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Some facts about student loans - NZUSA

Fuseworks Media
Fuseworks Media

Some facts about the student loans scheme

Although the government reports that 39.5% of loans are written off under the scheme, only about half of this is related to the interest free policy. Before loans were interest free up to 21.5% the loans were already being written down.

When interest was charged it was always significantly above mortgage rates. To make the scheme fully funded it would need to be around 10% per annum, and which would involve New Zealand based borrowers paying for those not paying who are overseas.

Graduating students receive no immediate benefit from the interest free policy since the repayment rates are fixed and based on income, the benefit comes in shortening the repayment time, so after 8 - 15 years for most graduates.

Around 25% of students graduate with no debt, and a further 20% pay off their loans by March the following year. The loans are overwhelmingly for those for whom is not a possibility. Polytechnic and Private Training Enterprise students are much more lively to carry their loans for years, even though often their debt is lower, because their earnings also are.

Despite that so many graduates have no student loans, surveys show that over 90% of students report support for interest fee, indicating that those without debt still support the policy. So it isn’t just about "its free money for me so I want it". Support for the policy is understood to be even greater among older New Zealanders who don’t want their grandchildren to be in debt.

The repayment requirement associated with the student loan debt has a significant impact on cashflow in the early years after graduation, with students reporting that it impacts on their saving, their entering the housing market and delays in having children.

Since adding interest will extend the repayment period, these impacts will go for longer.

A US study suggested that a couple who each have a student debt at the New Zealand average of $30, 000 (which is also the US average), will be $240,000 worse off in retirement than a couple without debt but with the same earnings, principally because of the delay in entering the housing market.

Interest-free is progressive, since those who earn less end up paying less in real terms. Conversely having interest is regressive, the less you earn the more you end up paying.

Before the interest-free policy women’s repayment times were approximately twice that of men. Lower incomes and more time out of the workforce while the loan balance was increasing are the principal causes for this. With interest free women’s repayment times are only slightly higher than men.

Lower average incomes also mean that Māori and Pasifika benefit from the interest-free loan scheme.

The New Zealand Student Loan Scheme repayment threshold is $19084, and has been frozen at this level for some years. This is approximately 60% of the pay for a fulltime minimum wage worker. Solo-parent beneficiaries completing the minimum work requirements as part of their benefit are required to pay back their loans from their very low incomes.

In Australia, England and the United States the initial repayment threshold for the government income-contingent loans scheme starts at between $NZ40,000 - $50,000.

The New Zealand repayment rate of 12% is higher than the US government scheme (10%), the Australian HECS scheme (which starts at 4% and rises to 8% for those earning over $NZ110,000), and England which is set at 9%.

Suggestions that interest be added to the scheme in exchange for a higher repayment threshold and graduated repayment rates will either require very high interest rates or continued subsidies. English reports reveal that their scheme, with interest, payments of 9% on income over £21,000, and the balance written off after 30 years is actually more costly than the New Zealand scheme.

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