Student Loan Scheme Amendment Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Student Loan Scheme Amendment Bill be now read a first time. At the appropriate time I will be recommending that this bill be referred to the Finance and Expenditure Committee for its consideration.

The student loan scheme represents a major financial investment by the New Zealand Government in New Zealanders’ future. It is a generous scheme that since its introduction in 1992 has supported many thousands of students through our tertiary institutions and into productive careers. However, the support provided through the student loan scheme is subject to the same responsibilities and obligations as any substantial financial loan assistance—that is, it is a loan and it is expected to be repaid.

Currently there are some 621,000 borrowers who have a loan balance with the Inland Revenue Department. The nominal loan balance is about $12.07 billion, so it is important that the Government takes all necessary steps to ensure that the student loan scheme is managed as efficiently as possible. That expectation was outlined by the Government in Budget 2011, and it is central to the changes proposed in this bill. The bill introduces a range of proposals designed to improve the value, efficiency, and fairness of the student loan scheme by encouraging greater personal responsibility and accountability on the part of borrowers towards their repayment obligations.

To introduce greater fairness across the student loan scheme, the bill proposes to maximise loan repayments made by New Zealand - based borrowers by removing the ability to offset losses against net income in order to reduce their liability for student loan repayment purposes. As a consequence of this measure, the bill also proposes to extend pay period assessments to the earnings of all borrowers, thereby removing the need for the annual square-up assessment for borrowers’ salary and wage earnings. However, borrowers who have significantly overpaid their repayment obligations on a pay period basis will still be able to apply for a refund, and those who have significantly underpaid will have catch-up deductions.

In a further measure to help improve borrower accountability, the bill also gives the Inland Revenue Department the ability to receive a borrower’s contact person details from StudyLink. The purpose of this change is to help facilitate the Inland Revenue Department’s contact with borrowers who are in default and who have not updated their current address details so that they re-enter the repayment system. Although this is a particular problem among borrowers who have left New Zealand to embark on overseas travel, it is equally relevant to New Zealand - based borrowers who may change address frequently after they complete their studies. For this reason, from 1 January 2013 all new loan applications will require a contact person to be nominated by the borrower. It is worth noting that a contact person will be contacted only for the purpose of providing a borrower’s most recent contact details, and they must be willing to act in that capacity. They will not be made privy to any details relating to a borrower’s loan balance.

To further improve the repayment levels of overseas-based borrowers, the current repayment holiday provision will be reduced from 3 years to 1 year. Since 2007, borrowers have received an automatic 3-year suspension from their loan-repayment obligations upon leaving New Zealand. This is a very generous provision aimed at giving young New Zealanders the flexibility to undertake overseas travel at a time when their earnings can be sporadic. However, after the 3-year holiday has ended, some borrowers become out of touch with the Inland Revenue Department and become unaware that their repayment obligations have resumed. So to encourage borrowers in this position to resume their repayments when the repayment holiday come to an end, the bill proposes that borrowers who intend to go overseas from 1 April next year will be required to apply for the repayment holiday up to 6 months from the date of their departure, and to supply a New Zealand - based contact person as a condition of their application.

Finally, the bill contains a number of small, minor, technical amendments to ensure its effective operation. For the vast majority of loan borrowers who do the right thing and repay their loan on time, the changes proposed in the bill will be a welcome step towards improving the overall integrity of the student loan scheme by instilling greater fairness and accountability in the system. For the Government, it is a matter of good governance to ensure that the student loan scheme operates efficiently and with fairness. The measures contained in this bill are designed to achieve those objectives by ensuring that student loan borrowers continue to pay back their loans according to the rules. I commend the bill to the House.

STUART NASH (Labour) Link to this

I will support the Student Loan Scheme Amendment Bill through to select committee consideration only, because I have some major concerns about a couple of the provisions within the bill.

However, before I start I will say that this bill amends legislation that passed through this House about a month ago. I wonder why the provisions of this bill were not included in the original legislation, because surely that would have saved Parliament a little bit of time and given certainty to a group in our society—that is, students. I hope that perhaps the next time a student loan bill comes through, the Minister of Revenue is a little bit more organised and we can get all these provisions into a single bill.

Let me make it clear first and foremost that Labour supports any attempt by the Inland Revenue Department to ensure that students take responsibility for their loans. That is why we will support this bill going through to the Finance and Expenditure Committee. As Mr Woodhouse knows, as a member of that select committee, we have always supported Government bills that ensure that students take responsibility for their student loan repayments. However, there are provisions in this bill that do concern me, and I would like to run through them very quickly.

For example, excluding losses from investments in business from the calculation of net income for the student loan repayment concerns me, as it may inhibit entrepreneurial activity at a time in a person’s life—that is, straight out of university—when they may be in a position to undertake what may be termed riskier business behaviour. That is, they have no children, perhaps they have no mortgage, and they are at a time in their lives when if it turns to custard there is still plenty of time to get back on their feet; if it is successful, then that is fantastic. I will be interested to actually read the advice and thoughts of submitters, officials, and our expert advisers on this matter.

I also have concerns about the legislative necessity for a borrower to provide a person’s contact name, address, and details. I understand what the Minister and the Inland Revenue Department are trying to achieve in principle. However, I have concerns about the practicability of this step. We can work through this at the select committee, but I ask what the liability or responsibility of these contact people will be in response to the Inland Revenue Department’s request for information on a student’s details. Like I say, I have only concerns and questions; I have no doubt these will be drawn out and answered in the select committee process. I am just laying them on the table at the moment.

A third concern I have is the shortening of the repayment holiday from 3 years to 1 year. Again, I understand the thinking behind this change, but my gut feeling is that it misses the mark. Young New Zealanders have headed overseas on their OE since ships sailed from these fine shores. By shortening that holiday period, the Minister runs the risk of perhaps forcing young New Zealanders to stay offshore permanently as interest costs on their loan balance blow out. Leaving it at 3 years gives young New Zealanders the time to live a little—or a lot—to find a job that pays a little more than pulling pints, or to return home and set themselves up to the point where they are ready to start paying off their student loan. I understand that the Inland Revenue Department has advised against this part of the bill, so yet again I will be interested in hearing the advice from the department, as well as from our expert advisers, and submissions from interested New Zealanders.

As mentioned, Labour will support this bill to go through to select committee, but many questions need answering before it gets Labour’s support beyond this stage, even though we understand what the bill is trying to do in principle. I reiterate once again that we absolutely understand that every New Zealander who has taken out a student loan must accept responsibility for repayment of that loan. Thank you very much.

AMY ADAMS (National—Selwyn) Link to this

I am delighted to take a call in the first reading debate of the Student Loan Scheme Amendment Bill. I think it is worth putting on the record that our interest-free student loan scheme is one of the most generous in the world. But, as previous speakers have said, we all have a very firm expectation that those who are lucky enough to avail themselves of it should meet their obligations to repay that loan. As members have heard the Minister of Revenue say, the loan book sits now at over $12 billion, and it should be a concern to every New Zealander that the impairment of that loan book is currently well over 40 percent. This bill has a raft of measures, which the Minister has outlined, to support and enhance repayment obligations. I think they are very worthy steps that we must look at, and I look forward to a full debate on them at the select committee. I am very pleased to commend the bill to the House.

DAVID SHEARER (Labour—Mt Albert) Link to this

Following on from my colleague Stuart Nash, I say that Labour will support the Student Loan Scheme Amendment Bill going to a select committee. In principle it is something Labour supports. Access for New Zealanders to a tertiary education is something we hold as an extraordinarily important principle here in New Zealand, and we obviously oppose anything that might detract from that and make access less easy. I point out in that regard that Mr Key himself was looking at doing away with the interest-free element of student loans, certainly before he became Prime Minister. He even said he would oppose interest-free loans with every bone in his body. He also suggested at Victoria University as recently as last year that there might be some changes—that the interest-free provision might, in fact, be in some jeopardy.

We completely support the idea that loans need to be repaid, and they need to be repaid on time. Again, we see that as being fair. The issue of the contact details, which Stuart Nash referred to, is something we look forward to discussing in the select committee. I think if there is one particular area, though, that we have some reservations about, it is cutting the repayment holiday for overseas borrowers from 3 years to 1 year. We understand why that will happen. It makes it look like National is being tough on those borrowers. But at the same time it may actually have the opposite effect from what we expect. I will quote from the Ministry of Education: “This can be expected to have a negative impact at the margin on the borrowers’ decisions regarding whether to return to New Zealand.” and it will result in an ongoing increase of student loan debt held by the Government of about $12 million a year. So although we support the intent, we may need in the select committee to take a better look at the actual part of the legislation—I think it is clause 17—that deals with this change. With those remarks, I look forward to this bill being brought up at the select committee and a better discussion being had there.

GARETH HUGHES (Green) Link to this

Kia ora, Mr Deputy Speaker. Ngā mihi nui ki a koutou. Kia ora. It is great to be addressing student loans again in this Parliament so soon after we debated the last student loan bill, especially considering the crisis we are facing in this country. More than 600,000 Kiwis collectively have a debt millstone round their necks of more than $12 billion. But, of course, this bill, the Student Loan Scheme Amendment Bill, is not dealing with the crisis of student loans in our country; it is just tinkering around the edges.

I think it is important to discuss the bill, given that yesterday was the Nationwide Day of Student Action, where hundreds, if not thousands, of students protested at universities against this Government’s disastrous tertiary education policies, and also given that the voluntary student membership legislation is about to pass with the support of National and United Future, I understand. Along with the regulations delivered yesterday, which were made possible with the passage of the Education Amendment Bill (No 4), we are seeing the Minister for Tertiary Education, Steven Joyce, not students, deciding what is best for students.

I will first comment on Amy Adams’ use of the word “generous”. I think this is a good example of the Crosby/Textor mantra that National and United Future keep reiterating, which is that we are being overly generous to students. The fact is that our student loan structure and student fees structure mean that Government money is going via students, via the student loan, directly to the institutions. The fact is that we spend $3,000 less on our students than the OECD average. It is unfair, and it is a bit of political spin to keep calling the scheme particularly generous.

The Green Party will be opposing the Student Loan Scheme Amendment Bill. We are not like Labour, which is supporting it being referred to a select committee. We will be opposing the bill, but we will go into the select committee deliberations with an open mind. The bill essentially does three main things. It tries to maximise repayments from New Zealand - based borrowers by excluding losses from the calculation of student loan repayments; it allows the Inland Revenue Department to ask for a contact details person; and, lastly, it shortens the repayment holiday from 3 years to 1 year, and it now requires borrowers to apply for a repayment holiday. It is not the automatic system, as we had when the current Minister of Revenue implemented the legislation in 2007. The Greens will be voting to oppose this bill. We support real action to tackle the student debt issue. We prefer an incentives approach to reduce the student debt burden. Obviously, although there are parts of the bill we support, on balance the Green Party cannot support it.

I will quickly go through the three main elements of the bill. The first element is about excluding losses from calculations for the repayment, for student loan purposes. It closes a loophole. I think the reason why people are exploiting it is that the 10 percent compulsory student loan repayment, once someone reaches the threshold, is quite significant. Ten percent of my salary is automatically deducted every week, and it is the same for many New Zealand graduates and student loan holders. Essentially it is like a 10 percent tax increase on graduates in New Zealand. We cannot forget, of course, that there are legitimate loss-making reasons for companies. Some businesses, especially start-ups run by keen graduates who are starting a business, want to make a loss in the short term so they can build up the business over the medium to long term. This change essentially will mean that the Inland Revenue Department will get more money, but it is the person who will receive less money and of course the business will receive less money as well. The irony of course is that we may see more Kiwi entrepreneurs heading overseas. But I do look forward to hearing a robust debate about it at the select committee.

The second element is the contact person. This is the most uncontroversial element of the bill. We think it is a good, common-sense idea. It is pretty amazing that no one has thought about it before, over the long years the student loan scheme has been in existence. But we note that there will be no penalties in the legislation. It will be interesting to find out how the Inland Revenue Department is expected to deal with the fact that many people might just say: “Well, I’m not going to tell you. What are you going to do about it?”. It is also good to know that they will not be chased up for the borrower’s current tax status—that will not be passed on—and that the contact person’s tax status will not be chased up by the Inland Revenue Department as part of this process.

The third and most controversial element is the repayment holiday. Currently borrowers overseas automatically receive a 3-year repayment holiday. There are about 38,000 Kiwis overseas who have a student loan, and they have a total student loan balance of about $930 million. I will give a little bit of history. It was the Minister of Revenue, Peter Dunne—the perpetual Minister of Revenue under no matter what colour Government—who introduced the Student Loan Scheme Amendment Bill (No 2) in 2007, which brought in this repayment holiday. Of course we cannot forget those borrowers overseas who are still paying an interest rate of around 6.6 percent. I went through Hansard and found Peter Dunne’s first reading speech on the Student Loan Scheme Amendment Bill (No 2). Mr Dunne said: “The new rules will make it easier for people overseas to repay their student loans, and will offer the chance of a fresh start for those who have fallen into arrears. There will be a repayment holiday of up to 3 years for borrowers going overseas. During that time they will not have to make repayments, although their loans will still attract interest. This change recognises the fact that it is not always easy for people to repay their loans while doing their OE or working overseas …”

In the first reading debate Nandor Tanczos, representing the Green Party, said that the Green Party was pleased with this, and that the 3-year repayment holiday was good. He said that many of these people overseas are doing casual work, and they are not necessarily in a position to make repayments. The Green Party, then, thought 3 years made a lot of sense. In the Committee stage of the debate Mr Dunne said: “The reality we face, and what drove this legislation, was the recognition that significant numbers of young New Zealanders were living overseas, for a variety of reasons.” Of course many Kiwis move overseas. Some feel pushed, and some are pulled overseas. But the fact is that the problem of Kiwis going overseas has not got any better under a National Government. In fact, it has become worse.

The problem we were trying to identify by bringing in this 3-year repayment holiday in 2007 has not got better in 2011. In fact, it has become worse. In 2008, when National was campaigning at the election, 2,700 Kiwis were moving across the Tasman. Now we are seeing the highest figures since 1981. For the year ended July we saw 31,600 Kiwis migrating to Australia. The arguments that Mr Dunne used to bring in a 3-year repayment holiday are stronger in 2011, when he is reducing the repayment holiday. When Mr Dunne said in the Committee stage that we needed to take a pragmatic approach to this, and being someone who places a great virtue on pragmatism, it struck me that the logical course of action was to derive the solution that we have, to extend the holiday period for 3 years, recognising the fact that young New Zealanders take that extended period overseas. I am not sure what it is. Is it less logical now? Is it less pragmatic? What exactly has changed?

The fact is that 3 years is an appropriate and a fair length of time for the Kiwi OE. The traditional Kiwi OE is in fact greater than a year, which is what the Student Loan Scheme Amendment Bill is changing. When we look at probably the only data that has studied Kiwis overseas, the Kiwi Expat Association survey, we see the largest block of time that Kiwis spend overseas is in the 3 to 5-year category, followed by the 6 to 10-year category. In fact, only a minority are overseas for 1 year.

One particular element of the bill that I think is quite controversial, and I hope it will not be—I hope it is just a simple drafting error or an error that has an official explanation—is the requirement for the 6-month application period. When we read the officials’ briefing, it states: “To be considered, an application must be received by the borrower before the borrower becomes overseas-based, typically 6 months after the date of departure.” I am not quite clear what it is. Is it before the borrower becomes overseas-based, or is it after the date of departure? It is absolutely not clear. I hope it is not that the borrower has to apply 6 months in advance of departing the country to get this overseas repayment holiday, because that seems particularly stringent and particularly silly.

What we are seeing in the bill is a grab bag of things. We agree with some, we disagree with others, and we are going to have a keen eye at the select committee to see how this bill goes. But I guess the key thing again is that we are ignoring the real issues to do with tertiary education and the decline. We saw last week five of our six universities decline down the world rankings, we are seeing a lack of funding, and we are seeing no will from the Government to tackle the student debt problem. The fact is that Peter Dunne has been a Minister in various Governments, but he has still not been able to implement his key policy, which the Green Party does agree with, which is a bonding scheme—more carrots to help Kiwis reduce the student loan burden. That is where the priority of this House must lie.

TE URUROA FLAVELL (Māori Party—Waiariki) Link to this

Tēnā koe, Mr Deputy Speaker. Kia ora tātou katoa. If I can cut to the chase on this Student Loan Scheme Amendment Bill the purpose, as others have said, is to make the retrieving of student loan repayments from overseas-based students easier. In that respect I suppose we might say that it is not so much about the cost of education but about the administration of loan repayments.

The Minister of Revenue puts a reasonable case, I think, that overseas-based borrowers are not paying their share of the student loan bill. This is an issue, because the cost burden naturally falls on the Government, and overseas-based loanholders are not contributing to the economy or to the development of the country, because they are not here. As I understand it, according to the Minister, the least they can do is pay back the money they owe for the education the country afforded them through an interest loan scheme, and we as a party have some sympathy with those general views.

The Māori Party policy around student loans is to reduce the cost burden to students. This bill obviously does not increase the cost burden in any way; it simply makes the repayment of these loans easier to enforce, at least from the Government’s end. But it does raise, I think, an interesting age-old issue for debate: what should be free and what should we expect students to pay for. The questions could be whether the State should pay for basic degree courses, and then, if students want to take their education further, whether they should pay for those extras. I ask these questions because education and jobs are not about individual gain and benefit. They actually benefit the whānau, the hapū, the iwi, the community, and the nation, and those extras also benefit all of us.

The Māori Party believes that education and job security are about the future of the nation, so the nation should be responsible for educating all of its citizens to the extent necessary to ensure its citizens have secure futures. Those citizens should then be responsible for making that same opportunity available to those coming after them. The costs of education should be met by all of us, through the State. But it is about the application of kaupapa tuku iho, about rangatiratanga, whanaungatanga, and manaakitanga, and the restoration of mana through utu and muru.

If I were to look for a relevant example, I would want to turn back the pages of history to an organisation many may not have heard of, namely the Māori Education Trust Board. This trust was established many years ago—and I think it is still available at present. In the case of anybody who is applying for Māori Education Trust Board money, those who apply for assistance are interviewed firstly and are expected to give back to the whānau, to the iwi, to the hapū, and to the marae in return for the contribution made to their education. So it is our contention that we should expect the same from those who seek taxpayer money—that they have to give back to the taxpayer. Whether they use taxpayer money through free education or through student loans, they should reciprocate in some tangible way, so we should not make repayment an insurmountable hurdle.

An interesting point that came up in our discussion around this bill was the possibility of making repayment not necessarily in money; it could be in kind, which is probably an interesting concept for many. We thought of possibly saying to loanholders that if they were going to pay back the loan, how about donating back, in time, to voluntary organisations, helping out at schools, or helping out at hospitals, here or overseas. We might have to be creative in providing students with opportunities for using what they have learnt for the betterment of the community. I like to think it is an innovative idea that may well be worth pursuing.

These are, perhaps, ideals, but in the meantime we are of course aware that the total student loan book held by the Inland Revenue Department was around $9.1 billion last year. That is a lot of money. During our discussions with relevant parties about this particular bill we got some notes from one particular Māori student, who has been in the leadership of a students association, about the changes and what might be expected from them. The view of this particular person was that it is pretty difficult to argue against reducing the repayment holiday because the reality is that if a student is spending more than a year away from home, then it is pretty clear they are on holiday. That is what he said. Furthermore, people who have spent 3 years out of the country are likely to stay overseas. According to this particular student leader, the Government may as well get on with recouping the student loan debt sooner rather than later.

It would be fair to say, however, that not all students share this particular view. Jacqualene Poutū, tumuaki of Te Mana Ākonga, the Māori students association, could not support anything in the bill. Her question about the repayment holiday was: “Why are we treating adults like teenagers?”. For younger students she could see some rationale for it, but not for grown adults. In her view, she believed that the bill was an attempt to force students to stay in New Zealand, but the reality is that the salary ranges in New Zealand are not enough to enable students to repay their loan at a reasonable pace. I wanted to place those questions on the record and to put the views out there, really to get a response as to whether age matters. Should it be different for younger or older students, and should we be placing more focus on incentives to stay in New Zealand rather than accepting the inevitable drift offshore?

There are many issues we could be raising about student loans, and in particular the relationship to the barriers faced by Māori students and how they participate in the tertiary education sector. The disproportionately high uptake of the student loan scheme by Māori students is indicative of the fact that many Māori students need financial support in order to be educated at tertiary level. I do not think there is too much doubt about that. For many Māori students, the student loan scheme provides the financial backing that is necessary for them to participate in tertiary education. Although the cost is still a major barrier, Māori have seen the student loan scheme as an opportunity for them to gain qualifications that they otherwise could not afford to even contemplate. I think we should support that.

I know, of course, that this bill is singularly focused on student loan repayments from overseas-based students, and it is not, as such, an opportunity to talk about the adequacy or, more to the point, the inadequacy of financial support available to students. But they are critical issues for the future of the nation, and the House can rest assured that even if this debate does not provide the chance to debate the range of issues that we in the Māori Party, at least, would like to debate, there is another chance coming up in another few weeks or so. It is called the election, and we are looking forward to that. Kia ora tātou.

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

I will take just a short call to say that I support the Student Loan Scheme Amendment Bill. It is about making the student loan scheme sustainable into the future. It reduces the need for the Government to borrow against the scheme, whilst still allowing students to prepare for their future.

It builds on a statute we have already passed this year, which allowed for defaulters of loans to be recalled in full. Essentially, we are cleaning up an area of defaulting student loans and addressing the overall size of student loan debt, which, as we know, grows year on year.

Our Government has maintained interest-free student loans. We are really about getting value for money from the scheme as it goes into the future, so we have introduced performance criteria. We have focused lending on those who really need the money, who are prepared to pay it back, and who are succeeding in their studies. I support this bill.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I congratulate the previous speaker, Peseta Sam Lotu-Iiga, on a very profound contribution to this particular debate on the Student Loan Scheme Amendment Bill. I will respond briefly to some of the comments that Gareth Hughes from the Green Party made in his speech. It was quite a good speech from Gareth Hughes, in which he pointed out some of the inconsistencies in the position of the Minister of Revenue, Peter Dunne, and quoted back to him comments that he had made during the term of a previous Parliament. I simply note that Mr Dunne is very consistent when it comes to all matters, in that he supports the Government. I think he has been relatively consistent over quite a long period of time with that. We probably do not need to say any more about that.

The Labour Party is very proud of our track record when it comes to student loans. We introduced interest-free student loans, and we stand by that policy. We are very proud of the policy of interest-free student loans. It has made it a lot easier for hundreds of thousands of New Zealanders to repay their student loans. All of the doomsday predictions made by the National Party when that policy was introduced, when John Key stood up and said that it was the biggest bribe in New Zealand’s electoral history and he would fight it with every bone in his body—well, that is kind of interesting—

MICHAEL WOODHOUSE (National) Link to this

I am very happy to take a quick call on the Student Loan Scheme Amendment Bill too, and certainly to address the issue raised by the member who has just resumed his seat, Chris Hipkins. It was a very clear play with statistics by Mr Hipkins when he said that the duration of loan repayments has actually reduced since the introduction of interest-free student loans. That conveniently overlooks the fact that an unsustainably large proportion of student loan debt is not repaid at all and, therefore, cannot be measured—49c of every dollar was not being repaid when this Government took office. I am very pleased that it has gone down to 43c. The measures that are introduced by this bill will further—

KRIS FAAFOI (Labour—Mana) Link to this

Thank you very much for the opportunity to speak on the Student Loan Scheme Amendment Bill. As has been said on this side of the House a number of times during this debate, Labour supports the overall intent of this bill, but there is some concern around the reduction of the repayment holiday from 3 years down to 1 year. But we should not take away from the overall thrust of the bill—that it seeks to encourage the quicker repayment of student loans. I think it was Gareth Hughes who alluded to the fact that he was still repaying his. I am still repaying mine.