Student Loan Scheme Amendment Bill (No 2)

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Student Loan Scheme Amendment Bill (No 2) be now read a second time. The purpose of this bill is twofold: first, to remove the barriers to borrowers overseas who are returning to New Zealand, and, second, to ensure that borrowers receive their correct entitlements under the Act.

The bill aims to encourage greater compliance amongst overseas borrowers by making it easier for them to meet their student loan obligations. In doing so, it also helps to remove a potential disincentive to skilled New Zealanders returning home. Briefly, the main changes for overseas borrowers, as a result of this bill, will be a repayment holiday of 3 years for borrowers who go overseas, in recognition of the fact that it is not always easy for people to repay their loans while doing their OE and working in holiday jobs. The effect of that change will be that borrowers will not have to make repayments, although their loans will still attract interest. For overseas borrowers who are not taking a repayment holiday, the bill introduces progressive repayment obligations, based on the size of their loan balances. For many borrowers who are overseas, that will mean annual repayment requirements are lower than they are under current law.

Interest-free loans for people who are studying overseas will be extended to undergraduates who are studying full-time at bachelor’s degree level. That does not mean that people will be able to take out a loan for study that is undertaken overseas. Rather, it means that any existing loan they had before leaving New Zealand will be interest-free while they are studying.

The amnesty on penalties declared last year for non-resident borrowers who are in arrears with their payments will be extended by 1 year, to 31 March 2008. That will allow borrowers who are identified in the proposed data-matching between the Inland Revenue Department and the Customs Service to come within the amnesty.

The second group of changes contained in the bill applies to all borrowers, whether in New Zealand or overseas. Their purpose is to update the legislation so that it is consistent with the intent of the interest-free student loan scheme provisions that came into effect from April last year. Let me recap those changes briefly. First, data matching between the Inland Revenue Department and the Customs Service will be introduced, making it easier than it is at present for the department to identify who is overseas and to ensure that only those entitled to interest-free loans receive them. Second, the late-payment penalty will reduce from 2 percent a month to 1.5 percent a month. Third, the hardship provisions in the Student Loan Scheme Act are being amended, to give the Inland Revenue Department greater flexibility in administering them.

Collectively, the changes to the overseas borrowers’ rules, and the changes to the way the student loan scheme is administered, will make it easier for borrowers to comply with their loan obligations and for the Inland Revenue Department to administer the scheme fairly. The changes will also go some way towards removing the disincentive for skilled New Zealanders to return home.

In bringing the bill to its second reading, the Education and Science Committee has reported that the majority of the submissions it received supported the proposed changes to the student loan scheme, believing them to be a significant step forward in improving the overall functioning of the legislation. With that in mind, the committee has made some important recommendations. The first of those is for a new amendment specifying that in order for overseas borrowers to qualify for an interest-free loan on the basis that they are working overseas as volunteers or for token payment as an employee of a charitable organisation, they must establish that the organisation applies its funds to one or more specified purposes. Those purposes include the relief of poverty or of the effects of war or disaster, and the raising of economic or educational standards in a developing country. The second recommendation relates to an amendment to the Tax Administration Act, to ensure that care and management provisions apply to the Student Loan Scheme Act in relation to interest. That legislation currently applies in the case of repayment obligations. The amendment will ensure that there is an adequate basis for correcting any balances that may be in error as a result of a miscalculation, and is important to the Inland Revenue Department’s ability to protect the integrity of the tax system.

I would like to thank the committee for its expeditious consideration of this bill, which I now have great pleasure in commending to the House.

Dr PAUL HUTCHISON (National—Port Waikato) Link to this

Thank you for the opportunity to speak on the Student Loan Scheme Amendment Bill (No 2). National will support this bill because it aims to help student loan borrowers living overseas to return to New Zealand, and it simplifies the system. There is certainly a lot to be done to simplify the system of bureaucracy that the Labour Government has created over the last 7 years.

The Labour Government undoubtedly made the student loan scheme even more complex when it brought in its $1.5 billion a year interest-free student loan scheme, and by doing so it provided an incentive for borrowers living overseas not to let the Inland Revenue Department know that they were out of the country. In fact, it was a revelation to everybody, including the Labour Government, that there were probably 40,000 borrowers living out of the country. I hear Mr Donnelly saying that 40,000 was the number estimated by the Inland Revenue Department. It is quite remarkable that Dr Cullen and Labour did not think about the complexities at the time of bringing in this interest-free loan scheme—or maybe they did, but they just did not care. They love complexity, and in many ways this bill is about unravelling that complexity that they have brought in.

Further scaring the Inland Revenue Department is the fact that it has a computer system that was started off in 1992, and I understand that the computer system is breaking into a bit of a cold sweat as it has to deal with the complexity of unravelling this bill, let alone the Working for Families package, the new international tax regulations, and, shortly, the KiwiSaver scheme. The computer system will be under severe strain, and I believe that one of the department’s officials pretty well admitted to the Education and Science Committee at the time that the capacity of the computer system would indeed be stretched, if not highly rattled.

The Labour Government is prone to creating complex and bureaucratic systems. Students come to me and ask why they can have an interest-free student loan but have to pay interest on it that is then paid back to them. One does wonder how one creates this sort of thing, and one can only think that the Labour Government wants to make it harder. It wants to increase the bureaucracy because there is no other way for people to get jobs, etc.

I was not fortunate enough to be on the select committee at the time, but I understand that something like 15 submissions were received on the bill and that, indeed, most of them supported the intent of the bill, as we do in National. But it is worthwhile spending just a little bit of time looking at the submission from Business New Zealand as to why it was concerned about some aspects of this bill. I think everybody was in agreement with the data matching. There is no doubt that when we have something like 40,000 students going overseas, it is remarkably concerning. The Inland Revenue Department has made an estimation of how much could be saved by making sure that data matching occurs, and I think it goes up to about $24 million a year. In fact, the department estimated that data matching, by reducing the number of incorrect interest write-offs, would save $9 million in the 2007-08 fiscal year, rising to $24 million per annum in the 2009-10 and out-years.

But that figure does not compare to anywhere near the 100 percent write-off cost of the student loan scheme, at $1.5 billion a year. It is important that we take note of the OECD report on the tertiary education system in New Zealand that queried whether the Labour Government had its priorities right in terms of introducing this 100 percent write-off, at all. But the scheme is here, and it has created considerable complexities. The data-matching aspect of this bill is worthwhile, and I think every submitter was in agreement with that.

The repayment holiday provision is another issue, and there is some worry there. I note the comment that public and Government attention has tended to focus on the student loan scheme as a cause of long-term emigration by skilled New Zealanders, yet the evidence to support this assumption is actually pretty light. The most detailed analysis of the role that student loans play in encouraging overseas travel was in the Ministry of Education’s 2006 report Do student loans drive people overseas—what is the evidence?, but the report noted that the scale of the linkages, even though the loan balance is a statistically significant factor, is not clear and that its findings should be viewed with caution.

The report goes on to state that the causes of permanent and long-term departures from New Zealand are still not very well understood, although the ministry’s suspicion is that higher wages and a wider range of career opportunities offshore are key factors in the decision to move overseas. This is a very important point, because when this Labour Government came to power in 1999 the average wage for the Australian worker was 22 percent better than that of the New Zealander. Seven years after the Labour Government took power the average wage for the Australian worker is 35 percent better than the average wage for the New Zealander. That is an indictment on the Labour Government. Clearly, it is one of the reasons that we have this problem of a million New Zealanders being offshore. In fact, compared with the number of Australian post-graduates, 10 times as many New Zealand post-graduates live and work offshore. That has to be an indictment on this Labour Government.

The Business New Zealand submission further states: “depending on the size of an individual’s loan and his or her income, the establishment of a repayment holiday for non-resident student loan borrowers could actually create incentives to leave the country.” I think it is important to be aware that that actually is a reality. The concept of a repayment holiday raises fundamental questions of fairness. Why should borrowers who have left the country effectively be rewarded when those who stay in New Zealand, meet their repayment obligations, and make an economic contribution to the country are not?

I look to Singapore quite often. It has recently created a system whereby $1 billion has been spent on young, elite scientists for them to go overseas to some of the best universities in the world and then return home. Singapore does it by bonding them. There is about $1 million per scientist, and if they do not pay it back, the Government will certainly chase them to the ends of the earth, or maybe bring out the rotan rod. Obviously, that is not something we would do in this country, but in many respects the Labour Government is bringing in some perverse incentives.

The second issue is that of repayment obligations for non-resident borrowers. The bill proposes to introduce new repayment rules for non-resident borrowers. It seems extraordinary that the current rules are designed to ensure that loans are repaid in 15 years, and require borrowers to pay off 1/15th of their principal each year, whereas with this system it will become much more complex. Again, it is an example of the Labour Government’s contortions in order to try to fix up a problem it created at the start. In fact, in terms of reducing the obligation, the reduction varies from 40 percent to 18 percent, depending on how much has been borrowed. So there certainly is no consistency within that aspect of the repayment obligations for non-resident borrowers. When one thinks that, in this country, something like 47 percent of our tertiary education and university students have either opted out or not completed their bachelor degrees within 5 years, one realises that that is of considerable worry when we are expending so much on tertiary education.

MOANA MACKEY (Labour) Link to this

I am happy to stand in support of the Student Loan Scheme Amendment Bill (No 2), and I thank all the submitters who came to the select committee and who shared their points of view with us. There was not a large number of oral submitters on this bill. I think it is fair to say that submissions were pretty one-sided. With the exception of a few people who raised a few concerns here and there, people were largely very happy with any legislation that would reduce the onus of the student loan scheme on those people who have borrowed money.

It is fair to say that many of the people who raised concerns came from across the board. They were not just students; they were students’ parents, grandparents, and families. All of them were concerned about a number of issues, including things that have come before this House more and more often, such as the affordability of housing, the issues we have with young people putting off having families, and the pressure of work-life balance that comes from many of these things. Student loans feed into all those problems, and we have seen many young people putting off buying houses, getting mortgages, and having families—not because it is the right decision for them to make at the time but because it is what they can afford to do with the weight of a student loan hanging over them. I personally welcome any bill that comes into this House that attempts to alleviate that in any way.

Let us put the blame for the complexity of the student loan scheme firmly where it belongs, which is with the Government that created it at the time—the National Government. I was one of those unfortunate guinea pigs who came in, in the years after the student loan scheme was created. It was extraordinarily unfair. We paid interest on our loans whilst we were studying. Someone who comes from a place like Gisborne, who does not have the luxury of living at home while studying, has to take out a student loan. I worked all the way through from the age of about 13 to save for tertiary education. By the time I got there, the goalposts had been shifted so many times that I had only enough money to pay for my fees and my first term’s board at the university hostel, Weir House, in Wellington. Then I had to get a job, which meant I was not attributing as much time to my studies as I probably should have been, particularly when it came to post-graduate study.

It really was difficult to get by without taking out a student loan. I did not take out the maximum amount of student loan; I was very proud of myself for not taking out as much as I could have taken. But when I graduated and got that final bill from the Inland Revenue Department that showed me just how much I had borrowed, and how much interest I had accrued over the time I had been at university—studying, being unable to work very long hours, having to support myself, and not having the luxury, at that time, of parents who were able to support me—I was staggered. I was absolutely staggered. My loan had got up into the $20,000s, when I had thought it would be around $15,000 or $16,000. It is quite a knock for young people starting off in their working careers suddenly to realise that there is actually a very real opportunity that they may never pay off their loans. There were a lot of items around in the media at the time about the fact that a lot of women take time out from the workforce, and if their loans keep accruing it is very difficult for them to get ahead. When all these studies were saying to us that there was a very real possibility that we would die with that student loan—that for the rest of our lives whenever we worked we would be paying 10 percent of our income to that loan—that really is a scary option for a young person who is starting his or her working career.

We have heard some talk about the fact that wages are so much higher in other countries. Well, they certainly are when we factor in the consideration that we are paying another 10 percent of our incomes, which we never see, straight to our student loans. There was certainly a time, for my part, when I very seriously considered getting a job overseas and working there, but because I wanted to live in New Zealand—because this is where I wanted to be, and because the work I had done on my science thesis was agriculturally based and this was the best place to do that—I did not. I stuck around.

Certainly, when Labour came into Government in 1999 we picked up the policy of New Zealand First, which was to have no interest on loans while people were studying. That was a great policy. It was very fair. It was a good first step. Let us be in no doubt that these policies are very, very expensive. There was a lot of will at the time to do far more radical things, but it was very expensive. When one was starting new in Government, and when there was so much call and competing interest on where money should be spent, that was a good first step, I thought. It made a large difference to a group of students who at least knew that when they graduated, they would have to pay back largely what they had borrowed. I think that that made a huge difference to a group of students. But we have to firmly place the blame for a lot of the complexity on where it belongs.

There has been some talk that this bill might send people overseas because there is an incentive. When we talk about student loans, I have always found that people tend to think in the theoretical and ignore common sense. I wonder, when people say that they have talked to students, whether they really have talked to students. Certainly, I know people who live overseas and who have student loans, and I have tried to help them pay back those loans since we have been here. I have fed back to the Minister the many, many problems a lot of them have had with the complexity of trying to pay back an income-based repayment whilst they are overseas—given that work fluctuates and they do not know whether they will be working from one week to the next, and given the exchange rates, and all of that.

This bill is very sensible in setting up the 3-year repayment holiday. I think that that is a very, very good step. It recognises that New Zealand students travel. They get out of university and they travel. It is part of our culture, and it is becoming more and more so as air fares reduce in price. It is almost an expectation now—it is almost as if there is something wrong with people if they do not finish university and then get a job very quickly, so they can go on their OEs and experience the rest of the world for a while. We have to make sure we can bring those people back.

I do not think there is any point in talking about stopping people going on their OEs. We simply cannot do that. They may not leave simply because of their student loans, but they may very well not come back. The student loan might not be the only reason, but it might be the tipping point that says to them that they have all those things so they should be weighing them up. On balance, because they have student loans and a lot of penalties sitting at home—because they have not made their repayments, either because they have not organised them or because it has been too hard—their loans might be the tipping point that tells them they should stay in the UK or somewhere else in the world, and not come back to New Zealand. That is where we lose a lot of our experienced people.

Again, we need to be realistic. In some sectors, people will travel. Certainly, in the scientific community there is an awful lot of inter-country movement between scientists; people want to go where the best science is. We get a lot of very good scientists coming here, for example, to work in geological and nuclear science disciplines. They tell us that they get people from all around the world. This country is like a living laboratory for geological and nuclear sciences. We have to learn to play that up, as well, if we want to bring some of these people back. But student loans are a factor. I know that, because I have so many friends who have told me that they are a very large factor when they consider whether they will return to New Zealand. Most of them are away for only 2 or 3 years, and the idea of a repayment holiday—even if they are still paying interest on loans—to them is a great relief. It is one less thing they have to worry about whilst they are overseas and trying to plan their repayments.

Then, on the other side, we also had criticism from some submitters who said it was not fair to give a repayment holiday only to people who go overseas, and that we should be giving it to all people in New Zealand with student loans. But I think it is important to remember that those who remain in New Zealand are getting interest-free student loans, so it is not as if they are not getting anything. The repayment holiday is, I think, for a specific group of students for whom we want to address a specific issue they have, which is largely time-limited—that is, limited to the time they spend on their OE. So I think that this bill has a very, very good balance.

I am very pleased to hear that the National Party will be supporting the bill. I would also like to hear National members say that they will keep Labour’s policy of interest-free student loans, should they ever become the Government ever again—at any time in the next 50 years. I think that is a question National members will have to answer, because the student loan scheme has created an awful lot of problems, and some of them we are only just starting to realise now in terms of the impact the scheme is having on 20-somethings and 30-somethings, and the decisions they are making.

We have an assumption in this country that people who go into retirement own their homes freehold. In that way, we can set levels of superannuation and we know that people will not be driven into poverty. Well, this situation may very well change with a generation of people who have had student loans and who, because of that, and because they have felt they have wanted to get rid of their loans before getting into a mortgage, may well have chosen to rent instead of buy their own homes, or may have put off buying for so long that by the time they retire they have not got into the position where they have been able to have freehold homes. That has a huge implication for this country when it comes to superannuation policy. So the student loan scheme has infiltrated so many other parts of our society.

I stand here proudly and support any initiative that allows students and their families—and their future families—to alleviate the burden of the student loan scheme. I look at a lot of members in the National Party across the House whom I do not think came through the student loan scheme, and whom I do not think really appreciate the kind of psychological impact it has on people. I am very thankful that I was able to come into this job where I was able to pay off my student loan, because I cannot tell people the sense of relief when someone knows that he or she no longer has a student loan. There was a time in my life when I thought that I would never get rid of my loan, when I thought that National Party policies might reign forever, and—God forbid—when I thought that the scheme might have even become worse in terms of interest rates. So I congratulate the Minister, the Hon Peter Dunne, on this bill. I congratulate all the parties that are supporting it. This bill will make a real difference to New Zealand and to New Zealanders.

ALLAN PEACHEY (National—Tamaki) Link to this

I appreciate the opportunity to speak on behalf of the National Party and to express our support of the second reading of the Student Loan Scheme Amendment Bill (No 2). It was a pleasure to be part of the Education and Science Committee, which held the hearings—although I was not at all the hearings—and I would like to compliment the chairman of that committee, Mr Donnelly, on the way he led us through some very, very complex submissions and information. I congratulate the submitters. Some very, very well-thought-out and well-reasoned comments were made to the committee.

Before I address the bill specifically, I will just express my sadness that the last speaker for the Government chose to spend so much of her time looking backwards.

Hon BRIAN DONNELLY (NZ First) Link to this

The discussion that has taken place forces me to cast my mind back to 1997 when I was a new MP. A reasonably desperate father came to my office in Whangarei. His daughter, who had been a student at Whangarei Intermediate when I was principal there and who was now 16, had been enrolled in a course at Northland Polytechnic for 6 weeks. Her boyfriend took off to England, and she decided to cash up her student loan and follow him overseas. There was nothing the father could have done to prevent this from taking place.

There seemed to be some major flaws in the system. New Zealand First discussed it with its coalition partner. That flaw was just one issue. The problem was that, under the contracts legislation, even though students could take out a contract for a student loan, there was no obligation for them to actually pay anything back. That was the situation in place in 1997 when people enrolled in a 1-year course, took out lump sums on their loans, bought themselves motor cars, stereos, and trips overseas, and were lumped with relatively high interest rates that were compounding, etc. It was a dog’s breakfast.

That was the loan scheme in place in 1996 when New Zealand First came into coalition Government with National. New Zealand First worked with National, and I give great credit to the then Minister of Education, Wyatt Creech, who recognised that there were some serious problems and worked with both me and the then Treasurer, the Rt Hon Winston Peters, to make some changes. One of those changes was that a student could not take out a loan until he or she was the age of 18, unless there was parental permission. That was in line with the contracts legislation. Students could not take out lump-sum loans; they could take them out only in instalments. That stopped the incentive for people to take out loans and buy a motor car or go off overseas.

Finally, people do not realise that partial interest write-offs came through in the 1998 Budget. One of the things that surprised people about the interest-free policy that Labour put up was that it did not cost anywhere near as much as it seemed it would. The reason was three people—I was one of them—from New Zealand First and National had worked on partial interest write-offs. In other words, the student loan scheme was a dog’s breakfast in 1996, but there have been continual amendments to it.

Now, students who have gone overseas have some real negatives in their understanding of the situation, particularly in relation to the interest-free policy that Labour introduced after the last election. New Zealand First has long believed and long stated that the very best immigrant is a New Zealander returning home, and we stand by that particular policy. Unfortunately, the situation that exists has created a lot of disincentives for some of our brightest and best to come home and bring up their children to become fully fledged New Zealanders in the same geographical area where their grandparents live, who could add to the upbringing of those children. Students have gone overseas believing, in many cases, that they do not actually have to make any repayments. Unfortunately, not only is there interest accruing but also there are penalties. After 3 years, when these students decide to come back, they look at their student loan and, oops-a-daisy, it is massive. They are saying: “How can I go back to New Zealand on the sort of salary I will get there and be able to repay that loan?”.

This really has been exacerbated by Labour’s interest-free policy, in the sense that people believed that it applied to them if they went overseas. It was not made clear that it applied only to people who remained in New Zealand. Those who went overseas had a requirement to pay back one-fifteenth of their loan, and if they did not pay it back, then—guess what—they got lumbered with all the penalties.

The Student Loan Scheme Amendment Bill (No 2), which New Zealand First believes is very sensible legislation, cuts through many of those particular issues. It cuts through them by providing that holiday. Let us make it very clear: if people go offshore and work in England for 3 years, they still have to pay interest on their loan; the interest will still accrue. But there is a recognition that, in many cases, students who go overseas might be fruit picking. They will not have enough money to pay back one-fifteenth of the loan. The legislation states that these students do not have to make any repayments during that holiday period. The interest will accrue—certainly, when they come back they will owe the Inland Revenue Department more than when they left—but, in fact, the penalties, the punitive part of the thing, will not be added on to it. There will therefore be incentives for them to return. We believe that is a very sensible approach to the dilemma that the country is facing.

I thank the Education and Science Committee, because it approached this legislation in a very sensible way, looking at how we could make things better for New Zealand rather than playing party politics with the issue. It was a very good select committee to work on.

I had some trepidation, because this is an Inland Revenue Department bill. I think—in my time, anyhow—that this was the first time the Inland Revenue Department had presented a bill to the Education and Science Committee. I have spent a period of time in the Finance and Expenditure Committee. I remember we had a tax bill that was 200 pages long and full of complicated equations, etc. I tell members here and now that I could not understand anything past the title. It was with some trepidation that the Education and Science Committee had the Inland Revenue Department coming to us.

I must mention that in the particular case of the bill with the hundreds and hundreds of equations, Michael Cullen had missed the fact that one equation had a minus sign rather than a plus; he was totally mortified that he had missed that it was a minus rather than a plus. As I said, I could not understand the equations, anyhow.

In reality, I believe that the officials helped the Education and Science Committee very, very well in understanding the issues behind this bill. The committee members themselves approached it from the point of view of how we could make this legislation as good as we possibly could.

Part of the legislation is data matching between the Customs Service and the Inland Revenue Department. That is really critical because, as was mentioned, it is estimated that something like 41,000 borrowers have gone overseas and no one knows that they have gone. The Inland Revenue Department is still treating them as residents in New Zealand and giving them interest-free loans. It is considered that $143 million has been taken from the revenue base because of that. That is a lot of funding that could be used for educational purposes elsewhere. So data matching is really important, and I think most people in the select committee agreed to it with the protections that were explained to us. Let us face it, the select committee members asked what protections were in there to ensure that things are not misused.

The first of the two areas that the select committee made changes to as a result of its discussions was a change in the definition of charitable activity to bring it in line with other definitions, etc. Essentially, if I go overseas as part of a religious organisation purely and simply to proselytise and get more people into that religion, that is not considered to be a charitable activity and therefore I cannot claim that status and get an interest-free loan. However, when I worked in Rarotonga there was a Seventh-Day Adventist school along the road from us. People would come up, and in 6 weeks a whole hall would be built. Those people were not there to proselytise; they were there to develop educational purposes. In those circumstances, somebody who was there for 6 months or a year would be considered to be there for a charitable purpose. The other area we made changes to was the way that the Inland Revenue Department would apply care and management provisions.

I have mentioned the select committee, and I think its members acted extremely well. I thank the officials; I was extremely impressed with the clarity of the information they gave to us. Something that impressed me most of all was that when one set of submitters got it wrong and misunderstood the legislation—it could have been to their detriment—the officials specifically went out of their way to meet up with those people to explain what the legislation meant. I take my hat off to the officials for doing that.

Finally, I congratulate Peter Dunne, because this is very good legislation that will improve the operation of our student loan scheme.

METIRIA TUREI (Green) Link to this

The Greens are supporting the Student Loan Scheme Amendment Bill (No 2). We have supported it from the beginning, and we will continue to do so through its remaining stages. I am pleased to hear that National is supporting the bill as well, though I just mention to Mr Peachey that we can really do without those kinds of anachronistic and patronising attitudes. I think that that really was beneath him.

It is certainly true that although the Green Party supports the bill, we have, from the start, been very dissatisfied with the whole student loan scheme. I thank my colleague Nandor Tanczos, who in our view set out a very clear critique of the scheme as a whole in his first reading speech on the legislation. Some interesting issues have been raised about that. Mr Brian Donnelly talked about the original loan scheme, and how easy it was for people to get into huge amounts of debt, get lots and lots of money, and not really understand the process they were going through. It is still a concern for me as I travel around universities, and particularly around polytechs and other kinds of institutions, that people who are still quite young are getting loans to study.

Those people are doing very well and wanting to achieve in their studies, but they still do not truly understand the future implications of getting student loans. They do not have access to the information that would mean they really knew what they were getting into. Sometimes when we talk to them about what the implications might be and how long it might take them to pay off their student loans, it can be a real shock for them. That is still a very serious concern, particularly for those under 18 who have left school, for what are probably very good reasons, and are trying to make sure they stay educated and get a skill—without realising the implications of the effect of the student loan scheme.

I heard the argument about fairness in respect of the bill when it was first introduced. From the Green Party’s perspective the scheme has never been fair and never will be fair; it is deeply and fundamentally unfair. What we have in this country is the first generation of students who have to pay a considerable amount for their own education. When they finish their tertiary education they have to pay for their parents’ superannuation, which they have to do through their taxes; they have to save up and pay for their children’s education, and some of us who have student loans have children who are now teenagers, and for those people that is now a serious concern; and, additionally, they have to save for their own superannuation so they can be assured of some kind of reasonable income at the end. This is the first generation of New Zealanders that has to pay for all of those costs, all at once, out of one lifetime’s worth of work.

Additional to that are the issues that Moana Mackey raised around the difficulty with housing and the fact that people may not have freehold homes by the time they retire, because of the impact of the student loan scheme. It is a massive social experiment. It will have huge detrimental effects well into the future, and those effects will be intergenerational. This cannot be underestimated when one looks at the impacts of the loan.

Unfortunately, we make the changes only as they arise. As we see the problems happening, we will be continually making changes to this loan scheme for decades to come, unless we find a more suitable way of enabling New Zealanders—in particular, young New Zealanders—to gain an education that does not require them to go into such massive levels of debt for such little social and fiscal support that we find through the student allowances scheme.

We agreed with the provisions of the bill at the time it was introduced. The Education and Science Committee has done a very good job of working through the legislation, and I confess that I somewhat miss being involved with that select committee, having been a member of it during my first term of Parliament. I am very pleased with the changes that the select committee has made. I noticed that it raised some good issues in terms of data matching. It has always been a concern for the Greens that if there were an excess of data matching, that could be abused. I note that the select committee report refers to the committee believing, as a principle, that the information collected on individual student-loan borrowers should be permanently deleted when the purpose for which the information is obtained is no longer required. We think that that is a very sound proposition from the select committee, and we are pleased to see it there.

We are also pleased with the new provisions that the select committee has put in concerning charitable organisations. It is really important that New Zealanders have the chance to participate in the social well-being of other nations and other communities. That is in part what a lot of people do when they go overseas and get involved in charitable organisations, and we are pleased to see that provision in the bill. We are also very pleased to see the application of care and management issues, which Brian Donnelly has also raised, because people should not be unfairly affected by errors made by the agencies. It is quite responsible and reasonable that these provisions should be in the bill. Also, the repayment obligations around raising the threshold level from $250 to $330 makes perfect sense, and we are very pleased to see such sensible provisions in the bill. Presumably, the Committee stage and the third reading will pass quite swiftly, as there is such good support for the bill from the various parties in the House. We would be very pleased to see that happen.

We do not look forward, though, to the continual changes that we believe will have to happen to this student loan scheme as these issues arise year after year. At some point we will have to bite the bullet and realise that the student loan scheme, in the long term, is a failure. It is not doing well, particularly for Māori students and for other students, so we will have to address that specifically, bite the bullet, and make the hard decision that a new system is required. I would prefer that we did that sooner rather than later and not allow further generations of New Zealanders—my own children and the children of other members—to have to suffer and go through this process again for no good reason. Kia ora.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this

Kia ora, Mr Deputy Speaker. Kia ora tātou katoa i te Whare. When we were on the road during the election campaign back in 2005, this old Pākehā guy sat me down to talk about education and the cost of education, etc. What he said stuck in my mind, and I will share his thoughts with the House. He said: “If education is essentially the passing on of knowledge from one generation to another, then who are we to charge our children for something that we got for free?”. That is the thinking that guides me in this and every debate on education, because the Māori Party believes that if we are going to be silly enough to charge our kids to get a tertiary education, then we should not be surprised when they all fly overseas as soon as the ink dries on their degrees.

As for the debt, what does the student debt add up to? Well, I invite folks to take a seat, pat themselves on the back, and shake their heads at the foolishness of it all, because it seems we have mortgaged the future of our nation to the tune of $9 billion. That is the level of student loan debt in this country. For once Māori are right up there, with their own student debt level at $1.5 billion. That is a heck of a lot of money in anyone’s calculations—in any Māori’s calculations, anyway. Certainly, it is right up there for Māori. That sum is more than the Government set aside to settle 150 years of land stolen, confiscated, and just plain ripped off from Māori over the last couple of centuries.

But still, for all that, I cannot help thinking that the debate is just a little bit skewed. It should be more than just a discussion about money owed. The debate should also be about the return generated by our young people’s academic endeavour. It should be about the commitment, the time, the energy and the sacrifice, and about the benefits that accrue from our young people being more educated, more creative, and more productive. But it ain’t. Instead, the debate is about paying back loans, interest rates, penalty clauses, repayment obligations, holiday repayments, and how to keep paying money back even when people are overseas. Yeah, right!

So we checked it out with some of the whānau to see what that debt really was. My own daughter is in her third year at law school, racking up $10,000 a year in student debt. My advice to her is to get her degree, then jump on a plane, fly away overseas, and forget about her debt for a few years. She should go and enjoy the world, have a life, and, fingers crossed, she will come back when she is good and ready and worry about debt repayment then. Certainly, she should not worry about paying it back while she is overseas; she should ignore it completely. For heaven’s sake, it is tough enough just getting by these days without having to spend all one’s life at school, flog oneself to death getting a degree, then have to start paying off a debt the size of a home mortgage before even being able to afford a house.

Another young woman qualified with a prestigious environmental land management degree, but in the process racked up a loan of more than $35,000. She applied, right out of university, for 59 jobs without success and ended up as a waitress in a pub. So for a laugh she applied for a job to teach English in Japan. Hello! Job application number 60 was successful, so off she went. That was OK for a while. Then she wanted to come back home, but the salary was a pittance compared with Japan, and to get a decent wage would mean having to go back to teacher’s college and rack up another student loan and even more debt. So what would this legislation have done for her? Well, it would have meant that she had a number of options. First, she could keep working in Japan and still pay off her debt. Yeah, right! Secondly, she could study in Japan and not pay interest on her loan. Or, thirdly, she could even enrol with a tertiary institution here, do her studies in Japan, and get another student loan to go with the one that she started with.

But here is the thing: debt repayment policies will not stop the brain drain. Increasing student fees and costs and the lack of access to decent student allowances mean that student debt continues to rise, and student flight along with it. At another level, Waitangi Tribunal claim Wai 910, lodged by Te ManaĀkonga, states that the student loan scheme breaches the Treaty of Waitangi in that it unfairly discriminates against Māori. It notes that, first, Māori have to borrow more from the student loan scheme than non-Māori; secondly, Māori have more student loan debt over $20,000 than non-Māori; and thirdly, Māori have greater difficulty repaying student loan debt than non-Māori.

So here we have the old catch 22. Because of the failure of secondary schools, a lot of Māori students are more likely to study at certificate and diploma levels, which means they move into lower-paying jobs and, consequently, take longer than their non-Māori counterparts to repay their loan debt. The only time that things seem to even out is when one compares Māori and non-Māori degree-level graduates. The irony of that, of course, is those degree courses are the most expensive.

The Māori Party supports any move to reduce student debt. We support the notion of a repayment holiday, although we would make it 5 years, rather than the recommended 3 years. But I go back to our fundamental concern that we are driving our graduates into crippling debt before they even start work. Education is supposed to be a nation’s investment in its own future, and we need to be visionary and bold in how we approach student cost and student learning. The Māori Party sees MātaurangaMāori as a treasure, and its protection is guaranteed under the Treaty of Waitangi. We also see a decent education as being a treasure that we should guarantee to all our youth. Accordingly, we support a greater investment in tertiary education in order to help reduce student costs and student debt.

We also support the submission from the National Council of Women, which stated that although some people claim education is primarily a private good and therefore students should pay for it, the council believes that keeping and attracting students is actually in the public interest, that it makes good sense to reduce student debt in exchange for student commitment to society at large, and that if tertiary study was seen as a public good, then we would not see the numbers of graduates we have seen being driven overseas.

As recently as 1989 student fees were $129. In 1990 the Labour Government introduced a flat fee. That flat fee was ten times the amount of the previous fee—$1,250. Then National got into Government and changed the Act so that institutions could set their own fees. Since then, fees have increased and increased. It is a shameful legacy that both Labour and National have created—of which the Prime Minister herself said back in 1999: “Tertiary fee rises are crippling our future.”

Last year’s annual report of the student loan scheme talked about ensuring that the student support system promoted equity and fairness, was consistent with the wider income-support systems, and made tertiary education affordable for all. If that means my daughter with her $40,000 debt, the young woman with her $35,000 debt who received 59 job rejections before taking a job in Japan, and the thousands of other Kiwis who have had to borrow under the scheme and then skip overseas so they do not have to pay it back will not have to be burdened with massive debt at a time in their lives when they should be preparing for their own future and our nation’s future, then it is all good. If not, then excuse the Māori Party for continuing to fight for a future that includes our own kids running our own country instead of leaving it, and us having to bring in immigrants to cover the gaps we have so foolishly created. Kia Ora, Mr Deputy Speaker.

DARREN HUGHES (Labour—Otaki) Link to this

It is a great pleasure to speak on the second reading of an excellent piece of legislation, the Student Loan Scheme Amendment Bill (No 2). What this legislation does is further extend the great work that this Government has done, since its election in 1999, to make the student loan scheme legislation a fairer, more equitable, and a more decent piece of legislation. We have heard from different speakers tonight exactly how this bill achieves that.

As Hone Harawira was saying, there has been a long history in the whole area of how we support students in New Zealand. In actual fact, at one point in 1998 the then Treasurer was promoting a universal tertiary tuition allowance that would be paid to all students from the year 2000, but as soon as New Zealand First left the coalition Government the National Party turned its back on that.

The bill, of course, amends the famous original 1990s student loan scheme introduced by Dr the Hon Lockwood Smith PhD—a man who has a long record when it comes to tertiary education in New Zealand; he went up and down New Zealand in 1990 saying that the “toll gate”, which was what he called the Labour flat fee of $1,250 to study at university in New Zealand, would be removed or he would resign as Minister.

COLIN KING (National—Kaikoura) Link to this

I will take a very brief call in support of the Student Loan Scheme Amendment Bill (No 2). Although I am keen to stand up and speak on behalf of National, it would be very remiss of me if I did not say for one moment that I would like to see those people who take out student loans be just a bit more thoughtful about the courses they take and where they actually spend the money. It is taking them 9 years, on average, to pay back their student loans, which is an improvement from 10 years previously.

By the year 2014-15, the scheme will cost $12.7 billion, and by the year 2034 we expect that repayments will start to exceed borrowings. So for the next 15 years we will see, in fact, an annual growth in the student loan scheme of about 4.7 percent—about $66 million each year. We will see the forecast loan balance increase, on average, by about 5 percent a year.

I agree with the bill; a lot of the things in it make the scheme a lot clearer. I certainly support the object of making it clearer to those people who are overseas that if they owe $15,000, they will simply be required to make a repayment of $1,000, but that if the loan is over $15,000, they will need to pay $2,000, and that if over $30,000, they will have to pay $3,000.

It has been a pleasure to work with the Education and Science Committee on this bill. However, I think, in support of everybody who spoke, we have to make sure that those people who go into student component funding are a lot more focused and a lot more directed by career advice, so that when they do accumulate debts and loans they are aware that they will get value for money. At the end of the day, education needs to be about getting value for money, and in many, many cases, in my experience, we have seen far less value than the debt that is held out there.

I have great pleasure in supporting this bill, and on that point I will take my seat.