News Jaya

Government to change the student loans scheme

Currently any student who gets a student loan doesn't have to pay interest, nor do they have to pay it back unless they are earning more than $19,084 a year*. But the government wants to change the student loans scheme. The NZ union of students' associations called on the government to commit to providing interest -free student loans.

So it did.Tertiary Education Minister Steven Joyce said:

We're going to keep the student loan interest-free, but then we're going to look at other requirements around those student loans. The simple point is, if you don't pay interest on any loan – forget student loans for a second – then there is less incentive to pay it back than if you do pay interest.

So, what changes will be made? Here are some options:

One: Fewer people will be entitled to interest free student loans.Non achievers at school, for example. For those who fail first year papers, not only will you be unable to get a student allowance, you may not be allowed to resit the papers, even if you pay for the fees upfront.

Two: the earnings threshold where you have to pay student loans may be reduced.

Three: you may have to make repayments at a lower earnings threshold- which means more full time students will be making payments.

Currently you can make bulk repayments of at least $500 and get a 10% discount. This in effect means that if you pay off $1000 in one hit, you`ll shave off most of the amount for a year's student association membership for most universities.If you invest your student loan, you`ll make at least 10% on your investment. But if the earnings threshold is lowered, some students who earn the equivalent of a student allowance will have to make loan repayments. Perhaps the government will introduce repayments while studying. If so, some who get the student allowance will have to repay money back while studying - and if they don't get a job immediately after studying, there will be no reason while beneficiaries will not be forced to pay off their student loans through benefit income.

It is clear that the government wants more people to pay more of their student loan at a faster rate. To lower the existing rate of student loan debt, it must be paid off faster than the dollar value of future applications. I would not be surprised if the government restricts future applications and mandates quicker loan repayments at the same time - putting the squeeze on students and graduates.

Whats the bet also that National, should it win the next election, then lifts the fee maxima?

*note: if you are overseas for six months or longer, you get to pay interest on your loans.