People won't all borrow

Recoiling in horror from the grenade-like appearance of Labour's student support policy, right-wingers everywhere are panicking. The main form of panic seems to be framed as a broad assertion that since the student loans are now "free", 100% of students will borrow a max amount, where they do not now.

This line of attack is easily rebutted.

First, several things have changed since National bungled the student loans system into existence. You can only get living costs on a weekly basis these days - no multi-thousands downloads for foreign holidays or stock market playing. Second, you have to provide evidence of course related costs before accessing that money, and presumably would be penalised if you were falsifying this. Third and most important, you can't just take your fees - you can only get the fees money if you can prove you've paid them up front, otherwise it goes only to the institution.

Second, it is based on a logical fallacy. Student loans are interest free now for currently enrolled students. If they wanted the free use of money they could have it now for the term of their study, but only 55% take it up (figure source unknown). Extending the interest free period will not lead to 100% take up - higher take up, yes, but not universal. It's a broken record from 2000, when the very same Nats said the previous set of changes would lead to 100% take up. That was wrong then, and it's wrong now.

Over all though, these are detail quibbles. National is on the back foot because this has gone down a treat where it matters - in ordinary students minds and in the thoughts of their families. It's hard to imagine a more popular policy. Calls for tax cuts have been recent, and it never made it to the top of the "most important issues" list in the polls. Calls for debt relief are more than a decade old, and have finally been answered - by Labour.

It's a funny reversal of the previous situation, where we were arguing on the detail of a broadly popular policy and not getting through. National, you should have learned from that - and you should not have expected us to ignore (or fail to learn) the lesson. This is good policy, and the public love it. Fact of life, time to move on.

Comments

[Insolent Prick]

Wrong, wrong, WRONG.

Labour has told outrageous lies about how little money was left for tax cuts, and then jumps out with this absurd bribe.

Students will borrow all they can, and not front up with the money, because there is no incentive, EVER, to repaying the loan early. Student loans will sky-rocket. The policy punishes those who work hard and do well, and rewards those who do nothing to advance their own educational interests.

[Paul]

IP.

by name and nature.

You my dear friend are wrong, those are the facts of the matter, just as there a 100cm in a metre, or the earth is in orbit around the sun.

But no make yourself look stupid in the face of facts, and we'll have a great old giggle at your expense.

[Pete]

"Wrong, wrong, WRONG."

My god, the right really are worried about this policy.

[Paul]

Pete,

shame the gnats policy was trumped, that's just not fair is it.

Yes he is wrong wrong wrong!

[Archon]

Jordon,

This policy disincentivises people from:

1. Paying money toward their own education.

2. Repaying their loan above the minimum repayment.

I notice your analysis neglects these two points.

[Paul]

"Repaying their loan above the minimum repayment"

so that's a bad thing?

What happend to freedom of choice.

So student have to pay their loans back faster than the rest of us, as long as we are clear on that.

Again what happend to the gnats maxim of one law for all?

[Josh]

100% or 55%, it doesn't matter as the debt is the very reason for this policy. But it's only going to increase the overall level of debt anyway. Students will have no motivation to pay it back so it creates just as many problems as it solves.

[rightkiwi]

Those students who do not take up their full loan entitlement under current policy are not bright enough to be in tertiary education and I resent paying for them.

Those students who do not take up their full loan entitlement under this new policy should be sent to an IHC home.

Why are there not interest-free loans for school-leavers wanting to do things other than study like go into some form of business? This is outrageous.

[Paul]

Josh,

where's the motivation to pay it back now.

my $65.000 is a pain in the arse, and I was thinking of everyway possible to avoid paying it back, including overseas options, runing my business more on a cash basis etc etc.

Now I am more than happy to pay it back.

Just a personal experience.

[Paul]

RK

oh the injustice.

[Glenn]

Jordan, you say it yourself in the other thread: "If they could afford to pay their fees up front, then they probably won't - they'd save the cash and borrow the loan." There's absolutely no reason not to do this; it'd be a very small minority of the remaining 45% who wouldn't do this. 55% + the majority of 45% = almost 100%.

[Josh]

You will benefit greatly so of course you think it is a good idea. I am considering a 4 year degree starting next year however I wont be bought out by a dangling chocolate covered lemon.

[Josh]

Woops, my comment was in reply to paul.

[Paul]

Josh,

your choice and good luck with the degree.

[Tony]

The thing is, National, by attempting to address the student loan burden (even if it was a rather pathetic attempt) were acknowledging that it was an issue worth addressing. Which makes their attacks on Labour's policy sound very empty indeed...

[Steve]

Archon...

1st spell Jordan's name correctly, it's not difficult..

To cover your 1> and 2> what the right is forgetting is that once you earn over $17k or so, on top of tax the IRD takes 10% of your gross earning as a compulsory repayment. I can't speak for all students, but I am pretty keen to be rid of this ASAP so that I can use that 10% of my income, having paid back the money the taxpayer lent me to get my education..

[Paul]

Thanks Steve,

I forgot about the compulsory 10% from the IRD.

[Rightbane (TM)]

Before we all get carried away, I wouldn't be borrowing the maximum amount. This legislation could get scrapped when National next gets into power, probably long before you pay off your loan.

[Archon]

Steve (and Paul),

The "right" is not forgetting about the extra repayment, in fact I don't understand what your point is at all.

You are going to make extra payments from your wages because you don't want the IRD to keep making extra payments from your wages.

This loan will be interest free. Do you realise how stupid this is? You don't even need to understand time value of money or inflation to understand how stupid this is.

[Archon]

Rightbane. So long as you invest the extra money (let's assume living cost portion for a person living at home) in a safe place you will have more money than you borrowed if the legislation was to change back.

[Mike Collins]

The only way to deal with the student debt issue is to increase repayments and make it easier to pay off faster. Labour's policy fails on this. In fact it actively discourages quick repayments due to the concept of time value of money.

Although woefully inadequate National's policy deserved some credit for at least getting the repayment targetted.

What Labours policy will do is actually add to the total student loan debt, which will be borne by the whole of society.

Also once repayments are made there is nothing for graduates.

Tax cuts are the best way to allow students to pay off their loans faster.

As my calculations have shown, by the time you have finished paying off your loan with Labour you will have long ago paid off your loan with ACT, saved the amount of interest you paid and still be thousands of dollars better off than you would be with Labour.

I challenge anyone to refute that this would be better for graduates.

especially considering tax cuts don't finish with repayments - unlike both Labour and National's "assistance".

[Paul]

"Also once repayments are made there is nothing for graduates"

except a debt free life with a degree. But we'd hate to be educated members of society wouldn't we now.

Explain to me then how with my $65K debt, and with labours savings for me of $47K will I be better off under ACT or national, I won't.

Sorry to be a selfish self maximising individual (or we sahll call me an ACT voter).

[Jordan]

And I restate. ACT's policy has no chance of being implemented, so it isn't "better" than Labour's policy at all.

Jordan

[Mike Collins]

Paul,

Email me with your income (if you wish) and I will run the numbers for you.

And I wouldn't call someone who is looking out for society selfish. I would be more inclinded to call someone who racks up $65k worth of debt in the pursuit of a job that would lead to higher pay, and expects everyone else to pay for it, selfish.

Then again we will probably differ on that.

[Mike Collins]

Paul,

Email me with your income (if you wish) and I will run the numbers for you.

And I wouldn't call someone who is looking out for society selfish. I would be more inclinded to call someone who racks up $65k worth of debt in the pursuit of a job that would lead to higher pay, and expects everyone else to pay for it, selfish.

Then again we will probably differ on that.

[dogsbody]

Paul,

- "I was thinking of everyway possible to avoid paying it back, including overseas options...Now I am more than happy to pay it back."

flaps

Jordan,

- "ACT's policy has no chance of being implemented, so it isn't "better" than Labour's policy at all."

Huh?

[Paul]

flaps?

yikes is the good or bad.

[jake quinn]

as has been earlier stated, the fact alone that national could come in and scrap the policy is enough motivation to pay back your now interest free loan fast.

if this policy was entrenched till kingdom come, then sure, due to the time value of money the smartest thing to do would be to pay it make at the minimum 10% of your income. (unless they adjusted your loan balance to inflation.
)

[Pete]

This argument is futile. The battle for students minds was won the moment this was announced and played on TV news last night. This crapping on and on about it is purely academic. All students heard was
"Re-elect Labour, get interest wiped off loan.”
Ends
That’s why you righties are so god damm pissed off

[Archon]

No quite Pete, I would be pissed off if National proposed interest free loans to people setting up businesses. It's the fact that it's a stupid policy that's got me so damn pissed off and I have a student loan.

Jake - It doesn't matter if the system is entrenched or not. You are stupid (yes, stupid) if you pay back any portion of an interest free loan. Any thinking person would take their "repayments" and put them in a term deposit until such date as someone might change the policy. Then your "repayments" are sitting there waiting to cancel the loan should it start acrruing interest.

Surely people with tertiary qualifications will be able to work that out???

[Pete]

Amanda, you have hit on a similar vein that I have been discovering. Much of the right such as DPF and his acolytes are raving on and on about how these dastardly students will pull down the maximum amount and invest it all, blah blah bal.

I think this demonstrates
a) how out of touch they all are with the present realities of the current student loan situation where you no longer do what they did in the 90s.
Or b) their absolute ineptitude and ignorance that they cannot even read the papers or press releases outlining how the loan situation now works and how doing this is no longer possible.

I don’t know what scares me more- the fact that these bastards that want to rule the show are so out of touch or the fact that they are ignorant and can’t read.

Besides, isn’t it just so hypocritical when you have people such as DPF and those other 30+ year old right whingers who all got free or heavily subsidised tertiary education attacking current students because we now have something similar.

O I’m sorry, it was fine for me now as a tax payer to pay retrospectively for your education whilst also funding mine.
Thanks
Thanks a bunch

[Archon]

Pete,

Read this slowly.

Under this policy, a person who works part time to pay for their living costs through University or course, now has the incentive to take out the loan portion of their living costs as well as work.

A family that has saved $10,000 toward their childs education now has an incentive for them to borrow for their education instead of paying for it now.

I went through university 4 years ago and know exactly how the loan scheme works.

[Kiwi in Zurich]

What amuses me is what seems to be the hypocrisy of the right in all of this. The right's response seems to be we need interest on the loans in order to curb students from taking a loan on. Seems a pretty good example of an interfering nanny state to me. I assume our colleagues on the right think that only they are responsible enough to draw-down a responsible loan. Perhaps we should also institute a policy of only taxing the stupid people as well as retaining interest, and that would make them happy?

My only concern is that there would be some incentive not to have an OE. I assume that the OE could be taken and that interest payments will cease should an ex-pat return home.

[Paul]

Archon your arguments about repayments would be sound and almost compelling, if they wern't just WRONG.

The IRD takes (out of your pay - before you see a cent of it) 10% on top of your normal tax. So ex-students on sometimes $27,000 are on higher taxes than those on $100K+.

So incentives or not to pay them back are erroneous, as it's done for you.

Kiwi in Zurich, as I understand it yes, you start ot accru interest then agin on return your interest is written off. Good point though.

Yes the hipocracy indeed, freedom of choice is gone in their agruments against this policy.

[Logix]

Paul,

Isn't it amazing how our right-wing friends really don't let simple things like facts get in the way of their attacks?

I hadn't bothered to respond to the charge that students wouldn't bother to pay back their loans, on the grounds that, well as you say, IRD leaves you with no choice. But what gives here?

Are these RWDB's so out of touch with reality that they really don't know this simple fact, or do they know it and choose to ignore it? I'm kind of baffled because either way these kind of silly statements do rather shred their credibilty...which is a shame because I am always happy to debate with someone who brings an informed and civilised opinion to the table.

[Paul]

Logix,

It's absolutely dumbfounded me how they have flipped their ideals around in search of a wind up.

So most of the time when they can't acknowledge the facts, I take the piss.

Not very constructive, but what else do you have if they don't bring facts to the table.

I've been told over and over by these buggers that freedom of choice is paramount, now I'm getting society is now paramount.

Never mind, National had thier bollocks kicked on this one, and we haven't won any wars yet.

The biggest reflection on how brilliant this policy is, is the absence of Tim and his rants about give my money back, we do so he's got nothing.

[Keith Ng]

Proof for course-related costs is a joke. Your friendly students' association can provide you with a form, pre-signed, showing a list of items that one may need for one's education. For example, internet connection, text books, stationary, etc. You tick the boxes, and hey presto - it conveniently adds up to $1000, to the cent. It's the most readily available loan. And it's good - it's gotten me out of a few tough spots in the past, as well as help me set up my first flat. I know that I've squandered it once or twice, too. Can't say I've ever bought any books with it, though.

[Logix]

Keith,

Great...it got you out of a few tough spots, and you get credit from me for acknowledging that it can be squandered too. Well I guess that was your choice.

The point is I guess that student's circumstances vary wildly, and their attitude and apptitude with money will too. I cannot imagine any scheme that will be a perfect match to all these possibilities.

For this reason it is will always possible to find individual examples of why this scheme or that can be criticised...the real test is, does the Student Loan system meet the nation's macro objective, which is to time shift part of the immediate costs of tertiary education directly from the general taxpayer, to the student as an income earning graduate? Arguably the scheme does this quite well.

However the existing scheme because it charged interest on the loan could have perverse effects on those students whose course led to less lucrative careers, or whose ability to earn was interupted by child-rearing for example.

There are many highly qualified and capable people working in careers (especially science) whose primary motivation is their passion for the work they do, yet their salaries are often quite modest compared to what is on offer overseas.

I would suggest that there is no clear correlation between debt accumulated as a student and that student's ability of to repay the loan as a graduate. Nor should we forget that for a significant proportion of students, a debt does not always equal a qualification for one reason or another, or a qualification to a career. There are many reasons why this may happen, not all of them the fault of the student.

Loan debt tends to compound the challenge of paying back the loan for those less able to do so, without really adding any justifiable incentives from both the personal and public

[Brian S]

Paul - I don't think you understand the freedom of choice argument. Let's run it through. Who pays the interest on these "interest free" loans? Well the taxpayer of course. So my money which I earnt and which I could have used to better my life and the lives of my family is now commandeered by the government to pay for "interest free" student loans. That means less money *for me* to invest in my daughter's education. Consequently it makes my daughter more dependent on government funding. It also means less money for my daughter should she choose not to go to university. What if she decides to set up a business? Why should she be disadvantaged?

Interest free loans are one of those government policies that will have lots of unseen and unforeseen consequences and the unseen bad consequences will certainly outweigh the seen good consequences. One bad consequence that will definitely be seen and foreseen, however, is the future tax increase to cover the "interest free" loans.

The best way to help *all* students without compromising freedom of choice is to offer tax cuts. Tax cuts mean they can pay off their loans faster. It furthermore does not disadvantage those who wish to do other than attend university.

[GeniusNZ]

So the left on this site is betting (with statistical proof it seems) that students are not economically rational and dont make sound decisions. Ie they accept that every student would benefit by borrowing the maximum but still dont think they will do it.

I think the acceptance of this initial statement has vastly more significant policy implications than the main pont they wish to make.

Secondly this argument (and just about every argument i have seen) basically positions this scheme as a retarded way of achieving effective fee reductions. Ie education is effectively cheeper - and in addition at no extra cost it causes some problems which are somwhere between medium sized and huge".

[Paul]

and brian

"Who pays the interest on these "interest free" loans? Well the taxpayer of course."

So we aren't going to be tax payers either (or am already).

I understand the freedom of choice argument all too well, us lefties have been told it over and over again by you lot, 'the don', but don't apply it to our arguments see if I care.

It goes soemthing like this. Freedoms for you guys and not for us. But cool, make the rules as you like.

[Logix]

Brian,

I guess we could round and round on this but bear in mind that from the taxpayer's point of view, whether student's are not charged interest, or given a rebate on interest paid amounts to a loss of revenue for the government. The only question is "how much?"

The second point I would question is your implied assertion that all student loans are incurred by students attending universities. This is most certainly not the case, indeed these days relatively few young adults leave secondary school and enter the workforce without some form of tertiary qualification.

Those who have the apptitude to say leave school and establish a successful business for example can be admired for doing so, but do not forget that they now have a four to seven year head start on their peers who pursue a professional qualification, so it isn't all one way traffic.

And most graduates, after spending four to seven years studying still take at least another three to ten years on top of that before they start earning their highest potential in their profession. That's a lot of catching up to do.

[Kiwi in Zurich]

Brian,
what it means is that your daughter and everyone else's child gets the same chance at tertiary education. But rather than you using your tax cut just for your daughter's tertiary ed it goes to everyone's tertiary ed. That way mid to lower income earners also benefit from the system, not just the rich who have the most to gain from tax cuts.

GeniusNZ, I think it is the right who are saying that students aren't capable of making economically rational decisions and need the interest to control their behaviour (like I ever remember interest being a factor in the acquisition of a student loan). But perhaps I misunderstood your point.

[GeniusNZ]

Kiwi in Zurich,

interest payments have zero effect upon an irrational person (as you confirmed - no offense meant to you but if oyu dont care how can you expect a irrational person to do so)

The right just says they will make a self interested (although potentially short term) decision ie take a degree and student loan. Maybe they should just work but its a complex decision and it isnt much of strech to say people might get it wrong.

Labour is taking a more extreme position to say that they will fail to take free money that is put right infront of them - in terms of net present value (which is the only meaningful way to look at money). If students dont look at it that way then we have a MAJOR problem with government subsidized education without heavy government guidance.

> like I ever remember interest being a factor in the acquisition of a student loan

Which proves my point. you were almost entirely oblivious to the cost of your degree I assume even though it was only a quarter of the real cost. if it cost a million dollars you would hardly notice.
Can you see a problem there?

the right would probably deny my argument that they are so irrational - but the left seems to accept it and still ignore it.

[Kiwi in Zurich]

GeniusNZ
I was in the lucky position of never having a loan, so my comment was more of an observation about my friends' attitude to the loan. And it wasn't that the interest didn't occur to them, it was more that we mostly fell into the 'your parents earn too much money for you to receive an allowance' category, but with mortgages and other commitments our parents couldn't afford to fund us through uni. Either way, a loan was a necessary thing and interest an accompanying evil for those of us who had to take a loan.

I expect that you are right that there will be a (large?) group of students who will cash in on the interest free money in order to make a profit for themselves while at uni, and while the country will have to pick this up in the initial stages, it is not like the money itself will not be pumped back into the economy in another manner unless these devilish students plan on sleeping with it under their mattresses, and will have to be paid back once they get tax-paying jobs anyway. That being so, those students who don't do a runner from the country and do get a tax-paying job will continue to have to pay for part of their education even if the country bankrolls it (which it is already doing) in the interim.

[GeniusNZ]

> Either way, a loan was a necessary thing and interest an accompanying evil for those of us who had to take a loan.

I think that having student loans helps to create this culture. I have always been a bit confused by the concept many people have of not being able to put aside little money to help relieve your children of a debt at an excessive interest rate. You would have to be pretty damn poor (although I admit a small minority of people are indeed that poor).

> it is not like the money itself will not be pumped back into the economy

Money always gets pumped back into the economy, if it was only money that mattered we would just print more of it and spend it on everything we wanted.
What matters is how much distortion you cause.

[Vanzyl]

None so blind as those who would not see. All four my children worked their way through uni to avoid the student loan burden. They would have worked anyway, because that is the way they are. Spoke to all 4 and all would have borrowed to the max with this silly scheme. Jordan, i'll try and make it simple. No-one actually believe that you can walk in and draw down the money. But you can replace your own money with taxpayer money. For free. We are fairly comfortable financially and offered to pay for our kids education although they wanted to do it off their own bat, we did subsidize things here and there for non essentials like holidays etc. Now I would jump up and down if they tried to do it without a student loan. Why not? what they earned (remember enough to see them through uni) they could invest while the taxpayer paid the weekly bills etc. (For daughter #4 that worked out at just over $7500)
Over the last three years that came to $22500
If she had invested her own money she would now have had $26195 in the bank. That is a nice tidy start for any-one. in her job the IRD would be taking 10% to pay back the loan...so what? Still free money.
In fact if she wanted she could pay the whole lot back in one go and still be $3500 better off, but why would she? The 26k would go to a deposit on a house (that at the moment evaluates at roughly 12% per anum.) Not bad.
Thank you labour, we are rich and about to become very much richer.

[peter McK]

This policy is pork Barrel Politics at it's worst. I was listening to clever Trevor some months back and he was talking about the student loan scheme becoming self funding (interest covered off new loans) - this has gone out the door in their quest for power. Stupiid socialists - Power will come at a price. their polict will be exposed for what it is - although I admiit this may be a turning point (we will need to wait and see) - no government lasts more than three terms and therefore this stupidity will be overturned in three years regardless - except that in the meantime student debt would burdgon out to unrealistic levels - again - stupid socialists.

Of course celebrate you stupid socialists - the Nats have not played their trump card - it is called tax cuts - and isn't Brash smart for delaying the announcement - He is going to give a tax cut to every worker - not a handout to a few idealistic selfish students (many of who will see thru the pork barrel politics for what it is.) Victory remains difficult in this close race.

[Tane W]

Peter McK,

Don't celebrate too soon on the Master Stroke that will be National's tax policy. National have to prove that they can give you and me and every taxpayer a very substantial tax cut, without slashing social services. If they can do that, if they can offer say, $40 a week to 'mainstream New Zealand' (whatever the hell that is), then they will be in with a good chance of taking the election.

If they don't, if they offer two packs of chewing gum instead of one, or if they give us that $40 but substantially reduce core social services, then they'll almost certainly run into the same backlash as Cullen did.

Public expectations around tax cuts can be a bitch. Labour has learnt this already, I wonder if National is about to undergo the same lesson.

[Logix]

Van,

"We are fairly comfortable financially and offered to pay for our kids education"

Exactly the point I have made elsewhere, but you would have to acknowledge that the majority of students do NOT come from your family's fortunate position.

One size does not fit all here.