Forgetting we live in the real world
It’s been a long while since I’ve posted here, so a bit of a reminder. I am a tertiary student, and a former Director of the Waikato Students’ Union. I’ve been around tertiary education since 2010, and have no idea of how the New Zealand Initiative can fail to see the flaws in its conclusions on interest free student loans.
Now, I have only had a quick read through the report, so I’m sure there’s a lot more details in the document. However, my understanding is that they’ve basically said interest free student loans have cost $6 billion over the past decade, and are not getting impoverished New Zealanders into tertiary education. They’re also saying that students should pay a larger portion of the costs of their education which should be able to increase at an unlimited rate.
Yes, impoverished New Zealanders are still lagging behind middle and upper New Zealand in their rates of higher education. That’s something I’m happy to concede. That doesn’t mean the interest free policy has failed, however. As was said in the report, the two main intentions of the policy (ignoring the politics of the matter) were to reduce the overall cost to tertiary students and to improve the accessibility of tertiary education to New Zealanders. Accessibility being the key point in that second intention.
Obviously, the policy has been successful in its first aim of reducing the cost of tertiary education – it’s clearly done so by a net amount of $6 billion. What I would contend is that it has also increased the accessibility to tertiary education.
Let’s look at some theoretical numbers. Assuming a constant interest rate of 5%, that your salary increases by 3% on an annual basis, and you start by earning $50,000 per annum. On a $45,000 student loan, you’d be paying nearly $20,000 in interest. Just because impoverished New Zealanders aren’t taking up the option of going into tertiary education doesn’t mean that it hasn’t become easier for them to access due to the interest free loan scheme – at least in terms of fees.
The New Zealand Initiative also wants the Government to scrap fee caps, while also increasing the amount that students will have to pay themselves. Do we really want to make tertiary education that inaccessible? Not only are students going to have to pay interest under their plan, but they’ll have to pay more of the overall cost, which in itself will be higher. If we want to have highly educated New Zealanders, this is the wrong way to go about it.
The point that gets me the most though is that supposedly, this has “cost” the Government $6 billion. That ignores two very important points. Firstly, if interest was introduced back on to student loans, the number of people in tertiary education would decrease, reducing the revenue the Government receives from loan interest – and of course, there’s also the decrease from the unlimited increases in fees, a higher percentage of which is to be paid by students. There’s also the fact that the student loan scheme is not there to create a revenue stream for the Government. It’s there to make tertiary education more accessible to all New Zealanders.
Now, on a personal level, I completely believe in the free market being the best option in most situations. However, when there’s social benefit to a good or service being consumed in higher rates, taking this out of the hands of the free market, at least partially, makes sense. Yes, it creates market inefficiency, but we live in the real world, not an economics textbook. Economics isn’t the only thing to take into account. In this case, I’d trade off the market economics that the New Zealand Initiative clearly wants to work within for the social benefit we receive from tertiary education.