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Student Loan Scheme Bill

Second Reading

Wednesday 17 August 2011 Hansard source (external site)

DunneHon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Student Loan Scheme Bill be now read a second time. This bill represents a significant shift in the way the student loan scheme is administered, with the aim of making it easier for borrowers to manage their loans and to pay back what they owe when they should. Currently, complying with this scheme is complex, and its administration has its own complexities as well. Borrowers have to deal with different administrations at different stages of their loan, which can result in confusion for borrowers about their immediate repayment obligations and their overall loan balance. The repayment system is also heavily dependent upon inflexible, paper-based communication systems, which make it difficult for the Inland Revenue Department to communicate with borrowers who move address frequently, or who go overseas. Further, the process of annual assessments for determining borrowers’ loan repayments results in complicated annual interaction with borrowers.

This bill introduces a suite of measures to deal with these problems, and to help the Government better manage this $11.1 billion Crown asset. To recap briefly, the first of these measures sets the framework for consolidated loan information to be provided electronically to borrowers by the Inland Revenue Department. That will enable borrowers to access information on their loan balance and to manage their repayment responsibilities from anywhere in the world at any time. It also means that borrowers who are currently studying will no longer have to contact two agencies for this information, as they do now. The overwhelming majority of borrowers will also benefit from the removal of the current annual end-of-year assessment if their income is from salary and wages only, and if their before-tax income is over the pay period repayment threshold. The Inland Revenue Department will instead treat loan repayment deductions from a borrower’s salary or wages as being correct and final for the pay period, although borrowers will be able to get a refund if they have significantly overpaid their pay-period obligation. The result will be a student loan system that is simpler, easier for borrowers to understand and to comply with, and more cost-effective for the Inland Revenue Department to administer.

Finally, the bill introduces changes to simplify the current penalty rules that apply when borrowers fail to make their loan repayments when they should. These include measures to help prevent penalties for non-payment or underpayment from reaching levels at which borrowers perceive them as an insurmountable barrier to paying off their debt. At the same time, of course, the bill recognises the importance of borrowers honouring their debt. Consequently, a Supplementary Order Paper to the bill serves to strengthen the Commissioner of Inland Revenue’s ability to recall a loan in cases of serious non-compliance. These are the main features of the bill.

I acknowledge the work of the Finance and Expenditure Committee when it considered the bill, and I recall for the House the fact that while the bill was before that committee, the Inland Revenue Department identified some measures where the original application dates needed to be delayed until 1 April 2013 to allow more time to implement changes in the Inland Revenue Department’s existing systems. The measures that are affected by this are the new interest and penalty rules that I have just mentioned, certain payment priority changes, and changes that will move the system away from the tax system’s period-based debt approach to a whole-of-debt approach, which is more akin to a mortgage. Although the application dates of some parts of the bill will be delayed, the application dates for the proposed changes that benefit borrowers, such as the provision of a consolidated view of their loans, will remain unchanged.

As I say, I acknowledge the work of the committee in its careful consideration of the proposed reforms, and for the flexible approach it has taken to allow amendments to be made in order to help the Inland Revenue Department to implement the necessary changes the bill introduces. The result will be a simpler, more effective way for borrowers to self-manage their loan responsibilities, and a more efficient, cost-effective framework for the Inland Revenue Department to manage its interactions with all borrowers in New Zealand and overseas. Therefore, it is with great pleasure that I once more commend this bill to the attention of the House.

ShearerDAVID SHEARER (Labour—Mt Albert) Link to this

The Labour Party will be supporting the Student Loan Scheme Bill, although we are opposed to one element of it, which I will get to as I go through my remarks. As this bill went through the Finance and Expenditure Committee, I think that it generated a degree of debate—not hostile debate but debate in terms of how we can make our student loan mechanism work much more effectively. As the Minister of Revenue just said, making this system less paper-driven and streamlined in terms of the agencies that students go to—bringing those down from two to one—and certainly making it easier for students to be able to repay their loans, particularly those students who have gone overseas, is all good.

The average student loan at the moment is nearly $7,000 per student, and about 587,000 students have loans. As Minister Dunne just said, about $11 billion in total is designated—curiously—as a Crown asset. I suppose in many ways it is an asset. These people are going through tertiary education, which is a right that we are pleased about.

AdamsAmy Adams Link to this

The debt is an asset.

ShearerDAVID SHEARER Link to this

Yes, I was looking at the word “asset”, and using the word in terms of what we have, and in terms of investing in our future. That is very important in terms of what New Zealand has been able to do throughout the history of tertiary education, which is basically to provide easy access for students to be able to get to university and have that right of a good tertiary education. It is a very high-quality tertiary education.

But $2.3 billion of that money is money that is currently with students overseas. So this bill, which streamlines our ability to be able to help those students overseas to repay their loans, is to be welcomed. Treasury estimates that by 2014 something like $22 million will be recoverable through the changes that have occurred as a result of this bill, and $22 million is significant. Obviously the sum will accumulate over time as we get the basis of a new system, a more streamlined and electronic system, in place, and one that can be built on and encouraged further, after that.

This is where we come to the issue that the Labour Party is not in support of. The particular aspect is the charging of a fee to students in order to be able to put this system into place. I think that at the moment students are, in many ways, already heavily burdened with student loans. As we are actually making close to $22 million off the back of the savings that will occur, putting a yet further burden on to students of the administration fee in this bill is, we believe, over the top. Although we are supportive of the bill itself, we are not supportive of the proposal in this bill to add an administrative fee for students to enable this system to come into play. The State will take $22 million, which will increase over time, so that fee, I believe, is unnecessary. It is a fee of only $40 per student; nevertheless it is a fee that will hit students who are perhaps in a position where they are already financially stretched, and, ironically, it will add to the cost of the loan for people who are already struggling.

While I am on this topic, I will address the broader aspect of what is actually happening to student loans. An extraordinarily important subject for the country is the amount of money that we commit through student loans, and the commitment we make as a country to tertiary education. Yet some areas of student loans, such as that of people trying to get a student loan, have been disadvantaged as a result of the last Budget. I am referring to those students who are over the age of 55, and who are effectively being shut out of obtaining a student loan. That says a couple of things to me. First of all, it says that people over 55 have really no value in our education system, because they are too old. We know that 55 is the very age at which many older workers look to retrain, upskill, and move on to other things. We know, inevitably, that people will be working longer as they continue their working lives, and that they will want and need to upskill and retrain as a result of that. It seems highly discriminatory to penalise those people over the age of 55, rather than to support them to go into tertiary education, to be able to change to a different pathway, and to upskill their qualifications so that they can take part in the workforce and be more productive. Overall, our labour productivity is one of the lowest in the world, and we want to try to see that we provide every encouragement for workers to be able to move into more productive employment. This bill discriminates against those people over 55.

The second point I will raise with regard to this legislation is that the over-55s have generally been paying taxes all of their lives, but, as a result of this bill, when those people get to 55 the Government will say “Yes, if you’re 18 you can get a student loan and the State will support you, but when you get to be over 55, despite the fact that you’ve been contributing to society in most cases, you have been excluded.” I think that is grossly unfair. This access to the student loan should be universal; it should not be discriminatory. It should be allowed to continue for those over 55, regardless of the fact that, according to the Minister for Tertiary Education, these people are considered high risk in terms of the degree to which they pay back their loans. Despite the fact that I have asked the Minister specific questions about the over-55s—in what courses and in what areas have they not been paying back their loans—I have not been able to get that information. It seems that this policy is somewhat like shooting from the hip and is not really thought through, but is nevertheless a policy that is targeting and discriminating against those older members of our society who genuinely want to go back, retrain, relearn, and upskill. That is exactly what we are trying to provide, certainly on this side of the House, through our education policy, but in fact it is not the case, at all, with this bill.

I just come back to the bill itself. As I said, the Labour Party will support this legislation because it streamlines the ability to collect those loans that are outstanding. It provides a better interface for students who have perhaps gone overseas, because we can communicate through electronic media. That will replace much of the paper-type aspects that have been the hallmark of the student loan system up till now. It will recoup—according to Treasury figures, anyway—$22 million by 2014. In the next 3 years that amount of money will easily pay for what has been put in place in terms of the changes in this legislation. Thank you.

AdamsAMY ADAMS (National—Selwyn) Link to this

I am going to take just a quick call on the second reading of the Student Loan Scheme Bill. People who are listening at home and who heard the last speaker, David Shearer, might think that the scope of this bill is considerably wider than it is. In fact, it is a reasonably straightforward bill that enjoys wide support. As the Minister of Revenue has said very well, in his opening contribution, the bill really is about making this part of the tax system simpler, easier to understand, and easier for taxpayers to comply with their student loan obligations, and about making sure we have a tax system that works in the best interests of the stakeholders who use it. This has been an ongoing work programme for the Minister, and I commend him for that work across the tax system.

This bill represents the student loan scheme parts of the tax system. If I remember back—many, many years it seems now—when I had a student loan, I can certainly attest that one of the most frustrating parts of the process was not being able to get any sort of sense from the Inland Revenue Department about what the loan balance was. It was all compartmentalised into different years, and one would be in credit in this year and would have a debit from last year, and one could not set the debit off against the credit. It seemed to me, even then, that it was nonsensical and I wondered why we could not run these systems in more of a simple bank-loan way where one had a consolidated real-time balance that one could access easily and contribute to easily. Finally, under the National-led Government, and under Minister Dunne, we are moving to a system where that sort of common-sense, easy-to-use process will come into being. I think student loan borrowers, for many years to come, will be very grateful that we have that sort of certainty.

I want to touch on two other matters very briefly. The first is around the pay-period certainty we are providing, where the majority of student loan borrowers who are on PAYE for salary and wage payments can have some certainty that when they make their weekly, fortnightly, or monthly contributions, that is the sum total of their obligation. Each pay period, if they pay the required amount, then they can be certain that their obligations are met, and they will not face the risk of getting a bill at the end of the year for some changes in accounting during the year. They will not suddenly find that a bill arrives on their doorstep. As long as each pay period the right figure is paid, then they can relax in the certainty that their obligations are met. Again, that is the sort of peace-of-mind, easy compliance that we certainly want to support.

The final point is around the changes to the penalty rates and, as Minister Dunne noted, this is one of the areas where the Finance and Expenditure Committee heard and accepted the fact that the dates will need to be pushed back while there is some work done in the Inland Revenue Department to get its systems in place. But it is a good system we are moving to, where we are changing from, effectively, penalty rates of up to 20 percent per annum on unpaid student loan contributions to rates that are effectively going to be closer to around 10 percent per annum and, in fact, as low as 8 percent per annum if non-compliant borrowers enter into instalment arrangements with the department. So I think we are certainly getting into a much more usable and supportable penalty regime that will not see these debts spiralling out of all control, but still, of course, have that incentive for the borrowers to repay the debt.

This is excellent legislation. It is the sort of making-it-easier-to-comply legislation we need to support in this House, and I am very happy to commend it to the House.

BurnsBRENDON BURNS (Labour—Christchurch Central) Link to this

As my colleague David Shearer has indicated, Labour is supporting the Student Loan Scheme Bill through Parliament, with a number of important caveats. I first acknowledge the reason why, in broad principle, we are supporting this bill. Obviously student loan issues is important to address. Anything that helps rein in some of the costs that have occurred in respect of some of the non-repayment issues is important to grapple with. A lot of these issues centre on those who graduate and go overseas. They make up a fairly big percentage of those who are not repaying loans, and we need to try to bring them into the fold. Treasury has stated that this will bring in around $22 million a year, and that is important for the revenue.

I note a couple of things. One is the change to late-payment penalties, which were nudging towards 20 percent under current arrangements. In some respects, that is almost at loan shark rates—an issue the Government is finally moving on, after Carol Beaumont’s excellent bill last year was rejected by the Government, which left many people to pay usurious rates that were inappropriate. Now we are starting to see some action on that issue from the Government. Similarly, we have the Government proposing that the interest rate that students pay on late payments should drop back to about half the rate it was, down to 10.6 percent or even 8.6 percent, if they enter into instalment arrangements. Obviously those repayments will be much easier with the electronic processing that is at the heart of this bill. So that is a step forward.

I want to speak particularly, though, on the issue of excluding over-55-year-olds from student loan access. I speak on this issue with some real connection to it, as somebody of that particular age. I say to this House that the concept that people will not be able to retrain with some assistance from the State—some hand up—is a nonsense when we consider that in this Parliament we have people in their 60s and even 70s still doing extraordinary, dedicated jobs, still working extraordinary hours and output rates, and showing that people into their 70s are well able to contribute. In fact, the whole pattern of commentary emerging is that we need to work longer if we want to have secure retirements. We are hearing that from people like the Retirement Commissioner and others, yet here we have a bill that tells anybody that once they get past the magic age of 55—and a magic age it is—

GilmoreAaron Gilmore Link to this

Refer to the clause that says that, Brendon.

BurnsBRENDON BURNS Link to this

The situation is that over-55-year-olds are excluded from—

AdamsAmy Adams Link to this

I raise a point of order, Mr Speaker.

RobertsonThe ASSISTANT SPEAKER (H V Ross Robertson) Link to this

Yes, I know what the member is going to say. The member is going to ask that the member come to what is in the bill. I ask that we just try to bring things together.

BurnsBRENDON BURNS Link to this

I will move to other commentary on the bill, such as student loan eligibility restrictions. I note the commentary from Te Puni Kōkiri about the new restrictions, stating that this is “at odds with the declared intent of the Tertiary Education Strategy to encourage more Maori and Pasifika students into tertiary education.” I ask members opposite what particular part might it have been commenting on. I also note the Ministry of Pacific Island Affairs’ statement that the “package may result in Pasifika students dropping out of university and going onto the unemployment benefit or shifting to cheaper avenues of study.” What we want to see is people encouraged to take up tertiary study so they can progress from career to career, because the reality of life is, as some members opposite can testify from their own CVs, we can take part in three, four, or more careers. In that sort of environment, we need the capacity to train, retrain, and get a helping hand from the State to assist us through that part of life, and it should not end at a particular point in life.

This bill is, of course, replacing the Student Loan Scheme Act of 1992. We are looking at facts that state that the loan balance is currently standing on the Inland Revenue Department’s books at around $11 billion, and we have nearly 600,000 people in receipt of student loans. I was interested to see in the Finance and Expenditure Committee the average amount borrowed. We have pictures in our minds, I think, of students borrowing tens and tens of thousands of dollars and not repaying them. In fact, that is not the case, as we heard from the Inland Revenue Department. The average amount borrowed is actually under $7,000 per student, and the repayment time for those who left tertiary study in 2006 was around 4.6 years. So the time frames and the amounts borrowed are quite modest, but cumulatively we are talking very serious amounts—currently around $11 billion and projected to go to about $15 billion in the next 4 or 5 years. Obviously, that issue is at the heart of this bill: the need to allow former students with student loans, many of them overseas, to tap into payment systems electronically and pay back their debts at a time when often they are earning good money overseas. That is at the heart of the bill, and that is why Labour is broadly supporting the passage of this bill through Parliament.

HughesGARETH HUGHES (Green) Link to this

Kia ora, Mr Assistant Speaker Robertson. Ngā mihi nui ki a koutou. Kia ora. It is great to take a call on the Student Loan Scheme Bill—a Government bill going through under urgency. I think student loan issues are urgent, and we should be dealing with them, but a bill of this nature, which essentially is tinkering around the edges, is not the type of thing we should be addressing under urgency.

When we look at the student loan burden across the country, we are looking at an amount in excess of $11 billion on the shoulders of more than 560,000 Kiwis. This is an urgent crisis, and this bill does not address it. My big fear is that this bill will prolong the student loan debt burden on those hundreds of thousands of Kiwis for months and years, with only minuscule benefit.

Student loans, since they were first introduced in 1992, have been a massive experiment with our tertiary education sector graduates. A massive $11 billion is currently outstanding, and this loan debt is growing at $1 billion a year—a fantastically huge sum at a time when the Government is borrowing such considerable amounts.

The curious nature of student loans is that, in fact, they are down on the Government books as an asset. If we look at the Government books, which are not in great shape at the moment, we wonder what the consequences would be if we took this asset and did something else with it. What it is, of course, is a massive drag on our economy, students, and society.

I acknowledge and thank the submitters to the Finance and Expenditure Committee. I thank the officials and the chair of the select committee. We did not hear a huge number of submissions on this bill, because ultimately this bill is pretty small-scale in its intent. Essentially, this bill tightens up rules relating to overseas graduates with loans, adds administration fees, and, most critically, brings in electronic management of student loans. I cannot believe that in 2011 we are getting around to electronic management of loans. It is amazing that in 2011 we are finally getting to this. It could have been done a long, long time ago.

Lotu-IigaPeseta Sam Lotu-Iiga Link to this

Under the Labour Government—yes, that’s right.

HughesGARETH HUGHES Link to this

The member is correct. A good question to ask Labour members is why this was not progressed sooner in the 9 years Labour was in Government. It makes common sense. Graduates—

RobertsonThe ASSISTANT SPEAKER (H V Ross Robertson) Link to this

I say to the member on my left and the member on my right that interjections are permitted only when they are directed at the person who is addressing the House. Interjections between each other, with members having their own private debate, are not in order.

HughesGARETH HUGHES Link to this

It is a good example of how students have been failed by both Governments of different hues. The fact is that it is good we are finally getting around to electronic management of student loans. It is amazing that we have waited until 2011, given that the internet has been around for such a long time, is such a key tool, and will increase the cost-effectiveness and efficiencies of student loan administration by the Government.

We oppose some parts of the bill and support other parts of the bill. We support the intent of the legislation, which is to increase the effectiveness, reduce administration costs, and, in particular, introduce electronic management, but we are opposed to the imposition of additional fees on students. These are Kiwis in New Zealand. Some of the poorest Kiwis are on student loans; they are effectively beneficiaries. These people are the least able to handle additional fee costs being imposed on them, especially in this current economic environment.

This bill brings in a $60 student loan establishment fee, and an annual $40 student loan administration fee. These are substantial figures for people. It might not seem like much to members in this Chamber, who have just received a 5 percent tax cut—a tax cut for the rich, as it has been called in the public arena. Yet we see this Government putting additional burdens on some of the poorest New Zealanders, who are facing rises in GST, petrol, and other costs of living. We think this bill is bad in that respect. It would have been good to get rid of this part in the select committee. Ultimately, we heard from officials that the Inland Revenue Department is investing in updated computer software and infrastructure. So there is no need for additional costs for students to pay. I understand that the administration fees will raise only around $14 million. That is a tiny drop in the bucket compared with what this Government is spending on motorways, which is in excess of $19 billion.

We are opposed to administration fees for students because they add to the burden that students are already struggling under; they add to the repayment time, increasing that burden over the course of graduates’ student loan repayment; and, lastly, they reduce the effectiveness of the voluntary repayment bonus. We think the repayment bonus is a good thing. We think we should be looking for more carrots, as opposed to sticks. We support voluntary repayment bonuses. In fact, we support writing off a year’s student loan debt for each year the graduates stay in New Zealand. We want to see Kiwis staying in New Zealand, especially after they have graduated. We think that carrots are a much better way forward, instead of looking at the path of debt collectors or of charging extra fees on the loans.

Before I get into the substance of the bill and the reasons why we are opposed to the admin fees, I make just a quick point that it is good that this bill does not introduce interest on student loans. I am sure the Government benches are looking forward to that announcement if it comes. I hope the National Party does not announce bringing back interest on student loans. It was a shame we had interest on student loans under a Labour Government for so many years, and I feel that it should have reduced the interest earlier. Labour waited until 2006. Obviously, the issue won the election for them. It was a vastly popular issue. A huge proportion of this country—around one-sixth, or 560,000 Kiwis—has a student loan. Not having interest on loans has made a significant difference to the burden facing Kiwi graduates. I acknowledge that Labour introduced it, and it is good that this bill does not take it away. But I want to hear confirmation from the Government benches that National will not be bringing back interest on student loans.

The $60 and $40 fees add to the student debt burden. It is not the way we should be going forward. We should be debating how we can decrease student fees and decrease the student loan burden. My big fear is that because interest-free student loans are so popular in this country, the Government is trying to apply interest by stealth. The big fear is that these admin fees are interest by stealth. I am sure the Government benches dearly want to bring back interest on student loans. The accusation we heard in the select committee was that the administration fees are interest by stealth.

The fact is that we already have a good system with a repayment threshold. Once a graduate with a loan starts earning over the threshold, 10 percent of their salary is docked automatically to go to the Inland Revenue Department. I imagine I am probably the only member in this Chamber with 10 percent of their salary going directly to the Inland Revenue Department, as I slowly but surely pay off my student loan burden. The fact is that we have this system already. The submission by the New Zealand Union of Students’ Associations called this a new tax and said, quite rightly, that those 560,000 students in the community who are worried about taxes and about hearing the tax rhetoric from this Government will be lumped with these new fees and will see them as a tax.

The fees will increase the repayment time for student loans. If we look at the last student loan report we see that the median repayment time is 6.6 years for someone who graduated in 2004. That is an awfully long time, especially for many of these students who are in their early or late 20s and who are thinking about starting a family. This is part of the reason we are seeing such a big demographic shift over the course of the history of the student loan scheme since 1992. People are delaying having families and buying a home—that is, if they can live the dream and actually afford a home. With the repayment times we are seeing a gender imbalance. We see females taking longer than males to pay off their student loans.

We also see this bill reducing the effectiveness of the voluntary repayment bonus. We think that carrots are a good idea, as opposed to sticks. We support the voluntary repayment bonus. If a graduate makes a voluntary $500 repayment on their loan, they get a $50 bonus from the Government, but the fact is that $40 has already gone straight to the Government in these new administration fees—this interest by stealth, or, as they were described in the select committee, these tax increases for the poor. Ultimately, the bill will reduce the effectiveness of the voluntary repayment bonus, because people will say: “Why bother? I already have to pay these new admin fees. I am just not going to do it.”

The second part of the bill, which I may talk on in other calls, is about the pay period. We have some concerns around the changes to the pay period. The changes will disadvantage those hard-working part-time students who earn the bulk of their income over the summer, picking fruit, working in the freezing works, or whatever. The fact is that exemptions are available for those students, but I doubt that many students will be either aware of the exemptions or able to access them. There will probably be a lengthy process. It would be good to hear from the Minister of Revenue how, once this legislation passes, we can make it easier for these students to access these exemptions.

In summary, we support elements of the bill, and we oppose other elements of the bill. Ultimately, we need a big discussion of what student loans mean in the future and of how we can reduce the student loan debt burden for students. Kia ora.

DouglasHon Sir ROGER DOUGLAS (ACT) Link to this

It was interesting to listen to the Green Party representative Gareth Hughes. Essentially he was saying that the $1 billion of subsidies that goes to students is not enough and that it should be more. He was saying that the people I used to represent in Ōtara, Papatoetoe, and Manurewa are not paying enough tax to subsidise the rich students who come from Karori and places like that. Let us be very clear what he was saying. He was saying that the Government has already taken $1 billion from taxpayers, but that it is not enough. He was saying that he wants to make it $1.1 billion. Guess who is going to pay it? The poor families in Ōtara, Papatoetoe, and Manurewa—the people the Green Party guys claim to represent.

In book-keeping there are two sides of the coin: we cannot spend what we do not take from someone else. The Green Party wants to take money from average, hard-working New Zealand families and give it to students, so $1 billion is not enough. I have never heard one of the Green Party members saying to that young boy, that 18 or 19-year-old who wants to buy a truck and set himself up in the business of carting goods, that they will give him a subsidy. No damn way! They will tax him and give it to the affluent. That is what it is all about.

The Student Loan Scheme Bill is a simple bill. ACT supports it.

KateneRAHUI KATENE (Māori Party—Te Tai Tonga) Link to this

Tēnā koe, Mr Assistant Speaker Robertson. It is a pleasure to stand and speak on the Student Loan Scheme Bill. In our family, education is a big deal. My husband earned his PhD 2 years ago. He works at Massey University, so he is very much into the academic world. It was 25 years ago when I started as a full-time student doing my Bachelor of Arts degree at Waikato University. I then switched after a year to turn my focus to law. Of our five children, four are university graduates and they all have student loans to pay off.

Going back to my situation, who would have thought in 1984 when I started out at Waikato University that I would now be turning that study to practical effect and implementing law in these hallowed halls? In those days our concerns were about scaling down Māori. By that, I mean that it was the practice to scale down the marks of students learning te reo Māori. There is an article by Jill Bevan-Brown that tells the story of a young man’s marks in Bursary Māori being scaled down from 94 percent to 67 percent. When his mother intervened, she was told that the Government could not afford the cost of large numbers of A Bursaries being earned in the Bursary Māori exam. Yet the same degree of scaling down was not applied to other languages such as Russian and French. I tell this story because it is but one issue amongst a history of various blocks and barriers that Māori students have experienced in the transition from secondary to tertiary education. Such a history provides a vital backdrop to the Māori Party’s position on tertiary education and, in the specific case of this bill, on the student loan scheme.

The Māori Party believes that tertiary education is a front-end investment in the nation’s future and should be freely available to all. It is from that basis that we seek to increase accessibility to tertiary education to ensure that all people have the chance to pursue tertiary education. So how does the student loan scheme fit into this framework? The Māori Party has tried very hard to ensure that sufficient attention is paid to student loan debt repayments. It has been our position that student loan debt repayments should start only when a student starts earning one and a half times the average wage. We have also recommended that there be a 5-year grace period for repayments after graduation. That is our core position, so we have been on the alert to see how this bill, which repeals the Student Loan Scheme Act 1992, the current student loan scheme legislation, can be seen in that light.

Significant points of the bill currently before the House are that it will increase the loan establishment fee from $50 to $60 and establish an annual $40 Inland Revenue Department administration fee. These would not seem to be aspects that we can support. Further, when we read the submissions, we see that the New Zealand University Students’ Association supports the current annual assessment of earnings to determine student loan repayment obligations, rather than the proposed shift in the bill to pay-period repayments.

The New Zealand University Students’ Association is concerned about the proposed move away from a simple annual repayment threshold to a weekly, fortnightly, or monthly pay-period system, and is opposed to any increased obligations that borrowers may therefore face under this legislation. Its argument was one of consistency. A shift to a pay-period system is inconsistent with other tax obligations. PAYE payments are determined on an annual basis with a year-end square-up of income, as is child support and Working for Families. Student loan borrowers should not be treated differently, particularly if the Inland Revenue Department is supposedly aiming to improve systems and remove complexity for all parties. On this ground, it is the view of the Māori Party that the increase in the loan establishment fee and the introduction of an annual Inland Revenue Department administration fee will have a negative impact on students who have student loans. Numerous annual reports from Te Tāhuhu o te Mātauranga tell us that Māori certificate-level students carry a larger student loan debt 5 years after study, reflecting notably lower earnings. Māori with bachelors’ degrees or postgraduate qualifications also have notably higher average leaving loan balances than non-Māori.

Yet some issues have come up during our discussion on the bill that warrant further investigation. The implementation of the policy and administrative reforms through a new loan management system has proven more complicated than the Inland Revenue Department expected, so this bill is a genuine attempt to make implementation easier. The bill extends the exemption for full-time full-year students from having repayment deductions made from their salaries or wages to also include students who undertake the equivalent of a full-time study workload for part of a year, students who start to draw down a student loan before their study commences, and students who work over short non-study periods or the Christmas period and intended to study after that period. That is a step forward in terms of being prepared to factor some flexibility into the system, which we see as positive if we are serious about supporting students to access tertiary education.

This bill also rewrites the legislation governing the administration of student loans, reforming the way student loans are repaid, the way borrowers manage their loans, and the way loans are to be administered. The changes allow borrowers to manage their loans electronically and allow the Inland Revenue Department to provide more services to borrowers. The students’ own association, the New Zealand University Students’ Association, has spoken very positively about this aspect of the bill. It sees that the expansion of online services and increased electronic and personal management of outstanding student loan balances will be of great benefit to borrowers generally, and will be particularly useful for overseas-based borrowers. The introduction of a new electronic loan management system will enable students to monitor and manage their loans online. From accounts, that has been received positively by students.

One of the dilemmas that parties come to—well, parties that have the option of voting on principle rather than just the party line—is that we oppose some parts of the bill, such as the increased costs for students, but we support other parts, such as the incentive to be more effective and, particularly, to move into the information age. Our vote reflects this dilemma. Kia ora.

Lotu-IigaPESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this

Malo le soifua. I rise to support the Student Loan Scheme Bill. All of the arguments—all of the logical arguments, anyway, from members on this side of the House—have been put forward for this bill. It is about reforming the tax system to bring it up to modern times. It is about delivering certainty for taxpayers so that they have the relevant information before them. It is about allowing them to interact directly with the Inland Revenue Department at any time with speed of access, and that interaction is primarily online. It is about providing good value for money for our taxpayers, in terms of how we go about receiving student loan payments. In doing so, it is about building trust and integrity in our tax system, allowing us to get higher levels of compliance and higher levels of repayments, particularly when loans are interest-free. It is about bringing about change that is beneficial to all New Zealanders. It is about bringing down the costs of administration. It is about speeding up our loan repayments.

My personal experience, having spent a number of years overseas when I had a student loan, was that I found it difficult to communicate with the Inland Revenue Department, whether I was communicating from England, Australia, or the United States. The changes we are about to put in place will bring about easier access for those who actually want to pay back the moneys but who find it very difficult to communicate with the Government departments. There is a simple message: the bill is about simplicity for our users, making it easier for them to comply with their requirements under their student loan contracts, and easier for our bureaucrats to administer such a system.

Before I conclude, I raise one point about student loans. There seems to be some uncertainty from the benches across the other side of House about why student loan recipients are an asset. They are debtors. Student loan recipients are people who owe money to the State. That is why they are an asset, and that is why in order to facilitate the repayment of debts it is important for us as a Government, as it is for any prudent organisation, to put in place systems that will facilitate repayments in a more effective and a more efficient way. That is why we are bringing about these changes.

It was a pleasure to sit on the Finance and Expenditure Committee. I thank those officials and submitters who participated in the process, and I thank fellow committee members. Finally, I salute the Minister of Revenue for the changes he has put in place in this area. These changes are long overdue. They certainly did not happen under the Labour Government, but they are happening under this hard-working National Government.

RobertsonGRANT ROBERTSON (Labour—Wellington Central) Link to this

It is a pleasure to rise to speak on the Student Loan Scheme Bill. As other Labour speakers have indicated, we are supporting this bill, albeit with some concerns about a couple of matters, which I will go into in a moment. First I will respond to some of the comments made during the debate. I start with my colleague Gareth Hughes from the Green Party. I want to make clear that we on Labour’s side of the House are very proud of the changes Labour made to the student loan scheme when we were in office.

When I was a borrower in the student loan scheme we were charged interest on our borrowings while we were studying—while we had absolutely no means of being able to pay it back. It created this phenomenon called flat-spotting, which means that people could earn, and earn, and earn money, but the interest would keep going up and they could not pay it off. Labour made sure that we removed interest on student loans while people were studying. Then we moved on to remove interest completely from student loans. I am proud of that. I am proud that that achievement has made it much easier for people to pay off their loans. It has worked in trying to keep graduates in New Zealand. That was actually the purpose of the change: to incentivise people to stay in New Zealand, because interest is still charged when a borrower is overseas.

We also made tertiary education more affordable generally. We introduced the fee maxima policy. I sat on a university council in New Zealand in the mid-1990s. In 1 year fees went up by 18 percent, and the next year fees went up by 15 percent. That made it really difficult for people to afford tertiary education. When Labour came into office we introduced the fee maxima policy, which meant that institutions could not put up their fees by more than 5 percent per year. That demonstrably helped students by keeping the cost of their education down. We also extended eligibility to student allowances, which meant that fewer people were borrowing from the student loan scheme. That was very important to the academic success and welfare of many students. So I say to Mr Hughes that although he may have ideals for further changes to the way tertiary education is funded—and I too want to see it become more affordable—I think the Labour Government’s record on tertiary education in its last term of office is something to be proud of.

In terms of Sir Roger Douglas, we heard a familiar speech from him. My only response to it is that the reason why I support investing in tertiary education is so that the children of the truck driver from Ōtara can have a tertiary education. Why should we limit their opportunities? We need to invest in tertiary education so that everybody has the chance to improve themselves, no matter where they come from. Tertiary education, in my mind—and I know that Sir Roger will disagree with this—is a public good, for the most part. In the mid-1990s the Todd task force, which looked into tertiary education, tried to come up with a balance between the public and the private good in tertiary education. The truth is that there is not a scientific formula for that, but the reality is that we all benefit from tertiary education, because we benefit from having people with skills, who can then go on to be part of our productive economy. It is an investment in all of our futures. It is especially an investment in the future of someone who comes from a background where they may not have the resources themselves to pay for tertiary education. I think we should have the ambition for the people from Ōtara to be able to be part of the tertiary education system, which is why we need to invest in it, rather than trying to see it portrayed as some kind of middle-class benefit.

I will now return to the bill itself and say, as other speakers have said—

HipkinsChris Hipkins Link to this

Return to it?

RobertsonGRANT ROBERTSON Link to this

I say to Mr Hipkins that I was responding to comments in the debate. I will now return to the bill itself and say, as other speakers have said, that there are some good elements in this bill. I particularly support the idea of a more electronic-based system for the loan scheme. As I said in the first reading debate, when I was looking at some of the forms being used for student loan borrowers when a constituent visited me in my office with a problem with their loan, I recognised the forms as ones that I had been part of designing as a student politician in the mid-1990s. So there is absolutely no doubt that the time has come to update the systems.

As Mr Lotu-Iiga said, an electronic system will be very helpful for people overseas, and we want people who are overseas to be able to pay back their loans and to interact with the Inland Revenue Department in a sensible way. I have one issue around the electronic system, which is the question of how it interacts with the redesign of the computer system at the Inland Revenue Department. It is quite clear that historically Government agencies have struggled with large computer projects. Need I mention INCIS—the integrated national crime information system—to the House? As we go through this debate and in the Committee stage, I have a number of questions for the Minister around the interaction between these changes to make electronic payments easier and the overall change of the Inland Revenue Department’s computer system. But overall that is a very good aspect of the bill, and it is certainly one that we can support, because it will help borrowers manage their loans and help with consistency of treatment between different borrowers. That change is important to make.

The two areas I want to speak about in the remainder of this call—and I will certainly come back to them in the Committee stage—are the administration fee changes and the changes to the pay period assessments. It is difficult to understand exactly what the Government is doing with the administration fee. We have an increase to $60 for the fee for students drawing down a new loan, and a charge of $40 for borrowings. A new charge is being introduced here.

HipkinsChris Hipkins Link to this

Full of interest.

RobertsonGRANT ROBERTSON Link to this

Well, that is the question, I say to Mr Hipkins, because when we look at the actual costs in front of us we need to ask whether any new increase in costs would justify a change. According to the regulatory impact statement, there will not be any new cost. In fact, the new computer system should save money in the long run, subject to the questions that we will ask the Minister of Revenue. So money will be saved. The whole thing should lead to quicker repayments of loans, so there is no additional cost there. We have to ask ourselves why a new fee is being introduced, when the costs of running the scheme look like they might be going down as a result of this bill.

The conclusion that has to be drawn here is that the National Government has been desperate to reintroduce interest to student loans. This was the policy that John Key said he would oppose with every bone in his body, and now we have a new fee being introduced. It does look like the reintroduction of interest by stealth on student loans. That is what this new fee looks like. There is no actual justification for putting it in place. When we get to the Committee stage of the bill we will certainly want to ask questions about how justifiable this new fee being introduced under this bill will be. We do not believe that it is justifiable; we believe that in fact it is the introduction of interest by stealth by a Government that wants to reintroduce interest. John Key and Steven Joyce have both gone as close as they can to saying that they would like to reintroduce interest on student loans, but they know that politically they cannot say so. So by stealth we have a new $40 fee being introduced here for borrowers. I believe that it is the equivalent of interest. Although we support the positive changes around the electronic system, we do not support the introduction of that fee.

The other matter, as I have said, is the question of the repayment period. I acknowledge the work the Finance and Expenditure Committee has done on this matter. A number of concerns were raised, both in the first reading debate and then by submitters, about the fact that this change would be penalising students, particularly those who work intensively in holiday periods so that they do not have to work while they are studying. If they were to earn more than $367 a week in one of those holiday periods, for instance, under the bill as introduced they would be forced to make repayments on that. That would be unfair, because that is the money they would be saving to be able to use during their study period.

I acknowledge that there have been changes to the bill, particularly to clause 48, that I think will largely deal with that concern, and there are changes to clauses 73 to 89 that also deal with this matter. But when the Minister is in the chair in the Committee stage I would like to ask him some questions, because I was not on the select committee. I would like to ask some questions during the Committee stage as to whether we have dealt with the question of making sure that those people who work intensively in their holiday periods will not be penalised under this law by moving from an annual pay assessment to a pay period assessment. I think that is important because we do not want students working undue hours during their study period; we want them to be able to focus on their study. In the commentary on the bill I think there is a statement about not wanting people to borrow unnecessarily, either. That is a different way of looking at it. I think the select committee has made some good changes that will allay a lot of the concerns that we on this side of the House have about the way in which the assessment is changing from an annual assessment to a pay period assessment. But there are still questions to be answered to make sure that students are not unfairly penalised.

Overall, we support this bill, but we do have concerns around the administration fee and the repayment period, and we will be raising those in the Committee stage.

BennettDAVID BENNETT (National—Hamilton East) Link to this

I will take a short call on the Student Loan Scheme Bill. This bill will have the support of at least the two main parties in the House. It is part of the wider reform of the student loan scheme, in which I think everybody sees merit, to make it easier for students to be able to deliver their part of the bargain in repayment. It is changing some of the requirements of the student loan scheme but keeping intact the main element of the scheme, the interest-free student loans, which this Government has committed to retaining and has done so. Students around the country no doubt are very grateful for that in these very tough economic times.

GilmoreAaron Gilmore Link to this

What about the students in Hamilton?

BennettDAVID BENNETT Link to this

Yes, students in Hamilton are especially grateful for that. I think it has been a big sacrifice for this country to make sure that we can deliver that, and I think it is a tribute to the Government that it has been able to deliver that in these most difficult of times.

The student loan scheme is enhanced by this bill. We look forward to more students being able to take advantage of educational opportunities in the future through our reforms in the education sector, so that we can lift our economic performance even higher. Thank you.

FentonDARIEN FENTON (Labour) Link to this

It is a pleasure to take a call in the second reading of the Student Loan Scheme Bill. As my colleagues have said, Labour supports this bill, albeit with some reservations. It has been very interesting listening to the debate, and I think the Committee stage will be very interesting. There are certainly a couple of questions that we want addressed.

It has also been interesting listening to people reminisce about their university days. I come from a generation who did not have student loans and student fees. I was not the best of students. I studied in the 1970s when it was quite fashionable to drop out. I hate to admit the fact that taxpayers paid for me to go to university and I did not complete my studies, though I did go on later to do trade union and labour studies with my colleague Sue Moroney. I did not need a student loan for that study, because my union paid for me to do it. So I have never had to experience a student loan. I am very grateful to former generations for allowing me to do that initial study, which I do not think was completely wasted, but also to complete studying later on. However, my son has experienced a student loan. He has just returned from San Francisco this week on a temporary visit, and he will be very interested in how much easier it will be for him to communicate with the Inland Revenue Department and to make his repayments.

One of the things we hope for from this bill and the changes it will make is that it will make it more likely that some of the former students who are overseas will be able to repay their debts and bring their skills back home to New Zealand. Unfortunately, I think an awful lot more than just student loans is keeping our best and brightest overseas. We know that it is to do with the low wages in New Zealand and the fact that we have a huge gap between here and Australia, for example. Opportunities for jobs are so much better in many other countries.

The purpose of this bill is to amend the student loan administration system to an electronic format. That seems very sensible. The purpose is to make it easier for borrowers to communicate with the Inland Revenue Department, wherever they are. As the Green member Gareth Hughes said, it is interesting that it has taken a while for the Inland Revenue Department to get student loan administration on to an electronic system. I understand that the student loan scheme as it is currently administered is pretty unwieldy, is expensive to maintain, and has limited ability to accommodate further changes. It is good to see the system moving to the modern era, and to see the Inland Revenue Department being able to move student loans to a system that is much easier for students who have borrowed money. The repayment method is also being simplified to avoid the end-of-year square-ups for most borrowers, and late repayment penalties are being simplified and eased.

As I have said already, Labour supports this bill, as we believe that it will improve debt repayments. Student loan debt is a major factor driving graduates overseas, and, as I have said already, it is one reason they do not come home. We want them to come home and bring back their skills, so if this bill helps, we welcome that. However, we do have a couple of concerns, which will be outlined in my contribution and also in the Committee stage.

The student loan debt held by overseas graduates is a real problem. It is something we have to address. To this end, we particularly support the changes in the bill to late payment penalties, from a total of 19.56 percent interest per year to just 10.6 percent, or 8.6 percent if the student enters into instalment arrangements. Treasury expects these changes to increase student loan receipts by up to $22 million a year by 2014. That is a positive step forward, but we do have to ask why, then, we need to have an increase in the student loan establishment fee from $50 to $60. As other speakers have said, this is an attempt to introduce interest by stealth. It seems completely unnecessary when this bill will actually improve repayments. We need to understand, and we will be asking questions about, why this is necessary, and why the Government thinks it has to reintroduce interest by stealth. It will add an extra financial burden on those who are already struggling to pay their bills and who have incurred substantial debts as a result of their studying.

Similarly, another concern we have is that it appears unfair that a borrower who, due to the new pay period deduction system, unintentionally makes excess repayments of over $500 in a year is not able to apply for the 10 percent excess repayment bonus at the end of the year. It appears that the Government has not really fully thought out the impacts of this simplification plan. Perhaps a simpler and fairer way of dealing with it is to say that no student has to repay debt while they are participating in full-time study.

This bill does take a positive approach to managing student loan debt, but I have to say that there will be tens of thousands of students to whom this bill does not apply. I cannot help but reflect on that in my contribution. At a time when we should be investing in tertiary education for all, we are seeing caps, cuts, and a dampening of demand for all tertiary education.

SepuloniCarmel Sepuloni Link to this

All we’re seeing is food stamps.

FentonDARIEN FENTON Link to this

All we are seeing is food stamps. That is all we are seeing. Yes, that is right. But I am also very, very concerned about the exclusion of 55-year-olds from loan access. It sends the message to older people that there is no point in them reskilling, and no point in adult education. Of course, that does not apply in this bill. These people are excluded from this bill, which makes this whole policy pretty questionable. A policy that excludes over-55-year-olds is very short-sighted, punitive, and harsh. We are in a country with an ageing workforce. We are told repeatedly that people will have to change their jobs many times during their lifetime. They will have to reskill as things change. We know that the jobs we are training our younger students to do today do not yet exist. Yet here we are telling older people that they are on the scrap heap and not worthy of adult education. I think that is really unfair.

We are also concerned about the removal of the fee maxima—

AdamsAmy Adams Link to this

Also not in this bill.

FentonDARIEN FENTON Link to this

That is not in this bill, of course, but it is one of the things we are very concerned about. —and replacement with an annual fee movement limit. National members can go on and on about the delights of this bill—and I really loved David Bennett’s contribution; he was talking—

FentonDARIEN FENTON Link to this

Oh, Mr Robertson missed it. It was all about what a wonderful job this Government is doing on student loans, and how students all around the country will be thanking this Government and be very, very grateful to it. They are not grateful; they are very, very concerned about some of the policies of this Government and the things it is doing, like the removal of the fee maxima.

As I said at the beginning, Labour does support this bill. We have some concerns about a couple of questions, which we will be asking during the Committee stage. I have a final word for Sir Roger Douglas. His contributions on these things are always eminently predictable. It is a long time since he represented the people of Ōtara. The people of Ōtara want their children to study, and they want them to do well. Those children are as entitled as anybody else in the country to have decent and affordable study. If Sir Roger talked to any of the Pacific families in Ōtara he would find that out. They are ambitious for their children. They do not deserve to be treated or talked about in any way that is different from anybody else in this country. Those children are our future, and we need to look after them.

GilmoreAARON GILMORE (National) Link to this

It is a pleasure to stand and support the Student Loan Scheme Bill. I will start off by referring to the comments of the previous speaker, Darien Fenton, on the speech by Sir Roger Douglas. I actually agree with nearly everything Sir Roger said. He pointed out that in many situations, one of the problems with the student loan system is the ability of those poor people out there to go into tertiary education. I grew up in a State house, and no one paid for my education. But Darien Fenton claims that $100 a year will put people off getting a student loan and that they will not go into tertiary education. That will not happen. It will mean that the butcher in Ōtara and the factory worker in Aranui will not pay for the lawyer in Fendalton. I think that is a good thing, as does this John Key - led Government. You see, this bill is all about simplifying the student loan system to make it easier for those people to pay, and to keep tabs on how much they owe and how much they are paying back, and I think that is a good thing.

In the first reading of the bill I spoke about my personal experiences of having a $12,000 student loan. With paper-based systems it took months to send records back and forth, and this sort of legislation removes that. Many of my friends now live overseas. I think only three out of the 14 people who were in my graduating class at university are still in New Zealand. Those people have all paid back their student loans, but they all spoke of their experiences of paying back their student loans in terms of the annoyance involved in sending paper-based records back and forth from their home addresses. That caused a lot of problems for them, and this bill will go towards solving that.

No one has spoken on Supplementary Order Paper 200, which amends this bill. Given that it came in after the first reading, I think that it is beholden on us to quickly touch on it. I think the Supplementary Order Paper is a very good one. It was brought forward by the Minister of Revenue. The Supplementary Order Paper means that the loans of those people who do not operate within the rules of the student loan scheme can be recalled. There have been some instances of this, particularly with regard to those overseas borrowers who exit New Zealand with no intention of ever paying back their loan or of operating within the rules of the student loan scheme. The Supplementary Order Paper that has been introduced strengthens the power of the revenue authority to recall those loans. Those people will have to pay back their loans, and that is a good step in the right direction.

Finally, we look forward to passing this bill, hopefully in the next few days, and in years to come we will look back and see that the National John Key - led Government will have spent more money on tertiary education than any other Government before it. We will see that the administration fee that we are putting in place will do only one thing: it will change the incentives, so that people will help pay towards the cost of administrating their student loans. That will be a fairer scheme than the one we have today. Thank you.

Link to this

A party vote was called for on the question,

That the Student Loan Scheme Bill be agreed to.

Ayes 110

Noes 10

Bill read a second time.

Speeches