The New Zealand Labour government's pre-election promise to abolish all interest charges on student loans will come into effect on April 1 this year.
Opposition politicians have called it "free money" and say the policy will encourage students to borrow as much as they can while only repaying the minimum. Opposition education spokesman Bill English said: "This policy will provide most benefit to those with big loans." Vice-chancellors are also displeased, saying the money could be better spent on improving funding for universities, rather than helping former students.
The policy applies only to those who remain or return to live in New Zealand. Tertiary education minister Michael Cullen, who is also the finance minister, said it was "designed to encourage skilled New Zealanders to invest their skills in the New Zealand economy".
Officials estimate that 12 per cent of debtors live overseas and owe 20 per cent of the total debt. "As a further inducement to encourage people back,"
Dr Cullen said, "non-resident borrowers who are in default for non-repayment of their loans will have their penalties cancelled under a special amnesty."
The problem is graphically illustrated by the small town of Stratford on the North Island's west coast. Stratford, like many small towns and rural districts, has an acute shortage of skilled people aged between 22 and 35.
Mayor Brian Jeffares's solution is to reallocate money from a trust that pays local students' university fees and offer to pay off the loans of graduates who come to live and work there.
A 2005 Organisation for Economic Co-operation and Development report finds that nearly a quarter of New Zealanders with higher education qualifications live overseas, the highest proportion in the developed world.