MEDIA RELEASE

20 October 1999

Embargoed Until 9.30am

Next Year: Faster Repayments, Less Interest for Students


Next year tertiary students will be able to pay their loans back faster and will pay less interest because of the bringing forward of changes to the Student Loan Scheme, Tertiary Education Minister Max Bradford and Education Minister Nick Smith announced today.

"We are concerned about the debt burden on students and want to make the loan scheme fairer.

“The change to ensure at least 50% of repayments reduce the principal will stop student debt snowballing once students commence work. The other changes will make the loan scheme easier on students while studying," the Ministers said.

The changes being brought forward one year include a percentage interest write-off that will mean students pay less interest, without adding an incentive for loans to escalate out of control, as well as a more generous approach to repayments.

 At least 50% of repayments, less the inflation adjustment, will go first to repay loan principal. This will have a significant benefit on balances of money to be repaid.

 Students will get up to 25% of their base interest written-off while studying. This means most students will pay 5.7% on their loans while borrowing, rather than the full current 7%.

 A new change is that the amount students can borrow for course costs will be increased, from $500 to $1000. But students will still need to produce receipts to verify their costs.

Mr Bradford said the changes will result in students being able to pay back loans many years earlier, and in the process, save tens of thousands of dollars. The changes will mean a typical nurse will repay his or her loan five years faster, a teacher 7.5 years faster and a doctor three years faster.

"The Government strongly rejects Labour’s policy of removing absolutely all interest on loans while studying. Students will hardly say no to a free loan and will end up borrowing more.

“Last year, less than half of students had a student loan, and few students borrowed to the limit. Labour's policy is guaranteed to do only one thing – increase student debt," Mr Bradford said.

Dr Smith said the 25% interest rate discount while studying would reduce the burden on students while not encouraging unnecessary debt. “The discount has been set so that no financial advantage can be taken from increased borrowing and re-deposit with a commercial bank.

"Increasing the course-cost entitlement from $500 to $1,000 is in response to student submissions. The new system introduced this year requiring receipts for course costs is working well and we are now confident that the systems are in place to ensure any borrowing will be for educational purposes.

"The interest discount and changed repayment system are not new changes and came out of the 1998 review of the scheme. IRD advised Cabinet last year that it could not implement the changes until 2001. However, in August this year IRD advised it could implement the changes next year,” Dr Smith said.

The Ministers said the Government paid almost three-quarters of the cost of a student’s tertiary education and it was reasonable for students to make a contribution.

“An average graduate can expect to earn over half a million dollars more over his or her working lifetime than a non-graduate.

“Tertiary students want a fair go. That is what we are delivering – cheaper interest while borrowing and quicker repayments once graduated,” the Ministers said.

ENDS

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