Last month, we launched a report on the government’s interest-free student loan policy.

To summarise briefly, the scheme has had no particular benefits in improving access to tertiary study, but has been rather costly both for the government and for the tertiary sector. 

It is nonsense, and costly nonsense at that. But free money gifts to the richer cohorts that attend university can be electorally appealing: poorer people, and especially poorer people with less education, are less likely to vote.

We recommended shifting from universal subsidies under interest-free loans to targeted support of students and graduates facing hardship, and far better support for tertiary preparation. 

New Zealand First this week proposed putting some stilts under the loans’ scheme’s nonsense. Students currently get loans to cover tuition charges and living expenses, then pay it back if they earn enough after graduation. 

Under New Zealand First’s scheme, students would receive a universal allowance during study and face no tuition charges.

When prices do not ration access to a scarce good, something else must take their place. Interest-free loans on their own required a raft of other controls being placed on the system to avoid cost blow-outs. 

Under New Zealand First’s scheme, that rationing would come instead through central planning of labour markets. Industry Training Organisations and others would need to develop workforce plans with forecasts out to 20 years. Having determined how many positions the country needs, the government would fully fund that many places. 

Funded students would pay back each year’s study by spending a year working in New Zealand after graduation. Those students leaving the country would have to be matched with an equivalent foreign replacement, who then would be allowed in while the Kiwi were out on OE. 

But nobody really has the crystal balls that would be needed to forecast future skills demand that accurately. 

There is a good case for getting better information to students to help them to make the choices that are right for them. But the ‘right’ number of lawyers, accountants, plumbers or construction workers doesn’t come out of a spreadsheet. It comes instead from the interplay of individuals’ hopes and dreams for their futures with those individuals’ expectations of whether their dreams mesh with their abilities and others’ needs. 

And that works best when prices can help to coordinate things. One of the biggest costs of free is losing the information prices deliver.