The government has announced that significant changes to the student loan scheme will be included in the Budget of May 19. However, Tertiary Education Minister Steven Joyce confirmed that student loans will remain interest free for those students residing in the country.
Among the changes to the scheme will be a restriction on loans for students over the age of 55 and for trainee pilots, and a new ability for the entire loan balance to be recalled for those debtors who ignore requests to make repayments.
Students aged over 55 would be restricted to loans for course fees only, and trainee pilots also face having their entitlements restricted. The move is apparently predicated on the high percentage of borrowers over 55 who fail to pay back their loan balance, and the small number of pilot trainees who secure employment in the aviation field.
The changes form part of a long term overhaul of the entire student loan scheme, which began last year with the introduction of limits on the number of years students could borrow for, an increase in administrative fees charged to students and tougher measures to deal with students who have failed a large proportion of their courses.
The signalled changes have drawn fire from the Labour Party and the Greens but have been widely lauded in the mainstream press. Some commentators have called for more radical changes, particularly with regards to adding interest to loan balances.
Currently for each dollar loaned out, the government recovers only 55 cents. The changes scheduled for this budget are estimated to raise that recovery rate by about 2 cents per dollar.
These changes occur as the government has recently intensified its focus on collecting outstanding debt from overseas borrowers, especially those residing in Australia. Overseas borrowers represent only 15% of all those with student loan debt, but currently account for 55% of the total overdue balance. Debt collectors have been contracted to chase up errant borrowers in Australia, with similar tactics slated to be employed in Britain in the near future.
When asked about how much the government was looking to trim from the student loan bill, Joyce stated in an interview that “we’re looking for several hundred million dollars and we think we can get that over a four or five year period, and what we’ll do is we’ll put some of it back into tertiary [education]”.
The increased chatter around the student loan system has lead some to questions about whether the loans will remain interest free in the near future. Around 600,000 New Zealanders have a student loan, meaning any move to add interest would be a politically fraught venture in an election year. However, the volume of changes made to the student loan scheme suggest that the latest initiatives will not be the last to the system, and the spectre of student loans at commercial interest rates has certainly not been dissipated by the government’s commitment to trimming the books.
Student loans to remain interest free. Students to remain OTP.
