Borrowing to live means debt for life - A living allowance for all students

There has never been a policy that makes as little sense as giving only one third of all full time students an allowance to live off.

Because student allowances are means tested on parents’ income up until the age of 24, most students are in the unfortunate and unusual position of being forced to borrow just to meet their living costs. It’s a nonsense that adult New Zealand citizens have to fund their weekly expenses – like rent and food – from a loan that many will decades to repay

The government is currently running a review of student support, to try and ease the student debt burden and lessen the negative effects it is having on hundreds and thousands of New Zealanders’ lives.

The New Zealand University Students Association (NZUSA) believes that the student support review offers an opportunity to significantly change student support policy in this country for the better. Some of these changes will need to be directed at graduates, through decreased interest rates, shortened repayment times and fairer provisions for student loan repayments. However, the review also needs to tackle the drivers of debt, i.e. the reasons students are forced to borrow in the first place. A key driver of borrowing is the lack of student allowances, and this is why NZUSA is using the student support review to advocate for a living allowance for all students

Students are calling on the government to use this opportunity to attack the causes of debt by giving every student a living allowance. This would mean that students had to borrow far less, and would be encouraged to study. And most importantly: it would be fair.

A living allowance for all students is not a pipe dream. Prior to National’s changes to the scheme in the early nineties, around 90% of full time students accessed allowances. Forcing students to borrow for living costs instead of supporting them with an allowance clearly has not worked. And change is coming – the question is, how many more students will receive a living allowance.

Currently, student support provisions are less than adequate. Two thirds of full time students receive no allowance, and the parental income thresholds used to determine eligibility have not even been adjusted for inflation since they were introduced in 1992!

Access to income to meet the basic necessities of life should be a fundamental right to all citizens of New Zealand, and especially to those who are gaining qualifications that will enable them to contribute more fully to our society and our economy. 80% of New Zealanders agree that all students should receive a living allowance, according to a public opinion survey conducted by Colmar Brunton last year.

Means testing of student allowances is unfair and inefficient. It assumes that students are supported by their parents until age 25, which we all know does not happen in most, or even many, cases. Even those students who are able to live at home without paying their parents (if it fits in with study choice etc) are extremely unlikely to receive the sort of weekly income for their parents which would be necessary to support full time study.

Means testing has not led to an equal distribution of allowances on the basis of the wealth of the family. It costs money to administer, is complicated and does not meet the objective of encouraging young people into study.

But the biggest cost of limited access to allowances is that they increase reliance on the unfair student loan scheme, and therefore contribute to the negative outcomes of the loans scheme. A significant proportion of student loan debt is being borrowed for living costs. More worrying, living costs are an even larger proportion of larger student loans. While it is true that the largest borrowing is for fees, it is important to note that approximately one third of loans are being borrowed by the two thirds of students who are not entitled to allowances.

Some of these negative effects include:

-          Workforce shortages in key areas, as graduates with high debt take their skills overseas to earn more income and repay their debt more quickly. Student loan borrowers who live overseas owe nearly $7000 more on their loans on average than borrowers who live in New Zealand[1]. In 2000, nearly 20% of medical graduates lived overseas[2]. There is intense international competition for medical staff, teachers and many other professionals and lack of allowances leads to loans which are a disincentive for graduates to stay in New Zealand

-          New Zealand has a serious issue with our declining birth rates and the student loan scheme has been described by one of New Zealand’s leading demographers, Professor Ian Pool from the University of Waikato, as the most anti-natalist policy in our history! Surveys show that many graduates do not want to consider starting a family until they have repaid their student loans.

-          Surveys show graduates are less likely to undertake postgraduate study because of their student debts. This has a negative impact on the development of the New Zealand workforce, as well as for research.

-          Graduates report difficulty in saving money for house deposits or for superannuation schemes. Our home ownership rates have been declining for the last ten years, over the life of the student loan scheme.

-          Graduates on low incomes find that loan repayments have negative effects on their ability to provide for their families, due to the low threshold and inflexible repayment obligations.

NZUSA believes that a living allowance for all students should be provided to a level that does not require us to seek additional external financial assistance or earnings in order to live to a basic standard.

For the educational, economic, cultural and democratic health of New Zealand the government has a role to play in encouraging its citizens to undertake tertiary study, through the provision of financial and employment assistance programs.

NZUSA remain committed to paying for this through the tax system. This may mean that some people in society will need to pay slightly higher tax in order to fund this vision. The most equitable method of doing this is to make the taxation system more progressive and add a few cents to the higher tax rates. In return all New Zealanders can hope to retain New Zealand’s best and brightest and see them contribute to providing high quality and affordable goods and services for us all. High-income earners and their families will also have access to a quality fully publicly funded education system.

As a nation New Zealand must make the commitment to the long-term support of education. We must make this commitment so that the benefits of a highly educated population reach everyone in society. These benefits include reduced crime levels, reduced poverty levels, a knowledgeable work-force which is able to adapt quickly, an increase in the quantity of volunteer work offered by those who have benefited from a taxpayer funded system, increased social cohesion, increased productivity, an increase in the quality and quantity of research to inform industry, and the end of all the side effects of the unfair student loan scheme.

The voice of New Zealand's 400,000 students.

The New Zealand Union of Students’ Associations exists to advance the political, social and economic interests of tertiary students whatever they study and wherever they live. NZUSA is a membership body of local students' associatons. We believe in opportunity for all.

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