Loans: patriotism or conscience?

How much do some thousands of New Zealanders value their tertiary education?

Not much, it would seem, no matter how valuable it is internationally and how saleable it is to overseas employers. More than 85,000 of them living overseas, and working, owe us - the New Zealand resident taxpayers, including their tertiary student brethren - some $2 billion in unpaid student debt.

Most are paying at least the minimum off each year, but 35,000 are behind in their repayments.

They are paying 6.6% interest on that debt, no doubt it is accumulating on the records of the Inland Revenue Department. There is no doubt, either, that the failure to repay this debt is a disgrace.

New Zealand residents have their student loan repayments automatically deducted through the taxation system. Bizarrely, New Zealanders who live and work overseas only repay the sum if they volunteer to do so.

Critics of the student loan scheme when it was first mooted pointed out the inevitability - given human nature and human greed - that the deal offered a golden opportunity for the less civic-minded to operate scams: borrowing interest-free student loan money, for example, and investing it in interest earning ventures.

Some of the gaps have been closed, and there have been sufficient hints from the Beehive to suggest some others will also be closed in the May Budget.

But the failure to implement a mechanism whereby students with loans who proceeded overseas also repaid them when in employment is unacceptable: Sir Paul Callaghan's appeal to the patriotism of the non-payers in light of the Christchurch earthquakes deserves success, of course, but patriotism is clearly not their strong suit.

The average debt of former students now overseas is not very large, at about $18,000, and none is required to pay it off in a lump sum. In fact, repayment arrangements are particularly accommodating to circumstance.

Yet there is clearly a residual bitterness that those who enjoyed a so-called free tertiary education here were the ones who imposed student loans on later generations, exemplified by the graduates living in Hong Kong who this week invited Sir Paul to repay to the State the cost of his education, adjusted for inflation.

The question of fairness is irrelevant. Sir Paul might well argue that there were far fewer students in his day, and that he did pay fees (admittedly somewhat less than today's), but also worked throughout the vacations to earn the money to support himself - money then and later that was taxed at much higher rates than today.

There may well be a strong argument for revisiting the place of student loans as an item on the State's books. Former prime minister Tony Blair looked at selling the British student loan book to private enterprise because of its size and the distorting effect it was having on the government accounts.

Selling the New Zealand loans, assuming a buyer could be found, could raise a large sum to be dedicated to earthquake rebuilding, but it is unlikely to be politically popular or desirable.

In fact, our student loan scheme is excessively generous and excessively costly for such a small, isolated and debt-burned country like ours.

Every year the burden of the scheme increases on taxpayers and every year indebted students go overseas to seek employment, a good many of them with no intention of repaying the money they owe.

No trading bank would be so tolerant of a mortgage-holder or business debtor, yet the New Zealand taxpayer is expected to be.

Of course, student loans have greatly assisted more people to obtain a tertiary education, and the benefits of that have flowed into the local economy.

The National-led Government appears to be committed - at least until November - to its present policy but that is no reason to avoid signalling a new one targeted at the absconders.

Perhaps the prospect of unwelcome border attention might stimulate some conscientious patriotism from the slackers.

Less onerous might be a system similar to America's, where defaulters risk automatically making themselves ineligible for any other form of state assistance. A prudent Government must do its best to contain student-loan costs and send a stronger signal to students that it is in their interest to borrow as little as necessary and to repay the loans as quickly as they can.

 

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