Nine BILLION Dollars

I am relaxed about today's story in the Herald that student loan debt has passed nine billion dollars (give or take a week or so).

Why? Simple. We don't have a student loan scheme any more. It has been abolished.

It's been replaced with a tied graduate tax. Under this graduate tax, you pay to the government the same amount you funded your tertiary education by, plus a nominal account fee.  Labour's interest free policy (costing $500m a year, I might add, more than the 39c tax rate raised in 2000) has totally and forever changed the dynamics of the loan scheme.

Instead of the former regressive policy of interest compounding and accruing, the new system means that the longer you take to pay back your debt, the less (in real terms) it is worth. That is the genius of the choice. It is not a grad tax, that you can escape by leaving the country. It is tied to you, and being interest free, it is progressive. Simply brilliant.

Overall our student support system now is a generous system that helps low income earners most. It is hundreds of times better than what we had under National in the 1990s, and it is better than what we will have under the next National government, too. (They will probably promise to keep it. Like their promise to abolish tuition fees in 1990, such a promise will be a lie.)

The siren calls of student representatives for more middle class subsidy, through more universal student allowances, can be taken with a grain of salt. I do agree with universal provision, but that particular policy would not be first on my lsit.

What I would prefer to see is the amount that students can get for living costs be increased, to say $250 a week (as living on the $150 a week that has been in place since at least 1997 is simply impossible in some of our big cities).

Second I'd like to see fee rises tied to inflation. The massive reinvestment needed in the tertiary education system, beyond what has already occurred, needs to be funded by taxpayers at large, not by current students. Fees are high enough in real and in nominal terms. They ought not to be allowed to go any higher.

So, while $9,000,000,000 is not a pretty number, it is a very very different beast from what that same number would have represented five years ago. Instead of lives being stolen by the debt monster, people now have a system that is bearable, nigh on generous. That's good for students, good for graduates, and good for New Zealand.

Comments

[Span]

Jordan, we do not have a graduate tax at all. It is in fact a system that penalises those who didn't have the readies at the start of their education, for long after their study is finished.

If we had a graduate tax then all graduates would pay it. That is not the case at all.

[Insolent Prick]

What an utterly curious piece of spin this is, Jordan. "We've got rid of student loans. We now have a graduate tax."

If that's the case, why not make tertiary students pay the full cost of their tertiary education? Then at least rich kids would have to pay more, and would be less likely to use the student loans scheme as easy access to free money that they can invest elsewhere.

I note you decry "middle class subsidy". Funny that. Isn't that what Working for Families is?

[Spam]

There was no need for any of this. Students aren't paying off their loans because they don't want to; not because they can't. With the average graduate starting salary over $35,000 even for a BA, and very low unemployment, a student can easily pay off a loan. Eg. Whilst at Uni, they live for aroun $10 - 15k / year (living costs). Continue living at $10-15k (or even $20k) when you come out of Uni and have your job, and you will have around $5 - 10k left-over to pay off your loan. Do it, rather than letting it fester.

Except that Labour has now removed any incentive to pay it back faster, so debt grows, and people spend the money on toys instead.

[Spam]

Oh and Jordan - I fully agree with and support your proposal to tie fee increases to inflation. I also fully support doing the same with local government rates, and with government spending as well - fantastic idea!

[Clint]

I felt sick from all that spinning. What nonsense. Labour has made the amount so high by offering free money like sweets from a paedo.

Funnily enough, all the Kiwis I know over here in London are not fooled by your spin. The NZ News have weekly letters from ex-pats who can't wait for you and your cronies to get booted out.

[Mainly Politics]

Clint - what a load of crap. The total 'value' of the loan scheme today is less than it was projected to be at this point when National was in government. The suggestion that Labour's policies have led to more borrowing isn't backed up by reality.

Span - Rich people do pay, they pay up-front, rather than post-study. If fees were, say, $15,000 for an undergrad degree, and a rich kid paid up front while a poor kid paid post-study via loan repayments, the poor kid would actually pay less in the longer term because the 'real' value of the $15k would be less as the years progressed.

Spam - graduates are still required to make loan repayments through the tax system. The incentive for extra voluntary repayments has diminished, but the 'value' of the compulsory repayments has increased thanks to interest free loans.

[Spam]

@Mainly Politics:

Doesn't make my point invalid, and this policy means they will be even less likely to pay back the loans.

Graduates can afford to pay off their loans; they choose not to. Remember: Interest is still being paid on this 9,000,000,000; its just being paid by all taypayers, rather than the individual students.

[Aj]

Jordan, I can't agree that the system is 'generous'. A universal student allowance would be generous.
Meantime, I do agree that $9,000,000,000 is an ugly number, and it's $9,000,000,000 closer to a social time bomb for a generation that is growing up with little hope of getting into the housing market for a decade or more.

[Captain Crab]

oh spin away in the hope that we all forget how we were promised how student debt wouldnt blow out. No, students would be responsible we were told. Bollocks.Debt is increasing just as many on the "right" said it would.All the students have done is ramp the debt up to the repayment level it would have been including interest. You lot are so naive.
Admit Labour was wrong.And it was a bribe. Anything for power eh.Lets hope theres enough Billboard space to list all these issues.

[burt]

Jordan

"costing $500m a year, I might add, more than the 39c tax rate raised in 2000".

Yes that was when the 39% rich bastard tax was levied on approx 5% of the population. Now of course we have WFF being paid to people earning twice the $60K rich bastard threshold. What percentage are now paying the rich bastard tax - 12% - 15% - 18% ... who knows. Any attempt to disclose such information would be an ideological burp...

You really need to get some common sense into your spin, quoting costs from 2006 vs revenue from 2000 is going to people who are not in the "Yes Jordan - well said" camp have a think about the crap that spews from your keyboard. Spin only survives and influences people when it's not obvious it's distorted information.

[span]

Chris (mainly politics) yes I do realise rich people pay fees, what they don't pay is what Jordan was saying we now have - a graduate tax.

The whole interest free loan thing is very new. This means that most people who currently have loans have accrued significant interest on them over the course of the loan. In turn this means that they will pay more for their education than someone who paid up front (ie the rich people). And of course there is no guarantee that future governments might not decide to charge interest again. So your point about the value of the money only applies to a very small number of borrowers to date.

As one of those who was able to pay fees up front I have seen a significant difference in my lifestyle from many of my contemporaries who still have loans now, and will continue to have them in the future. If they have a loan they will effectively get paid 90c for every dollar I earn, over $17K, because of compulsory repayments (of course minus also the income tax we will both pay). How is that fair?

[Spam]

"If they have a loan they will effectively get paid 90c for every dollar I earn, over $17K, because of compulsory repayments (of course minus also the income tax we will both pay). How is that fair?"

Every extra dollar I earn is taxed at $0.39. For some people, every extra dollar is only taxed at $0.195. How is that fair? For some people, every extra dollar is taxed (effectively) at around $0.80. How is that fair?

[burt]

Jordan

So what is the size of the revenue raised via the 39% rate for 2006? Perhaps even 2005 would be nice to know. A lot has changed even since 2005. But that would be more useful for comparison against the cost of interest free loans.

[Anon]

"Simply brilliant".
Get off the grass.
It wasn't designed at all. It came about from political compromises and polling. How can that be brilliant?

[Span]

Spam, you may be opposed to a progressive taxation system but I'm not. The example I give is clearly about two people being taxed differently (under Jordan's claim that this is a graduate tax) despite earning the SAME amount. Your examples are about people paid differing amounts and is more at home in Jordan's more recent thread about tax whingeing.

[Kane]

The number of students receiving an allowance is far less than when compared with the early 1990s and the fee levels have nearly tripled since the early 1990s. Allowance eligibility under Labour has largely dropped while fees have increased (and there's no sign of Labour changing tack) despite Maharey and Clark's criticisms of National in the 1990s. Typical politicians.

The current tertiary education set up is not of the Left. It is purely and simply neo-liberal, and it's a dreadful lens to view education and public education funding through. You shouldn't bother trying to spin the line that Labour are doing great things in tertiary policy. Far from it!

[Cactus Kate]

The Tax Whinge?

If you were at all consistent this should simply have been headed: "The Student Loan Whinge".

[Spam]

Span,

Yes, I am largely opposed to the progressive tax system. Not in principle, but in this particular implementation. But that's not my point: I was pointing-out the flaws in your argument. Actually, they can still be earning the same, and still have the disparity, thanks to WFF.

You might as well say that its not fair that two people on the same salary have different mortgage payments ever week.

And primarily, I'm opposed to interest-free student loans.

[span]

The point is Spam that the loan scheme is not a graduate tax as Jordan claims. If it was then all graduates would be taxed, but they aren't. We can argue until the cows come home about income taxation but that isn't really the subject at hand.

[Michael]

Hmmm yes, the interest free student loans are great. As soon as they became interest free I started getting the $150 a week for living costs. I'm leaving this all in the bank just to gain interest. I'm not doing anything with it. Since I started doing this in my 3rd year at uni, I'll be receiving this money for 2 years, and should have about $13,000 of your money sitting in the bank at the end of my degree gaining interest for me. Isn't it great that the government can do this for me.

When I finish uni, why pay my loan back? Why not save up for a house instead? And then invest some money after that. And then if I did save up enough money to pay off my loan, why pay it off? If I leave it in the bank it’ll make money for me. Only an idiot pays back an interest free loan when they don't have to.

All this is done with your money; the taxpayer. Congratulations Labour, you're a bunch of idiots.

[Clint Heine]

I forgot, if National was in this would be a huge travesty - student debt spiralling out of control by the evil Nats. However under Labour, it is relaxed, nothing to worry about and GOOD for students.

Hmmn, such embarrassing double standards, you should be ashamed of yourself.

Mainly Politics - where are your stats showing that borrowing hasn't got higher ever since it became interest free? I am finding it very hard to believe that. Fact is mate, the loan amount is not bothering Labour anymore, and yet when it hit 2 billion we had lefties screaming death to National on the streets. It smacks of the worst kind of double standards.

[Mark]

The Student Loan scheme still exists and people still have interest accurred on there Loan balances while studying during the year they get the Loan out and when it transferred to the IRD.

The only difference under Labour is that if you remain in this country for more than half the year the Interest component will be suppossedly wiped by IRD.

Hasn't happened yet to my Loan but we shall wait until after 31 Mar and see.

All this policy does is either delay people taking there OE or they go and never come back (and not pay there Student Loan).

Fee increase by education providers were meant to be tied by % a year in increase but there are so many exemptions it's a joke. Education providers charge what they like and the government can't stop them.

Finally the Tretiary Education Commision set up Labour is now in it's third incarnation from being set up as a National Office to oversee the education providers, to 14 seperate regions, to now 4 regions.

That's pretty impressive for an organisation that started from 1 Jan 2003. It restructured every two years I am expecting it be be restructed again in 2008 at this rate.

[Aj]

Mark "As soon as they became interest free I started getting the $150 a week for living costs. I'm leaving this all in the bank just to gain interest. I'm not doing anything with it. Since I started doing this in my 3rd year at uni, I'll be receiving this money for 2 years, and should have about $13,000 of your money sitting in the bank at the end of my degree gaining interest for me"

Pray tell then, whose money have you been using to cover you living costs?

[Aj]

Opps - last for Michael

[Michael]

Aj, I've been using my own money for my living costs. I work while at uni. I don't need the living costs money; I just take it because I can. If interest was being charged on it though, I wouldn't take it because I wouldn't want to pay the interest, and I don't need it at all anyway since I work.

[Aj]

Michael,
Assuming you are an advocate for personal responsibility, it seems a shame that you are prepared to abondon those principals for the price of a few hundred dollars in interest payments per year.

[Michael]

What the heck does personal responsibility have to do with this? I am taking responsibility for my actions. I'm not blaming the government for my level of debt increasing. I'm doing that myself.

[Mark]

AJ,

You obviously don't read your statements sent to you by both StudyLink and IRD. They are charging interest on your Loan balance.

If you stay in the country the interest will be wiped, but hasn't happened yet. But as I pointed out it was not yet passed 31 Mar when I posted my comment.

If you go overseas Labour will make you repay your loan and charge you interest which will also have to be repaid.

I used my living costs to actually live, i.e. pay rent, food, etc. Most people actual do use it for that fact.

[Aj]

Personal responsibility would be to use your own money before using somebody elses. Tim Barclay won't be best pleased the tax dollars he so grudgingly pays are being used for this purpose, it puts you in the bludger catergory.

[Michael]

"Tim Barclay won't be best pleased the tax dollars he so grudgingly pays are being used for this purpose"

Exactly. Isn't it disgusting that I can get away with it? I think so. But hey, Labour are the ones letting me get away with it.

Besides all that though, even if I wasn't taking that money I'd still take as long as I could to pay back my loan. With it being interest free there's no reason to pay it back quickly.

I wouldn't say I'm a bludger. The money I'm taking is a loan. I am going to pay it back one day. In the mean time I'm able to make money off it.

[Aj]

In my view, the honorable thing to do is pay your own way and only take assistance as a last resort. Even if the system can be rorted.
Most students I know will still make lump sum payments off their student debt. Even if it is interest free, the intelligent ones wish to be free of this burden as quickly as possible.

[Michael]

Well in my opinion Labour shouldn't have made such a ridiculous offer and blatantly bought the last election. But hey, if that's what they want to do, then I'll take full advantage of their "generous" offer.

I can't see why "intelligent students" would want to be free of their student loans as quickly as possible when they're interest free. When I finish uni at the end of this year, I'm going to work my arse off to save. Originally it was to pay off my loan, but now that it's interest free, I think I'll buy a house instead. It would be stupid to pay off an interest free loan when I could do that instead. Of course I'll pay it off one day, but I have priorities.

[Spam]

Aj:

People didin't pay-off their student loans even when they had interest attached to them. Not because they couldn't, but because it was still cheap money, and they had toys to buy.