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Bad debts will rise as borrowers borrow more

Hon. Bill English MP
National Party Education Spokesman
& John Key MP
National Party Finance Spokesman

04 November 2005

Bad debts will rise as borrowers borrow more

The National Party says bad debts are set to skyrocket as more people borrow student loans and more borrowers borrow even more.

“IRD's 2005 annual report [released this week] makes interesting reading. The bottom line is that overdue repayments are skyrocketing for both local and overseas students,” says National Party Finance spokesman John Key

“A private sector institution that had 48% of overseas and 12% of local loans in arrears would be on the scrap heap pronto,” Mr Key says.

Education spokesman Bill English says Labour’s irresponsible student loan policy sets in place the worst incentives.

“The policy to provide interest free student loans will not only blow out the number of borrowers but also the bad debts,” says Mr English.

According to the IRD’s annual report, in 2004 and 2005 the total amount of borrowings under the student loan scheme rose by 12% to $6.7 billion. The number of non-resident debtors has also risen, from 6% to 8%, while the number of non-residents who were overdue with repayments mushroomed from 20% to 59%.

The report says ‘there are currently 62,133 borrowers with overdue repayments totalling $188 million (14% of all borrowers and 2.8% of the total amount borrowed. Overdue repayments have grown by 35% during the year, due to a combination of factors including increased borrower numbers (up 6%)’.

Mr Key and Mr English say this is a terrible omen ahead of Labour’s loan scheme, which will encourage students to borrow the maximum and repay only the minimum.

“Dr Cullen’s seriously flawed initial costings assumed loan take-up rates would not change. The IRD has now confirmed that those take-up rates are growing even before the interest free lolly scramble begins,” says Mr Key.

“It’s fiscal insanity.”

Mr English warns that more universities and polytechs may be forced to increase fees and deny access to students because of the loans policy. He says students who choose to do an OE will also regret taking out a big interest free loan.

“At the end of the day this policy will just end up putting more pressure on students, universities and the tertiary sector,” says Mr English.


(Attached - extract from IRD Annual Report - PDF 2 pages)

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