Media Release: Tertiary education, and student loan scheme, in need of shake-up
The New Zealand Productivity Commission’s report on tertiary education shows that the tertiary education system needs fundamental change. An important part of that change is introducing interest on new student loans.
The New Zealand Initiative today welcomed the Productivity Commission’s report, New Models of Tertiary Education. The report points to many promising reforms to improve tertiary performance. It also demonstrates the systematic damaging effects of the government’s interest-free loan scheme.
The Initiative’s Head of Research, Dr Eric Crampton, said “When the government writes off forty percent of the value of every new student loan, it has to find other ways of containing its costs.”
“The costs of the consequences of interest-free loans are disproportionately borne by the poor: students without parental support unable to borrow enough to cover living expenses, students who cannot borrow against tuition costs outside of the traditional tertiary sector, and capped enrolments that restrict access to tertiary study.”
The New Zealand Initiative’s 2016 report, Decade of Debt: The Cost of Interest-Free Student Loans recommended introducing interest on new student loans to make the scheme fiscally neutral for the government. The change would allow the government to ease back restrictions placed on the tertiary sector to enable greater access. The report also recommended devoting some of the savings from the change to means-tested assistance for promising students, and to better tertiary preparation in secondary schools with poor histories of progressing students to tertiary study.
“The Productivity Commission’s report also notes, as did our report, that subsidies provided through interest-free loans are highly regressive. Reforming the scheme would not only unlock innovation within the tertiary sector, it would also allow funding to be shifted to where there is greater real need.”