Student debt: Bad for students; bad for New Zealand

Total student loan debt in New Zealand has now passed $10 billion. It’s rising by $1 billion a year, and a staggering one in seven kiwis now has a student loan averaging $16,833[i]. Student debt is not just a concern for students and their families – it’s harming the nation’s future.

New Zealand’s brain drain is directly linked to the burden of massive student loan debts. With substantial skill shortages in key social roles such as teaching, nursing, medicine, veterinary science and social work, the loss of skilled graduates overseas is exacerbating an already serious problem.

High tuition fees and lack of access to student allowances are hitting most students hard, with debt often the only option to get them through study. Therefore it’s no coincidence that current workforce skill shortages are concentrated in areas where tertiary fees are very high, training periods are long and the consequent graduating debt is high. Industry representative groups such as the New Zealand Veterinary Association and the New Zealand Medical Association have recognised that chronic workforce shortages are linked to the cost of training, and will have disastrous consequences for the New Zealand economy.

A generation of New Zealanders now have futures mortgaged to the state due to the failed experiment of the student loan scheme. Debt levels are already resulting in graduates struggling to afford a first home, and with 88% of current students now considering their debt will impact on their future ability to buy a house[ii], home ownership levels are set to fall further – meaning the 1/4 acre patch will remain a distant dream for many.

Research has also shown that student debt is putting graduates off starting families, with serious implications for New Zealand society and our economic sustainability.  Professor Ian Pool, Demographer at Waikato University, has labelled the student loan scheme the most “anti-natalist policy ever put into place by a New Zealand Government.”[iii] NZUSA debt casebooks show this is already proving to be the case in three core professions – teaching[iv], nursing[v] and medicine[vi].

Additionally, investment in business and saving for retirement are negatively affected by student loan debt. Compulsory student loan deductions from wages leaves many struggling financially, unable to start up small businesses or save for the future, despite a will to do so. The negative consequences for the economy are concerning.

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

Why is student debt rising? Put simply, our tertiary fees are amongst the highest in the western world, while our student support scheme is one of the harshest.

While New Zealand does have a student allowance in place, it’s a heavily restricted system that sees the eligibility of those in education assessed on their parents’ income till the ripe old age of 24! While government is obviously expecting parents can and will fund their students through study, we know the reality is that many can’t.

While 90% of students undertake some form of paid employment, study commitments and lack of government support mean many are forced to look to bank loans, credit card and other forms of debt to meet major increases in the costs of living and learning. In 2007, this took the average student’s overall loan debt to a whopping $28,838[vii]. Such high levels of debt are unwanted, unwarranted and unsustainable.

The problem is obvious: the student allowance scheme and the harsh rules governing eligibility are completely out of line with the financial demands faced by students. Rather than short-sighted approaches, New Zealand needs to take a long term view of the benefits to the whole country of an educated and skilled population, and support those in tertiary education with a universal student allowance. This is the key to preventing the accumulation of debilitating debt in the first place.

A universal living allowance is a smart investment in our future: Support a fair and sustainable knowledge society this election.