Hon PETER DUNNE (Minister of Revenue) Link to this
I move, That the Student Loan Scheme (Repayment Bonus) Amendment Bill be now read a second time. This bill is comparatively short in form, but it is substantial in its significance. I need to put into context why this measure is being proposed.
Since the student loan scheme was introduced in 1992, nearly 800,000 New Zealanders have taken out a loan to help them continue their education at a tertiary level. As the number of borrowers in the scheme has grown over the years, a number of changes have also been made to it. One of the more significant of these changes was the introduction of interest-free loans in 2006, which has given a major boost to those people who would not otherwise have had the opportunity to further their education.
The measures that are contained in this bill follow on from that change, and are aimed at encouraging borrowers to repay their student loans faster. There are two points I will highlight. Borrowers paying off their loans earlier benefits not only the individual borrowers as they move through their careers but also the Crown in managing what is now a $9.6 billion asset. To put it simply, the longer that it takes borrowers to repay their loans, the more expensive the cost of that borrowing becomes to the Crown.
The bill introduces an incentive for faster repayments in the form of a 10 percent bonus for borrowers who make extra payments that total $500 or more in any given tax year. Under the provisions in the bill, all borrowers, including those who are overseas, will be eligible for the bonus, provided that they are meeting their student loan obligations and that they have a loan balance with the Inland Revenue Department of $550 or more at the beginning of the tax year in which they make their extra repayments. The bonus will then be added or credited to their account after the end of the tax year in question. For those who want to pay off their loan in full, the maximum bonus that is payable is one-eleventh of the loan bonus. Once it is enacted this legislation will have effect from 1 April this year, with the bonus being credited to borrowers’ loan accounts after 1 April 2010. Because there is no time limit to the entitlement to the bonus, borrowers who may be better placed to make extra repayments later in their working lives, when their financial position is stronger, will be able to do so under the provisions of this bill.
In reporting back the bill to the House, the Education and Science Committee made a number of small recommendations, mainly of a technical nature, to ensure that the bill and the scheme work as intended. I acknowledge the work of the committee and the officials who served it for their detailed consideration of the bill and for the recommendations that they have made to make the scheme work as proposed. I think that the bill as it now stands and the measures that it contains will give borrowers who want to pay off their student loans early a useful and welcome incentive to do so.
This is an important step forward. But it would be an error to say, as I think some members on the other side of the House seek to assume, that this is the only measure or incentive to improve and facilitate the repayment of student loans and to make the system better. We are currently undertaking consultation on a range of other initiatives, and announcements will be made in due course about further enhancements to the scheme. In the meantime, I say to the House that this is a significant incentive for students to pay their loans earlier. I cannot fathom why anyone would oppose the introduction of such an incentive. Therefore, I commend the bill to the House.
Hon TREVOR MALLARD (Labour—Hutt South) Link to this
I hesitated as I rose to speak, because I thought that the Minister of Education, Anne Tolley, might have got to her feet in order to make a contribution to this debate on the Student Loan Scheme (Repayment Bonus) Amendment Bill. It is often the case in these matters, which are technically the responsibility of the Minister of Revenue, that the policy is driven out of education. This was certainly part of National’s education policy at the last election. But I see that she has not chosen to participate in this debate to date, and therefore I think it is important that we proceed, notwithstanding—
Hon Darren HughesHon TREVOR MALLARD Link to this
Mr Peachey has been pointed out as being in the House, and I want to compliment him on the way he ran the select committee. There are not many people who can run a select committee on a bill on which there is division, such as this, in the way that he has in good humour. It is also worth saying thank you to the officials, who made a real contribution to this. For such a small bill, there was quite a lot of extra work for them—getting background information and reports, and working off a variety of different assumptions around interest rates to give some different models.
In the end, none of that work was able to convince the Labour Opposition that this bill is a good one. In fact, when is comes to the Committee stage, we will be considering whether it would be appropriate to rename the bill. It could be the “Bill for Economically Illiterate Former Students” or the “Bill for Making a Generous Contribution to the Taxpayer Over and Above the Tax that You are Liable to Pay”—or one of a number of approaches like that. That is because, depending on the interest rates at the time, someone with a student loan and with somewhere between 21 months and 36 months—there is a debate as to the time—left to repay it would be foolish to take the benefit of the scheme. People would be better off putting their money in the bank, collecting the interest from it, paying their tax on that, and making a contribution out of the net amount at the end of the time when it is appropriate for them to repay their loans.
If the bill is passed I think we will see students working very, very carefully around getting the timing right. There is a point, depending on the interest rates and the direction they take, when it would be of benefit to students to take advantage of this scheme. As I said, there is a debate around 21 months or 36 months, depending on the models and some of the assumptions, as to when that point is met. From the Minister of Revenue’s point of view, the problem with that situation is that if students can understand it and work it really well, the taxpayer ends up being worse off rather than better off. The Inland Revenue Department ends up being worse off net over the period of the loans than it would in other cases. The Minister shrugs his shoulders, and I agree with him. The way revenue goes up and down, and round in circles, it will not make any difference. The Government will not be making decisions about another $1.5 billion of broadband based on this decision.
Hon TREVOR MALLARD Link to this
The Minister is right; it can make a difference to the students if they get it right, but there is a very fine point where it works for them. As the loan comes down and time winds out, there is a point where the right thing to do is to take advantage of the scheme, but it is relatively late in the loan rather than something that can and should be done as a matter of course by the students if they, for example, have 9 or 10 years to go. Anyone who has 9 or 10 years to go on their loan and pays an extra $500 or more in this is a mug. It would be stupid and foolish.
Hon TREVOR MALLARD Link to this
I accept Roger Douglas’ point, and he made it in the select committee. He is right; there are other reasons people pay it off. Sometimes people are given gifts that are tied. For example, grandparents might decide to give a contribution to pay the loan off. The most generous grandparents would put the money into an account, let the grandchild get the interest, and pay off the loan with that interest. But there may not be a high level of trust between the grandparents and the grandchildren, and I think many of us, especially those of us who have been Ministers of Education or who have had kids and have been involved in this loan scheme, know that people play at the edge of the rules. People do not always do what is the right or the fairest thing to do. I accept Roger Douglas’ point that it could be a good thing for grandparents to get a bonus on their payments for their grandchildren on the way through, or on an inheritance, or the like.
From my perspective, and I want to address the Minister of Revenue now in a serious way, something that could unblock Labour’s opposition to the bill is if material sent out about the scheme from the Commissioner of Inland Revenue recommended that people seek advice before they take advantage of it. I am not saying that people have to pay for that advice or that who they get it from should be defined, but I want people, before they go into the scheme, to talk about it with someone who might know a little bit more about interest rates, present values, and that sort of thing. I think people can then go into it with an informed decision. I agree with Sir Roger that there can be some good reasons for going in it. They are extraneous reasons; they are not proper economic reasons. There could be some good reasons for going in, and they could overbalance or outweigh the economic decisions.
I have an amendment on the Table of the House that was supplied to the Minister’s office some time ago. It is a relatively simple one that would require the commissioner to advise people to seek financial advice. In my opinion, it would not be a big thing—the forms are yet to be printed—to include a line on those forms. I am tempted to go back to Sir Roger’s friend Ruth Richardson and her line “What’s the mischief in it?”. What is the problem with the Commissioner of Inland Revenue suggesting—not requiring, just suggesting—that people get advice? I cannot see that there is any problem at all. If the Government took up that suggestion, then, on balance, the bill becomes so trivial that we would support it and we would help it go its way through the House in a relatively rapid fashion. Our major objection to the bill, the problem of people picking it up in an ill-informed way, would be lessened and therefore we could support it. So I am interested to hear from the Minister of Revenue. I leave him time between now and the Committee stage to think about whether the suggestion in my amendment is an appropriate thing to do. Even if he does not really think it is appropriate, I would like to hear what he thinks the harm in it would be, and I look forward to his response.
Again, I thank Allan Peachey and the officials for the work that was done on the bill. As I say, there are divided opinions on the bill but in the select committee that situation was handled very well by Mr Peachey. Thank you, Mr Assistant Speaker.
ALLAN PEACHEY (National—Tāmaki) Link to this
I appreciate the opportunity to lead off the National Party’s contribution to the Student Loan Scheme (Repayment Bonus) Amendment Bill debate. I thank the deputy chairman of the Education and Science Committee and Labour speaker who just preceded me, Mr Mallard, for his kind comments. I think it is fair to say that members of the select committee get on pretty well and are pretty committed to doing what is best for, in this case, New Zealand’s young people. I certainly appreciate the assistance that Mr Mallard and his side gave as the committee worked through the bill. It was a relatively straightforward bill. We received three submissions, and two of them were in person. We made four relatively minor amendments, which, as the Minister of Revenue said, were aimed at tidying-up a few things. Once the bill is passed, hopefully the Act will work that little bit better. I also acknowledge the assistance we had from officials from Treasury and from the Ministry of Education. One of the reasons that the process went so well was the quality of their advice and the work that they were doing. I would like to put on record the committee’s appreciation of that contribution.
The Student Loan Scheme (Repayment Bonus) Amendment Bill amends the Student Loan Scheme Act 1992. In essence, it provides a bonus of 10 percent for any extra payment, or payments, of $500 or more made in a tax year. I listened with interest to Mr Mallard’s comments, and they have a compelling logic to them. However, two points need to be made. The first one is a key to financial success in New Zealand, and that is to clear one’s debts as quickly as one possibly can. People should do that whether it is a student loan or a mortgage. Clearing debts is a key to financial success. I would not be comfortable with any suggestion, even if there were a bit of economic logic to it, of youngsters delaying the repayment of their loan.
There is another point to this bill, as well. We are talking about taxpayers’ money. It is money freely lent to students, by taxpayers, to fund their education. It seems to me that the taxpayers’ purpose in making that money available is to enable students to get an education, not to make financial gains through the banking system, or the money markets, or that sort of thing. Maybe we need to give a little bit more reflection to that issue, because, at the end of the day, it is taxpayers’ money. Some of that money is paid by families who do not get close to having their children go through tertiary education. I think we need to show a little bit of respect for that.
The amendment bill has two aims. I want to concentrate, for a few minutes, on the first one. It is to encourage borrowers to repay more than the compulsory minimum amount so that they can pay off their loans sooner. I reiterate a point I have already made: I do not think it is the business of this House to be trying to persuade, or influence, young people to delay paying off their debts in order to earn a bit of interest in the banks or have a flutter on the financial markets. The bonus scheme is expected to reduce the repayment times of borrowers who take up the offer by about 1.5 years. That is a significant length of time, and, certainly, there are long-term financial gains for people with loans who are able to take advantage of this scheme and pay off their loans more quickly. They are not just financial gained loans or an increase in disposal income, but the opportunity to marry, have children, purchase a home, and travel overseas. People have much greater freedom and flexibility to do the things they want to do when they have paid off their debts. That gain of nearly a year and a half is one worth taking.
This bill is an incentive to people to repay their loans more quickly. That is all it is. It is estimated that the amount owing on student loans will be about $15 billion by 2014. That is a lot of money. It is a significant burden on New Zealand taxpayers, and I am not sure that speakers who have gone before me have sufficiently emphasised, although the Minister of Revenue mentioned it, the impact of making student loans interest-free on 1 April 2006. That $15 billion comes from taxpayers. Many of us are of the view that taxation is far too high anyway, and that it deprives people of the opportunity to take responsibility and make progress in their standard of living. I think we need to bear that in mind and, as I have said before, show some respect for the reasons why the taxpayer makes loans available. It is to enable people to get an education. It is not to enable them to enhance their income on the financial markets or through bank deposits.
Since student loans became interest-free on 1 April 2006, there has been a downward trend in student loan repayments. I am sure that was not the intention of the Labour Government at the time, but that is what has happened. If one comes from the position that I do—that it is better to clear one’s debt as soon as one possibly can—it is not a good consequence of making student loans interest-free. I suspect that it is probably an unintended consequence, as so often happens. The downward trend in student loan repayments by borrowers and in the number of people fully repaying their loans early is something we need to be concerned about. I do not believe that it is good for students or borrowers, and I certainly do not believe it is in the interests of the taxpayer.
That leads me to the second aim of the bill. Some would say that it is a secondary aim, but I think it is a very, very important one. It is to reduce the cost of the student loan scheme to the Government and, therefore, and most important, to the taxpayer.
Hon Trevor Mallard Link to this
Will the member answer a question? If it is reduced to the Government, who is paying the extra?
Hon Trevor Mallard Link to this
If the cost to the Government is reduced, who is paying the difference?
If the cost to the Government is being reduced, then the taxpayer is benefiting from that and the taxpayer does not have to dig so deep into his or her pockets to fund the scheme. Let us be really clear about this. We are talking about money advanced by the taxpayer. It is money that is not available to the Government to do other things with, for example, like tax cuts. Therefore, it is in the interests of borrowers, the taxpayer, and the Government, to encourage the repayment of those loans.
This is a relatively short bill. It is simple in its operation. If one owes $1,100 and pays off $1,000, the remaining $100 is wiped off that person’s loan at the end of the financial year. It is a very, very strong message to borrowers that the Government wants them to pay back their loan more quickly both for their own interests and in the interests of the taxpayer. Thank you, Mr Assistant Speaker.
STUART NASH (Labour) Link to this
I stand to speak in opposition to the Student Loan Scheme (Repayment Bonus) Amendment Bill 2009. I want to make a point about something that the honourable member Allan Peachey has just talked about. This is Financial Literacy Week. Allan Peachey said he would always encourage people to clear their debt as fast as they can, no matter what sort of debt it was. That is not the thinking of the current generation, and let me tell members why. This generation knows that if one can leverage debt to make a higher return than the rate of interest one is actually paying, then it makes sense to use debt as a tool to encourage economic growth and economic wealth. Debt is a very appropriate tool in many instances, and if more New Zealand businesses had used debt to finance growth, instead of selling equity and, therefore, control, I believe we might not have seen the level of hollowing out of our economy to the extent we have. People have not used debt for economic growth; they have sold down equity. That is the attitude of my parents’ generation.
I want to repeat a mantra I have been parroting ever since I came into this House. It is something that is fundamental to the social democratic philosophy that this Labour Party is built upon, and it is that education is the cornerstone for economic and social development. In my office I have a poster on my wall with a quote from Malcolm X, which states: “Without education you’re not going anywhere in this world.” It is education that empowers personal, professional, community, and economic growth. It is a tool that provides options to young people, and it is the food that fuels the spirit of ambition and aspiration. That is what education is. The powerful words previously quoted were from a man who discovered the value of education as a tool to open eyes that had been closed, to open the ears of those who refused to hear, and to open the minds of those who justified hate. I would argue that one of the most significant pieces of economic development legislation passed through this House in the previous 9 years was the passage of the Act that instigated interest-free student loans.
Goodness me, is the member saying that we should not have given interest-free loans to students? I will tell members why this was great legislation. It is because it removed the albatross of crippling debt interest payments from around the necks of thousands of students and allowed them to remain in New Zealand to pursue their chosen career without the need to head overseas to chase the pound in order to repay, or in certain circumstances escape from, a debt with no end in sight.
I ask my Labour colleagues whether they know that members opposite voted against interest-free student loans. Can they believe that? National members voted against interest-free student loans. Amazing! Obviously, most of them went through a university system that was free. In the case of Paula Bennett, she received a training incentive allowance, which she has since had removed. The irony of that decision has not gone unnoticed amongst the vast majority of people who would have been eligible for it, as Paula Bennett was.
Members opposite voted against interest-free student loans. It just proves once again that the Labour Party is the party of students and the party of sustainable economic growth. I say to Mr Quinn that when we talk about education and robbing the poor to give to the rich—[Interruption] How can you justify—
Paul QuinnI raise a point of order, Mr Speaker. I think he referred to you: “How can you”; that is what he said.
The ASSISTANT SPEAKER (Eric Roy) Link to this
I think the member mistakenly may have done that; I just caution him.
How does Mr Quinn go out to his constituents and justify giving $35 million to private schools while taking away $13 million from adult and community education? I would like to hear the arguments in favour of that, because there are no arguments. I can report that in Hawke’s Bay, where I am based, none of the high schools that were offering adult and community education will now be running night classes. Adult and community education affects around 6,000 people in Hawke’s Bay, and adds a conservative economic impact of at least $10 million to the region. That is value for education—a return of about $50 for every dollar spent on adult and community education. Does Mr Peachey want to know about financial literacy? Maybe that member should do the figures on the return from adult and community education, let alone the impact of community, personal, and role model advantages. Getting rid of adult and community education is very short-sighted. Giving $35 million to private schools whilst taking $13 million from night classes is very definitely a mix-up of priorities. That is simply not fair.
Phil TwyfordWell, I would not think so, at all. However, Mrs Tolley has been told by New Zealanders up and down the country that it was wrong, but she just does not seem to have listened.
Talking of not being fair, I read that Bill English’s Tax Working Group has suggested raising GST to 15 percent so the top tax rates of 38 percent and 33 percent can be lowered to 30 percent. Watch out for the 75 percent of New Zealanders who earn under $40,000 per annum! That is another story, but it is certainly not fair.
I return to this bill. Apparently, this is Financial Literacy Week, yet we had the previous National speaker, Alan Peachey, who was a headmaster at one of the top schools in this country, supporting legislation that the Hon Trevor Mallard has laid out in black and white does not make economic or financial sense, except in very small circumstances. Why would a student take up this option when in fact it does not make financial sense? It is unbelievable.
The question is about who this bill will actually help. I can tell Mr Dunne that it will not help those who need it, and neither did the tax cuts for those earning under $40,000 per annum. This bill is obviously supposed to help students with loans, but let me inform the House a little bit about the students who are taking up loans. This is from a 2006 report entitled Student Loan Borrowers: 1997-2004: “Those who had studied at honours level or higher in their last year of borrowing had higher rates of payment … than average. This could be attributed to higher levels of qualification, leading to higher incomes. … This leads to a faster rate of repayments”.
Well, goodness me! Higher incomes, faster rate of repayment—what about all those students who are studying for degrees that do not offer the higher rates of repayment? As well, the rates for full student loan repayment were highest for engineering and related technology courses. Funny that—these are the grads who coincidentally earn the most money. Students enrolled in food, hospitality, and personal service courses had the highest median amounts of student loan. Those are not the jobs that bring in the huge dollars, yet they are just as important to our economic growth and well-being as any graduate jobs. Why does National not do something for those graduates and workers? And talking of supporting workers, I certainly hope that the National-led Government will support Darien Fenton’s “A fair deal in hard times” campaign, and vote for her member’s bill that guarantees redundancy to ordinary Kiwis in our communities who have been unlucky enough to lose their jobs.
A quarter of student loan borrowers in 2005 were enrolled in society and culture courses. Are we saying that those graduates do not deserve any form of tax relief? I do not know. The majority of borrowers identified themselves as European or Māori; however, those who identified themselves as Pasifika borrowed the highest amounts.
Another thing I would like is to tell Mr Dunne that my real concern is to know how the Inland Revenue Department will administer this bill. Has Mr Dunne asked his team about that, given that National has cut close to 300 jobs at the department—300 jobs have gone from the Inland Revenue Department. The old saying “Don’t call us; we’ll call you.” takes on a whole new meaning. I ask Mr Dunne once again how the Inland Revenue Department will administer this bill. Anyway, all I can say is that this bill is a nonsense. It does not solve anything, and it does not favour even one of this nation’s students. Thank you.
CATHERINE DELAHUNTY (Green) Link to this
Tēnā koe, Mr Assistant Speaker Roy. I rise to take a brief call on the Student Loan Scheme (Repayment Bonus) Amendment Bill. I suggest to members who did not like Stuart Nash’s speech that they will like mine even less. They may as well prepare themselves for complaining, shock, horror, wincing, and nausea, because they will not agree with what I am going to say. Interruption] Exactly. I am not the Green Party’s tertiary spokesperson, but I am on the Education and Science Committee, which heard the submissions on this bill. Several of them were from student associations. The Green Party stands with those submitters; we are opposing the bill.
I acknowledge the members of the Education and Science Committee. It is a good committee. I would love to be able to agree with everybody, but sometimes we have to stand our ground. We are here to represent the community, to stand with the submitters, and particularly to stand with the students. The students were against the bill. The associations lobbied very clearly on that matter, and we stand with the students.
CATHERINE DELAHUNTY Link to this
Absolutely.
The Green Party is also interested in the comments on taxpayers, because we are more than happy, as taxpayers, to invest in education. In fact, we think it is one of the primary reasons why we pay tax. But we remain resolutely unconvinced by the student loan scheme.
However, in terms of this bill, the main problem we have with it is timing. Why, in a recession, would the Government suggest a reform that benefits only borrowers who can already save up money, unless it wants to reward a specific constituency of the privileged, and ignore people with very little capacity to get the bonus on offer?
The bill is consistent with the current modus operandi of the Government around education, which could be described as cut, tweak, and twist. Cuts include adult and community education classes, Enviroschools, drama advisers, literacy classes, Youthline training, etc. Cuts could include student unions, if by some ghastly act of fate Sir Roger Douglas’s bill on unions in universities gets drawn from the ballot. [Interruption] If it is supported by the Government, then it is an even more ghastly tweak of fate.
However, this bill is not a cut. It is actually a tweak rather than a cut. The tweak is that the Student Loan Scheme (Repayment Bonus) Amendment Bill is very unhelpful to a majority of student loan holders. It is a classic tweak bill and it is an annoying waste of time, except for a small group of people who get a limited benefit. The twist strategy I am referring to includes a mean twist for people who have no savings to pay off extra debt. The twist also includes the somewhat twisted logic that we need things like national standards in education, when we already know who is struggling and why they are struggling. It is pretty twisted to give $35 million, as Stuart said, to private schools rather than to the public system. In the end, if the children of the poor do not get the best possible public education they will not become tertiary students.
Who is being targeted here to benefit? Not women, not tangata whenua, not Pasifika nor any other migrants, not many current students, not the poor students, not the people at the bottom of the heap, and probably not even the Inland Revenue Department, which must be absolutely thrilled to have more complex variables added to the delivery, implementation, and debt collection associated with the student loan scheme. Even people who believe they should make a financial contribution to the cost of their own education will not necessarily benefit from this bill. As was pointed out previously, graduates who have decent paid jobs can afford to save up and get a bonus, but that is not the case for many students who are currently in the process of going through their education.
As I mentioned before, we are in a recession and we have rising unemployment. We do not know how far unemployment is going to go, or when it is going to stop. It should be pretty obvious that many people cannot afford to put aside money to get what is a relatively small bonus. If the Government really wanted to do something about student debt, it would design a provision that actually affected the people in most need of help, not the people at the end of paying off their loan who might be beginning to recover economically from the loan scheme, and who might be able to put aside extra money to attract the bonus.
The Greens see this bill as somewhat similar to the Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill, although it is not quite as heinously unfair—just not very useful. People would be better off investing their money in an interest-bearing savings account. The bill is, no doubt, designed to get more people to pay back their loans faster. I do not know a single person who wants to be in debt, and who would not like to get the student loan monkey off his or her back. Some people choose not to attempt higher education because they see debt as a deterrent. So why are we not finding ways to fund public tertiary education that do not involve useless tweaking and token forms of assistance? At the Education and Science Committee we had some very cordial discussions on this issue. Some members commented that if people were motivated, they could pay off debt no matter how wealthy they were. But in my view, and in the Green Party’s view, paying off debt relies on certain factors, such as having a supportive family, some kind of decent job, lower rents or mortgages, and not having a whole lot of children. The motivated poor always already prioritise their money, and, as I have said in this House before, they prioritise the power bill and the doctor before they pay off their student loan.
I enjoyed Maryan Street’s first reading speech about this bill, in which she asked questions about the underlying Government agenda. Very useful points were made and good questions were asked. The Green Party totally supports the speech made by Te Ururoa Flavell about the effect of the student loan scheme on Māori students. Even within whānau or families, inequity can be reinforced when people who choose education get into debt, while those who go straight into work have disposable incomes and much nicer clothes. What is the message here? Is it that education is too costly and that we should not bother? That message has had an impact on my family and on many other people. Some of the kids are doing very well, but are not educated, whereas others are in major debt.
So let us get the fairly weak idea of this bill off the Order Paper and let us start addressing the substantial issues in tertiary education, like fully funded public education and support for everyone, not for the few. I know that this House may see these suggestions as a quaint idea, but they will actually create a better world. Kia ora.
Hon Sir ROGER DOUGLAS (ACT) Link to this
I will be relatively brief; I had not necessarily intended to speak on the Student Loan Scheme (Repayment Bonus) Amendment Bill but I could not resist in the end.
The point has been made by Mr Mallard and other speakers that in many cases students would be better off putting their money into a bank account and letting it accumulate. That is true, but there is a small window when students are probably better off paying it back, and there are, of course, other reasons why students might repay. When all is said and done, it is not compulsory that students pay in advance; it is a totally voluntary thing. They might, for example, decide they want to pay off the loan early, because that will help the Government accounts. That is quite a good reason. If students want to do that, then I am all for it. In many ways, as I think Mr Peachey said, paying off the loan early may well bring a certain peace of mind to people. They will feel better when they have got rid of their debt, etc. That is one side of the issue.
I personally do not support Mr Mallard’s amendment. Mr Mallard is really saying to people that if they pay off $1,000, they will save only $100, and he recommends they spend $200 on a financial adviser, who will tell them they should not pay it off. But they will be $200 worse off. That seems a bit nuts to me, and I cannot really see the point.
The real point I will make today is about the crocodile tears from Mr Nash and from the Green speaker who just spoke. Let us think about student loans very, very clearly. Students generally come from wealthy families. In New Zealand, 80 percent of students come from families in the top 20 percent in terms of income and assets. Also, students who go through tertiary institutions come out likely to earn somewhere between 150 percent and 200 percent of the average wage. So we have here a very privileged group who come from families whose incomes are well above the average wage, and who, when they are qualified, will earn on average somewhere between 150 percent and 200 percent of the average wage.
Mr Nash, other members of the Labour Party, and the Greens are saying that they want the poor people—whom I used to represent in Ōtara—who leave school without qualifications to go into the workforce and pay taxes, to subsidise those students. This policy is about redistribution. It is redistributing from the poor and from low-income people to high-income people. Let us understand that this relates to the whole issue of tertiary education. Most people receiving costly educational courses are from middle-income and upper-income groups. What we are doing—and we might want to do it—is saying to low-income people, to people who are relatively poor, that they have to work and pay high taxes so that people who will earn twice as much as them over their lifetimes can get a free education or a free ride. We have the poor subsidising the wealthy. In the case of doctors and vets, we find not only that the poor are subsidising the education of the wealthy, but also that at least 25 percent of those students are now overseas, earning substantial incomes.
Let us not kid ourselves about this. People who go to university are generally amongst the top 20 percent in terms of wealth and income. People who go through university—and good on them—will earn somewhere between 150 and 200 percent of the average income. Who will pay for them? People who leave school—Rangitoto College or anywhere else—without qualifications and go immediately into the workforce at 17 or 18 years of age are the ones who have to pay higher taxes than they would otherwise have to pay to subsidise university students. Let us understand what we are doing.
LOUISE UPSTON (National—Taupō) Link to this
I rise in support of the Student Loan Scheme (Repayment Bonus) Amendment Bill at its second reading. The bill will make a substantial difference to hard-working New Zealanders who have a student loan, and who want to be proactive in paying off debt. This Government believes that people do want to pay off their student debt so that they can take on other projects in their lives, such as setting up a business, getting married, having children, or taking on a mortgage. This bill provides the incentive to do that, so I strongly disagree with Mr Nash, who said that this bill does not favour New Zealand students. Of course it does, because New Zealand students, like any other students around the world, do not want to be burdened with debt indefinitely. This bill gives them an incentive, and I think that that is what we should keep our focus on. This bill is about an incentive. It is about encouraging our young people to get out of debt faster. I will not go into the level of indebtedness New Zealand has; we have all heard and seen the figures. But with this bill we send an important incentive and an important message to our young people who have student loans that we will assist them and incentivise them to pay off their student loans faster.
This bill amends the Student Loan Scheme Act 1992 by providing a bonus of 10 percent on any payments that exceed the borrower’s compulsory repayment obligation for a tax year by $500 or more. They can drip-feed repayments or they can make a one-off bulk payment once a year. The options are open to them in terms of how they wish to do that, but the important thing is the message about encouraging borrowers to repay more than the compulsory minimum in order to pay off their debt sooner. Shorter repayment times mean that young New Zealanders will be debt-free earlier, which frees them up to put other choices in front of them sooner.
The secondary aim, of course, is to reduce the cost of the student loan scheme to the Government. The bonus will be credited to the borrower’s student loan account at the end of the tax year, which will reduce his or her loan balance. For borrowers paying off their loan in full, the maximum bonus payable will be one-eleventh of the loan balance. For example, if the loan balance is $1,100 the borrower would make a voluntary payment of $1,000 and the maximum amount of the bonus would be $100. Borrowers wanting to repay their loan in full before 31 March 2010 will have a few options. They can pay the loan balance in full and the bonus will be credited to their loan balance after 1 April, or they can pay ten-elevenths of their loan balance, with their bonus being credited after 1 April 2010.
I will focus for a moment on why it is important to provide incentives for students to reduce debt. A recent study conducted at Canterbury University by one its PhD students tracked 1,232 final-year secondary school pupils through their first 2 years of university study. The study found that the students both underestimated the cost of tertiary study and overestimated what they would earn at the other end, which is having a compounding impact on those who take on debt when they go to university. Nearly half of the students said that debt was a normal part of today’s lifestyle, but if we talked to their parents or grandparents I think we would find that they have quite a different message. The PhD student said the students were not fully aware of the cost of a student loan and the options available, so let us look at this in a bit more detail. The school-leavers estimated that their annual expenditure would be $12,000, which is significantly less than the actual $19,000. They expected to earn an average income of $11,000 or close to $12,000, and they overestimated that amount by $5,000.
The University of Canterbury Students Association has said that students are losing their concept of debt. That is a worry. I will share with members an example of a student I have been speaking with recently, or, I should say, an example of someone who has actually completed university studies. This young woman was at university for 5 years. She went to university straight after school. She earned two bachelor’s degrees and an honours degree. Despite this young woman working part-time throughout her degree, the balance of her student loan when she left university was $60,000. Even though she now has a fulltime job, this young woman will be 50 years of age before her loan is repaid, based on the current minimum repayment amounts. That will be a huge obstacle in her future ventures in life, whether it is starting a family, taking on a mortgage, or starting a business. The Student Loan Scheme (Repayment Bonus) Amendment Bill will be a huge incentive for students to pay off more than the bare minimum and be debt-free earlier.
I will mention another study about students. The report, Living with a Student Loan, incorporates Statistics New Zealand data from the Ministry of Education, the Ministry of Social Development, and the Inland Revenue Department. It is one of the few studies undertaken since student loan schemes were introduced. A couple of changes were made during the select committee process, where the bill gets to be debated at length, where we listen to submitters, and where we take on board their comments. We made some minor changes in the areas of commencement provisions—for non-salary and wage earners, and also for the multiple voluntary payments made in a year—but I remind the House that this is yet another pre-election commitment on which this Government is following through. This is a Government that does what it says it will do. We are keeping our promises.
In terms of this particular bill, which was an election promise that we are delivering here today, there is a public perception that student loan balances are very high, and that it takes borrowers years to repay them. Since the inception of the interest-free component from 1 April 2006—surprise, surprise—there has been a downward trend in student loan repayments received directly from borrowers, and also a decrease in the number of people who fully repay their loans each year. Who pays for that? Well it is hard-working New Zealanders; it is the taxpayers of this country who pay for student loans that are not paid off early. As Mr Douglas said, it is hard-working New Zealanders—perhaps those who do not have a tertiary education, or those who left school perhaps at 16 or 17 and went straight into the workforce. It is their hard-earned tax dollars that are paying for student loans, when we are offering students with loans a means for them to be debt-free earlier. We are giving them the opportunity to rid themselves of their burden of debt earlier by incentivising them to pay it off. We are not presuming that hard-working New Zealanders who do not have a tertiary education should carry that burden. We are putting in place incentives for students with loans to pay off their loans.
It is estimated that student loans will grow to $15 billion by the year 2014. That is an extraordinary amount. There is no time limit on entitlement for this bonus scheme. For example, if people have worked for a few years and are in a better financial position, then they are able to make those extra payments later in their working life. That will fit in with this scheme. They will be able to take advantage of the bonus incentive when it better suits their financial position. We are not saying that there is an expectation on those who have just come out of university and taken on their first job to start their repayments straight away. It is entirely up to them, and it is a matter of when their financial circumstances suit them. We are giving them that choice but, more important, we are giving them an incentive.
I add that as well as this bill delivering on an important national election promise, in this bill we are going further than we promised we would. This is an example of where the bill is more generous than what was promised before the election, because it includes overseas-based borrowers. It is not limited to repayments made 10 years after a person graduates, and the $500 repayment does not have to be made in one hit. We know that in terms of cash flow, it would make it easier for a lot of people if they were able to spread that payment over a longer period of time. All these changes where we are over-delivering are good news for those people who want to pay off their student loans sooner.
This bill is a significant step to encourage student loan repayment and, more important, to reduce the overall repayment times. The message, very clearly, is that our young people will be debt-free sooner, and that is an important thing for all New Zealanders. I am pleased to support this bill.
CHRIS HIPKINS (Labour—Rimutaka) Link to this
I have to say, after listening to Louise Upston pouring her heart out about student debt and about how hard up students are, that I am absolutely staggered that National voted against every measure that the previous Labour Government put in place to make the financial position of students a little bit better. Those members voted against freezing fees, to stop fees going up massively by thousands of dollars a year, as they did the last time National was in Government. They voted against removing interest on student loans while students were still studying and not able to make repayments. And they voted against making student loans interest-free altogether.
Louise Upston, just a few moments ago, called that measure a massive bribe. She called it a massive bribe. But she is not alone in thinking that interest-free student loans are a massive bribe, because what did John Key say about interest-free student loans? He stated: “What a cost to the country! What an unaffordable and irresponsible cost to the country!”. He called it “rushed and reckless, thrown together in desperation”, but here is the really good one. John Key stated: “Our caucus would never have signed off a zero percent interest rate because the economics are so bad. It was never for us, because we have standards.” That is what John Key said about interest-free student loans. I do not think that Louise Upston was fully briefed on John Key’s position on interest-free student loans before she stood up to speak, which is not unusual, I think, for National members.
I have to say that I hope this bill fails and that not many people take it up. I say that because the more people who take it up, the more concerned I would become about the very, very alarming rate of financial illiteracy in New Zealand. Anybody who took it up would have to be completely financially illiterate, because it makes much more sense for people to hold on to their money and put it in the bank, even if it is earning only 1 percent or 2 percent interest, than to go for this bonus and, therefore, lose out on the potential to earn interest. It would make sense in the last few months of their student loan repayments; if it was used for the final repayment of a student loan, then it might make sense.
The only reason that providing a bonus for repayments would make sense is if interest on student loans were going to be reintroduced. It would make sense only if interest were going to—
Louise Upston said that it makes sense. She said that reintroducing interest on student loans makes sense. National’s position all along has been that charging interest on student loans makes sense. That is what Louise Upston has just told us. I do not agree with that. The Labour Party does not agree with that.
Thank you very much. This is a bad bill. This is a bad bill that will not leave students better off financially, and will not lead to their repaying their loans faster.
We in Labour are certainly committed to making life a bit easier for students. We took several measures over the last 9 years in order to do so. We took a lot of measures in the last 9 years to make life easier for students, because we want tertiary education to be available to all New Zealanders; we do not want cost to be a barrier to tertiary education. Unfortunately, National voted against every single one of those measures to make tertiary education more affordable for students.
National promised at the last election that it would not reintroduce interest on student loans. That was one of its key promises. But we know that when it comes to tertiary education, National is not very good at keeping its promises. I recall a former Minister of Education under a National Government going up and down the length and breadth of the country prior to a general election saying that he would resign as the Minister of Education if tertiary student fees were not abolished, full stop.
Sue MoroneyDid he do it? No, he did not. He not only did not abolish fees; he increased them, and he introduced the student loan scheme so that people could pay for them. He never resigned, because the National Party’s election promises are not worth the paper they are written on. That is a proud history that the National Party continues to adhere to.
Louise Upston said earlier that interest-free student loans were the biggest election bribe out. The total cost of the interest-free student loans policy was a couple of hundred million dollars a year, as opposed to the billions of dollars’ worth of tax cuts that the National Party promised at the last election. It promised billions of dollars’ worth of tax cuts, but it broke that promise, too. It passed tax cuts legislation under urgency, and then it went back into urgency to take them away. If Louise Upston thinks interest-free student loans are the biggest election bribe out, at the cost of a couple of hundred million dollars a year, what on earth does she think the billions of dollars’ worth of tax cuts were? That was a much, much bigger election bribe, and one that the National Party never intended to keep.
Allan Peachey talked earlier about clearing debt being the key to somebody’s future. I actually agree with the idea that people should aim to clear their debts. I think that is a very admirable goal. But this bill will do nothing to help students clear their debts. In fact, if students take up the bonus repayment option up, it could result in their taking longer to repay their student loans. As I said in the beginning of my speech, that would highlight a level of financial illiteracy that was very alarming.
The other thing is that this bill will disproportionately benefit graduates on higher incomes, because they are most likely to be in the position to make additional repayments. Students with large debts—who have struggled their way through university working part-time, then gone into Public Service jobs, social work jobs, or anything like that—are not likely to have the level of disposable income one would require in order to take up the bonus repayment option. People on higher incomes who are financially illiterate may decide to take up the option, but unfortunately it is only those on higher incomes who will benefit; it will not help those on the lowest incomes, who may have quite a high student loan debt.
If someone pays $500 extra off his or her loan—above the minimum repayment requirement each year—that student would have his or her total loan abated by 10 percent. This bill is a typical National bill in that it advantages those at the top of the income scale, but it is a con. Why would anyone go for a 10 percent discount when the loan is attracting no interest at all in the first place? If National wanted to encourage higher-income earners to repay their student loans more quickly, there are other ways it could do that without introducing this sham called the bonus repayment option. Anybody in the financial position to be able to take it up is likely to be financially literate enough to know that he or she would be completely mad to do so.
As I have said, the National Party consistently opposed every measure the previous Labour Government took to reduce the cost of studying for students. It opposed the cap on student fees. It opposed no interest while studying. It opposed interest-free loans altogether. So it is not surprising that it is now putting in place a measure that will make sense only if it reintroduces interest on students loans, which I suspect is part of National’s long-term agenda. Do not be surprised if we are back in this House at some point in the next few years debating the reintroduction of interest on student loans.