Loan write-offs lead to a rise in student debt

February 2, 2001

New Zealand's abolition of interest on students' loans while students are studying is being blamed for a projected NZ$4.5 billion (£1.34 billion) rise in future debt.

An annual government report warns that students will owe NZ$15.5 billion by 2015 - compared with last year's estimate of NZ$11 billion. The scheme is described in the report as "a significant government asset".

Opposition education spokes-man Nick Smith said the government's decision last year to make loans interest free while studying had backfired. "Labour claimed its policy would reduce student debt, but these forecasts show the opposite is occurring," said Mr Smith, a National MP.

He said the treasury had warned the government against making the change, concerned that interest-free loans would lure more students into debt. He said the education ministry has also blamed the rise on changes in accounting practices but is unable to say how much each of these factors has contributed to the NZ$4.5 billion rise.

The struggling loan scheme - introduced by the National government in 1992 - is under parliamentary review, as the number of students going overseas to avoid repaying debt continues to rise. At the end of June 2000, 4,891 student loan borrowers owed the inland revenue department between NZ$6,000 and NZ$60,000 each.

The annual report also reveals the government has written off NZ$94.8 million in loans since the scheme began, the write-offs blamed on base interest and bankrupt or dead borrowers.

But tertiary education minister Steve Maharey said it was ridiculous for the opposition to criticise the government when it had introduced student loans and watched the scheme "lurch from crisis to crisis".

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