The backdown from Tertiary Education, Skills and Employment Minister Steven Joyce comes after strong lobbying from medical students, who today at Parliament presented a petition with more than 20,000 signatures.
The NZ Medical Students' Association (NZMSA), with support from Labour's health spokeswoman Annette King, called for the removal of the seven-year cap on student loans for medical students.
All tertiary students are ineligible for student loans after seven years of fulltime-equivalent study.
A medical degree takes six years to complete. But medical schools select more than 30% of students from applicants who have previously completed a degree, meaning those students cannot access a student loan in their final years of study.
The capped policy was introduced in 2010, and the NZMSA said it will affect a handful of students from late this year, and about 150 each year following.
After meeting with NZMSA representatives this afternoon, Mr Joyce confirmed undergraduate students in long programmes in medicine, optometry, dentistry and veterinary science will be able to get student loans for eight years of fulltime study.
Graduate students will also be able to be paid a medical trainee grant at the beginning of their final year, so they can use it to pay fees if needed.
Mr Joyce said today's announcement came after an increase in the number of medical students being trained.
He said he had always made it clear the 2010 changes would be monitored and reviewed if necessary.
"While in 2016, fewer than 10 graduate-entry students in long undergraduate programmes will exceed the seven EFTS borrowing limit, this number is expected to grow to more than 100 by 2018.
"Together, these two changes we announced today will greatly reduce the effect of the student loan limits on graduate-entry students."
Speaking before the announcement, Mike Fleete, NZMSA president and in his final year of a medical degree at the University of Otago, said the 2010 changes would have had a hugely detrimental impact on some students.
"Medical students are very concerned about how they are going to fund their final years of study - they have no access to loans, because banks refuse to lend the money if we have no income or assets. So many students have opted not to study medicine because of this policy."
Ms King said today's announcement was because of the students' hard work on the petition. The change needed to cover all those who undertake long-term study, including psychology and PhD students.
The 2010 changes had been poorly thought out and were always going to create major problems for students, Ms King said.
Joyce defends student loan scheme
Joyce has defended the student loans scheme after a sociology professor claimed billions of dollars of debt was causing several knock-on financial and social effects.
Yesterday, NZME News Service reported more than $11 billion is owed to the student loans scheme.
University of Auckland sociology professor Alan France said the debt delayed adulthood, increased social inequality, and made "financial risks" of previous norms, such as having children.
"Most people now go into low-skilled, low-paid jobs which are insecure when they leave university, so they wind up fighting large student debts on low incomes from jobs which don't have a great deal of long-term future prospects," he said.
Graduates from low socio-economic backgrounds had it particularly tough. However, regardless of background, buying houses and having families were increasingly difficult for young people, according to Professor France.
However, Mr Joyce said the long-term benefits of tertiary study far outweighed the short-term cost of having a student loan.
"The median earnings of young people who complete a bachelor's degree are 46% above the national median earnings five years after finishing study," he said.
"Meanwhile on average, students who stay in New Zealand repay their loan within six years."
Mr Joyce said there was also no statistical evidence having a student loan had any impact on childbearing trends.
"It's important to note that New Zealand has one of the most generous student support systems in the world. Taxpayers directly pay around 70% of the cost of tuition; and provide interest-free student loans for the balance of the tuition fees, and significant student living costs."
- By Catherine Gaffaney of NZME News Service
