Student Loan Scheme (Repayment Bonus) Amendment Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I seek leave for the provisions of the Student Loan Scheme (Repayment Bonus) Amendment Bill to be taken as one question.

Hon MARYAN STREET (Labour) Link to this

I would like to draw the Committee’s attention to some of the provisions in the Student Loan Scheme (Repayment Bonus) Amendment Bill, but I would also like to inform the Committee about some of the advice that was received by the Education and Science Committee in consideration of this bill. The advice pointed out that borrowers with higher student loan balances in relation to their incomes and longer repayment horizons are less likely to benefit from this bonus offer. The advice given to members of the select committee was that these borrowers would clearly have less disposable income to make voluntary repayments over and above the required amount, and that they would be less likely to be able to fully repay their loan in one payment. They face long repayment times typically and there is no incentive to repay earlier, as the loan balance is not adjusted for inflation.

One of the examples that were provided in this advice was the case of a fictitious woman with the name of Fiona. The advice stated that this fictitious person—fictitious, but typical—was a recent graduate with a large student loan of $50,000 and a modest income of $32,000. A modest income is often where graduates start. A relative had come into some money, or had won Lotto, and that person decided to give Fiona the opportunity to pay off her entire loan, so that she no longer had to make compulsory repayments and could be free of her student loan debt earlier than would normally be the case. At Fiona’s income of $32,000 she could expect to repay her debt in 18.6 years, assuming that her income grows on a basis of 5 percent per annum and assuming that the income threshold is 2.5 percent. In this time Fiona would have repaid $50,000. If a family member who had won Lotto decided to pay off Fiona’s student loan, it would be a silly thing to do. In fact, that relative would do better to give Fiona the money, which she could put in an account that was generating interest and develop a nice nest egg for her first home. Perhaps Fiona could take out a mortgage, put down a deposit on a first house, and be a lot better off. If she invested that money elsewhere—let us say at a lower rate of 5 percent, for example—instead of repaying her loan, she would be $15,000 better off in today’s dollars.

The financial logic is missing from this legislation. When one looks at particular examples, it is perfectly clear that there is no logic to it. It is nonsensical. But if people are able to take it up, the Labour Party will not stand in their way. The only thing that rescues this legislation is Trevor Mallard’s Supplementary Order Paper, which I am pleased that the Government has accepted. It requires that a statement advising that financial advice be sought—a health warning, effectively—be attached to all material that goes out with any promotion around this legislation. The legislation patently does not make financial sense, and if people are wealthy enough to take it up, then one assumes that they are wealthy enough to get the kind of advice that would tell them so. In the event, the Supplementary Order Paper will provide some protection. It will provide protection so that people do not find themselves in the position of having misused their money if they are in the lucky situation of being able to afford additional repayments.

I do not have a lot of enthusiasm for this bill. The only thing that makes it passable is the Supplementary Order Paper. Thank you.

ALLAN PEACHEY (National—Tāmaki) Link to this

I am very pleased to stand and take a very brief call in the Committee stage of the Student Loan Scheme (Repayment Bonus) Amendment Bill. As chairman of the Education and Science Committee that held hearings on the bill, I compliment the Opposition on agreeing to support the bill. Opposition members, as did Government members, worked very hard to develop a scheme that was workable, and, although we had a lot of debate around the Supplementary Order Paper that Mr Mallard put forward, I congratulate him on his success in having that Supplementary Order Paper accepted.

The important thing is this. We are talking about taxpayers’ money and we are talking about people who borrow money for student loans. The message the Government wishes to send to borrowers is that it is in their best interests to pay off their loan as early as they possibly can, and there will be a financial incentive, a so-called 10 percent bonus, if they do that. We must always remember that we are talking about taxpayers’ money. We are talking about other New Zealanders who pay tax so that students can borrow money to finance their education. I do not know of too many New Zealanders who object to that, but I do know that a lot of New Zealanders worry about the levels of debt that are accrued and about the way that some of that money is being used. This bill sends a very, very strong message. It is the Government’s wish, supported by the Opposition, that if one is a borrower, one’s student loan is to be paid off as quickly as one possibly can. It is in the borrower’s interest and it is in the taxpayers’ interest. Thank you.

STUART NASH (Labour) Link to this

I stand up to speak in support of the Student Loan Scheme (Repayment Bonus) Amendment Bill in its Committee stage. I spoke against the bill it in its first and second readings, but, with the sensible acceptance of the Hon Trevor Mallard’s amendments, I do not oppose it.

I am actually pretty ambivalent about the bill, to tell the truth. It is a bit of a nothing bill that will help very little and achieve not much at all. Let us be honest about this: as outlined in the executive summary in the regulatory impact statement of the bill, this bill is just another one of National’s election promises that is targeted primarily at those who are in the upper income bracket—like the National tax cuts, the super-city legislation, and the 90-day “Fire at Will Act”.

This bill does nothing for students who have elected to take courses that result in a salary that leaves very little discretionary income once the bills are paid at the end of each week. This, of course, does not mean that these professions are any less valuable to society than those professions paying significantly higher; in fact, the case may be quite the opposite. I tell members that if I was dying, I would rather have a nurse than a financier look after me, and if I was after quality education for my children, I would much prefer to have a teacher than a financier. Yet the health and education sectors under this Government, after only 9 long, tortuous months, have taken a huge hit under Ministers Ryall and Tolley.

As I was saying, as I made my way through the regulatory impact statement I was hit more by what is not here than by what is. Never once does the statement outline, predict, or forecast how many students this bill will help—never once. I wonder why that is. I suspect it is because when the numbers were done—and they do exist, because there is a very light financial analysis; in fact, it is surprisingly light for a taxation bill—some key assumptions must have been made around the actual student numbers. However, the Minister in charge of this bill, the Hon Peter Dunne, was too embarrassed to include them in the regulatory impact statement because he realised that very few students will take advantage of this scheme. That is why I say that this bill is a little bit of a nothing bill.

Hon PETER DUNNE (Minister of Revenue) Link to this

Let me begin—

Hon TREVOR MALLARD (Labour—Hutt South) Link to this

I will speak very briefly to say thank you to the Government, and especially the Minister of Revenue for his forbearance in the negotiations of the Supplementary Order Paper, for the third time. I thank the officials for putting us back on track to get a defined term rather than an undefined term. For members who have not seen it, there is a new Supplementary Order Paper on the Table. It is the same as the old Supplementary Order Paper, as it was for quite a period of time, but there was an interim period where something else was there. I do not want to say a lot about this bill. I think Maryan Street put it pretty well. It is the bill for people who do not have a lot of financial literacy, especially if they are repaying more than 2 years before the time is due—

COLIN KING (National—Kaikōura) Link to this

With regard to the Student Loan (Repayment Bonus) Amendment Bill, as it came to the select committee there were areas that needed to be given consideration to improve it. As the Minister in the chair, the Hon Peter Dunne, mentioned, a number of people have taken up the opportunity of the repayment bonus. One thing the select committee had to do was set the date of the implementation of this bill to 1 April 2010. Effectively, that gives a 12-month period for those who wish to take advantage of the bonus repayment scheme to build up a history of repayments.

The other thing we had to look at was around the non-salary, non-wage earners’ situation. As the bill came to the select committee, it would have given more than 12 months after the tax year for a person to decide on what amount he or she would pay. In the end the select committee settled on 7 May, after the end of the tax year, so there is not an unfair advantage to those persons. But it gives them sufficient time to decide what they can or cannot do.

The other issue that bears mentioning is the basic figure of $500 for a 10 percent repayment bonus. The question arose of what happens if there is less than $550. That was something the select committee had to wrestle with, and we came to recommend that the derivatives of under $550 would be the maximum amount of bonus repayment.

The other point I wanted to mention is the multiple voluntary repayments in the tax year. As the bill came to the select committee, it would have been just a last payment. We looked at that and set it as being payments over and above the normal repayment scheme that were eligible for that tax year.

I believe the bill is in good shape. The select committee worked very, very well on it. I think it is appropriate in the Committee stage of a bonus repayment bill to mention the Education (Freedom of Association) Amendment Bill that was drawn out of the ballot. That is one we all look forward to debating because we believe that that, too, underpins and supports the principles of choice. Thank you very much.

JACINDA ARDERN (Labour) Link to this

I am pleased to rise and speak to the Student Loan (Repayment Bonus) Amendment Bill and to support the statements that have been made by my colleagues up until now. Before we go too far into this debate, it is important we size the issue we are talking about. I have done a little bit of reading on the current state of our student loan scheme, the uptake rate, the size of the debt, and the number of young people who are impacted by this scheme as it stands, because I think it is important that we understand how many are captured by this bill.

Twenty-three percent of New Zealand’s population over the age of 15 have used our student loan scheme. That is massive. Every time either this Government or past Governments have changed the scheme, it has impacted on quite a significant part of the population. That is an important factor to keep in mind. As of June 2008, 530,000 young people in New Zealand had a student loan. That is quite a significant number of young people who would have greatly welcomed Labour’s significant policy change at the election before last when we removed interest on student loans altogether. That was the most significant change I have seen in my lifetime in terms of improving our student loan structure as it currently stands.

But what does the bill do? Before I go down that track I will talk a little bit more about what the bill is trying to achieve. In order to establish that, one needs only to look at the commentary on the bill. It states that the bill’s “aim is to encourage borrowers to repay more than the compulsory minimum amount so that they pay off their student loans sooner.” That is a very admirable goal. Why would we be trying to achieve such an admirable goal? Well, one does not have to look past, for instance, the study on doctors in debt, which found that two-thirds of doctors intended to travel overseas after they graduated in order to pay off their debts sooner. Students are willing to go to great lengths to pay off the significant debt that hangs over them. Student debt has almost doubled. The average debt in New Zealand for a student has almost doubled since between 1992 and 2007, if my memory is correct. We need look no further also than the 10-year student income survey, which found that 89 percent of students with a loan said that their loan impacted on their future savings. The collaborative study by the New Zealand University Students Association and the New Zealand Medical Association found, again, that 83 percent of students found it difficult to save as a consequence of their student loan. Those reasons in themselves are good enough reasons to try to deal with the issue, but anecdotal evidence suggests that student debt also impacts on housing and child rearing.

There are very good reasons to try to assist our students and young people to pay off their loans sooner. Will the bill do it, though? I have a lot of questions about that. Firstly, what helps students pay off their loans sooner? First and foremost, it is having the cash to pay off the loans. It is the jobs they are able to get after they leave university and the capacity they have to earn. Women students are significantly impacted by this. We know that, given our pay equity issues in New Zealand, women will be worse off than their male counterparts. That will impact on the rate at which female students pay off their loans. That is the first place we need to look.

The second place is the incentive issue. Students will pay off loans sooner if there is an incentive for them to do so and if they have the capacity to pay in the first place. That means that the bill will positively affect those who are already able to pay off their loans quicker. They have the spare cash available. That is what incentivises those particular students.

But beyond that we also need to look at whether any financially literate student will benefit from the scheme. I think that is why Trevor Mallard’s amendment is so critical. It is imperative that we be honest with students. If we are, and the aim is that they pay off their student loans sooner, then surely we should be providing them with advice that they might actually be better off keeping the money in the bank, earning interest on it, and then paying off something later down the track. It is important that we are honest about what we are doing in the bill. I think Trevor Mallard’s amendment does that, but without it I think there is a long way to go on the kinds of incentives and arrangements that we try to put in place to tackle what is a significant issue in New Zealand.