Q + A
Paul Holmes Interviews Steven Joyce

PAUL More than half a million people owe $11 billion in student debt, and now the Government is forcing them to repay it faster, plus, study longer than four years, there will be no government allowance. There will be other changes as part of the Budget on May 24. Labour’s already calling it a black Budget for the half a million students, but Business New Zealand says the student loan scheme – free loan scheme – is dopey and it is a hopeless expense and they want to end this interest-free-loans business. Is that likely? Tertiary Education Minister Steven Joyce is with us. Welcome.
STEVEN JOYCE – Tertiary Education Minister
Gidday, Paul. How are you?

PAUL Can we talk about the interest-free-loan scheme? Can we actually afford it? Half a million New Zealanders now owe $11 billion. Can we afford this?

STEVEN Well, in the sense that we can afford anything that we do, of course it is affordable. It’s just a decision that you make, and, actually, the public, I think, have said that they want tertiary students to pay a contribution towards their education. I think everybody’s agreed on that. But they’ve also said they don’t want to be actually them having their whole lives attached to a loan which means they can’t get on and actually get families together, buy houses and those sorts of things. So I think there is a balance there, and that’s the balance we’re trying to strike.

PAUL Well, but in the end, can we afford it? I mean, do you think it’s good policy?

STEVEN I think— Look, I actually think it’s fine because the repayment rate is actually— the rate at which people pay off their loans is actually about, sort of, five years if they stay in New Zealand. It’s a lot longer if they go overseas. This will shorten it back to about four and half years. And I actually think that’s about right. If you put interest back on the student loans, you would extend the repayment time out for many years longer, and I think there’s a trade-off there, and we think we can make this repayment rate change, which increases—

PAUL Well, when Labour introduced this, you all thought it was, in fact, your leader called it an “’05 dopey policy”. I think he called it— No, he didn’t call it dopey; he called it ‘reckless and irresponsible’. Do you still think that?

STEVEN I think he thinks that—

PAUL 11 billion bucks worth of debt.

STEVEN Well, no, that’s been current for— That’s irrespective. If you actually put the interest back on, the debt would be bigger, because, actually, it would be accumulating at a faster rate, so the 11 billion – that’s the whole student-loan scheme since it began has created sizeable debt. But, look, it’s the way in which we can get more students through university. The other side of it is we actually have the most students that we’ve ever had going through. We’ve got a very highly trained and highly skilled workforce as a result of this scheme. But it’s about getting the balance, and we think if we can get it to pay off a little bit faster, we can reinvest that money in tertiary education, which we need to do to make sure that we’ve got a better system for the next group coming through.

PAUL All right, but regarding the current system, if it were politically feasible, would you scrap it? Would you get out of it somehow?

STEVEN No, I don’t think that we would for exactly the reason I—

PAUL You’re only getting 41c in the dollar back from this—

STEVEN Actually, we’re not. When we inherited it, we were getting 50c in the dollar back, and we’re going to get it down to about 41c, 40c with these changes. But the trade-off is you don’t want all the skilled people spending the rest of their lives paying off loans. There is a balancing act there, and if you put interest back on the loans, it’d be five or 10 years longer before they actually end up paying them off. This process that we’re doing now – asking them to pay a bit more – will shorten the repayment period by about four to five months on average and give us significant sums of money to reinvest in the system.

PAUL Yeah, but, see, the country— The country is borrowing and paying big interest and doling the money out with no interest. Phil O’Reilly of Business New Zealand says, ‘National and Labour should both wake up and realise we cannot afford it in the state we’re in.’ What’s more, he believes it’s unfocused, random spending.

STEVEN No, well, I mean, in the same, Phil would turn around and say, ‘Yes, but we need to have a highly skilled workforce, and we need to invest in that highly skilled workforce,’ and so it is a balancing act. We do spend a lot of money on student support in this country. There’s no doubt about that, and we are going to shift that at the margins back into investment in the system itself. But, actually, our tertiary system on the whole performs pretty well. It’s performing better. We need to invest more in strengthening our universities. I think that is very important to make sure that they continue to compete in the world. There’s no point in having an education – a university education – if it’s not seen as a really quality university education. So we are going to put another $60 million or $70 million a year back into the wider tertiary system.

PAUL All right, with the extra you’re getting.

STEVEN That’s right.

PAUL And you’re going to get that extra from the students who stay here. They’re going to have to pay 12% of all earnings towards their student loans instead of 10%. Now, that’s tough, isn’t it?

STEVEN Well, for somebody on about 25,000, at the bottom end, that’s about two bucks a week. For somebody at 70,000, that’s about 20 bucks a week more.

PAUL Yeah, so a couple— a couple earning about 70 between them, it’s about, what, 30, 40—?

STEVEN No, it depends on their level of loan, but we’d still be— it would still be 70— if it’s 70 grand, it’ll be 20 bucks a week.

PAUL What I’m saying to you – why wouldn’t they go to Australia now?

STEVEN Well, because—

PAUL You’re not doing this to the overseas borrowers.

STEVEN Well, actually, we are. There’s two changes there. Firstly, we are chasing the much harder—

PAUL Yeah, you’re chasing them. You’re chasing them.

STEVEN Yeah, well, that’s right, and catching them. And, actually—

PAUL Yeah, and the ones that stay in New Zealand, that make the commitment in New Zealand, they’re captive – you can hit them easily.

STEVEN Yeah, but, actually, the ones that go overseas pay interest on their loans, Paul. The moment they leave, they’re paying interest on their loans, so that’s actually— yeah, it’s actually a disincentive for people to go overseas, because if you go overseas, you’re paying interest on your loans and it accumulates while you’re overseas. If you stay in New Zealand, you can pay it off under the system. Yes, it will cost a little bit more, but they’ll pay it off on average four to five months faster and we’ll get the money back for loans, and meanwhile we’re chasing those overseas, which the previous government dismissed as a too-hard approach. They said, ‘Oh, if they go overseas, we’ll catch them when they come back.’

PAUL What improvement have you made to catch them overseas?

STEVEN Oh, we’ve—

PAUL What improvement?

STEVEN Well, first of all, we’ve put the debt—

PAUL Very quickly. Quickly.

STEVEN debt collectors after them in the UK and Australia, we’ve made it so you can enforce court judgements to collect the whole loan, we’ve got some going through the courts right now, and we’re spending, frankly, just advertising and chasing them, and we’re getting a return of about $15 for every dollar we’re investing and hauling this money back from Australia and the UK. It’s early days, but there’s a lot more to do, but I think we can make a real change there.

PAUL Righto. Another thing you’re doing is you’ve flagged the dropping of the bonus repayment scheme. This is something you introduced—

STEVEN That’s right.

PAUL whereby you gave a 10% bonus on voluntary lump-sum repayments, for example, if I paid you back $500 of my loan, you’d put in an extra 50.

STEVEN That’s correct.

PAUL So actually 550 would go on—

STEVEN It was costing us $11 million or $12 million a year, and it wasn’t achieving the change in repayments rates that we were looking for, particularly from overseas borrowers, so what we’ve decided instead is to toughen up on overseas borrowers.

PAUL Right, is it definitely going? Because you’ve flagged that it might go. Has it—?

STEVEN Yeah, I think it’s highly likely at this point.

PAUL Now, another thing you’ve doing is you’re doing four years maximum payment of student allowances. Now, that’s going to discourage postgraduate study, isn’t it?

STEVEN No, it’s—

PAUL That’s the big thing there. Okay, you can still get a student loan.

STEVEN Yes.

PAUL I know that, but you’re not paying allowances over four years.

STEVEN Well, hang on. You were criticising me before, saying that the student-loan system is a waste. Now I’m asking people to use it rather than getting this free money from the government, and you’re saying that that’s a criticism of it. Now, the important thing to point out there is this – that currently it’s 200 weeks. There’s no change to that. It will still be 200 weeks. What we’re saying, though, is that once you’ve used your 200 weeks, that’s the end of it. Currently, you can get exemptions for long programmes, as they call them, or for master’s or PhDs. But when somebody’s getting to the point when they’re doing a master’s or a PhD or a long programmes where they’ve perhaps done one degree and they’re going to do another degree, they are going to have a good income when they leave, and therefore they should be able to pay off a student loan, and therefore the student allowances should be better placed for people that are actually at the starting-out position.

PAUL I know, but I suppose one of the criticisms coming in is it’s going to make it very tough for medical, veterinary, legal, engineering students.

STEVEN No, it doesn’t. If you take the medical degree, if you just do a medical degree, you would still be able to get through your first 200 weeks, which is your first five years of a medical degree. In the sixth year, they get internship money anyway, so it actually won’t change for somebody who’s on a medical degree, unless they’ve done another degree first, in which case, yes, there is a limit to how much money you get from the Crown free. Remember, we are spending now— when we came into office, we were spending— $385 million was the last year that Labour left, then they through the changes to the student-allowance scheme, increased the parental income threshold and a range of other things. It’s now got to $620 million a year. We actually have to curb that a bit at the top end.

PAUL Righto, got you, but then, you know, if we really want the knowledge economy, we really— it’s the postgrads who make this country an intelligent and innovative country.

STEVEN We have—

PAUL And you’re almost— there’s a hint of your disincentivising postgrad work.

STEVEN No, not at all, and, actually, we’ve got the highest number of postgrads and PhDs that we’ve ever had in this country right now, and we will continue to do so. But there’s no point being worried about their access to a system, on the one hand, but not being worried about the quality of that system on the other. And it’s important that we continue to invest in research, we continue to invest in the important areas, like science and engineering, and these are things you’ll see more of in the Budget.

PAUL Just a quick word – what do you say to parents who see their kids going on to postgrad studies massing more and more debt?

STEVEN I think—

PAUL What do you say to the parents?

STEVEN Well, I say that, actually, it is an investment in their future. The reality of it is this: in New Zealand, the taxpayer invests a massive amount towards what is largely a private benefit of high-level tertiary study. We subsidise the tuition by about 70%. We also then advance interest-free student loans. We write off about 45c in the dollar of that currently, trying to get that down to 40. And we also, for the early years of study, 200 weeks, which equates to about five years, we give those that have low parental incomes free allowances. So, actually, it’s the easily the most expensive student-support system in the world, and it is appropriate that people do make a contribution. And it’s about where that balance is and again making sure that we don’t underinvest in the tertiary system overall – underinvest in our universities. That would be a mistake and would be a false economy in terms of trying to grow this knowledge economy you talk about.

PAUL There I will leave it, and I thank you very much for coming in, Steven Joyce.