NZ debt forces rethink on loans

New Zealand's student loan scheme is to be revamped as public concern over spiralling debt grows.

Two options are on the table - tweaking the current system to limit individual debt, or replacing it with a graduate contribution scheme.

With New Zealand in the midst of an election campaign, work has been suspended until the July election results are known. Polls indicate Labour will be re-elected.

The loan scheme has been controversial since it was introduced in 1992. It was part of the market-oriented reforms of the day, but was also designed to encourage greater participation in tertiary education.

Institutions set their own fees and students paid upfront by borrowing loans at market rates, which were repaid through tax when they were earning. By the mid-1990s, there were significant cuts in state subsidy per student as governments sought to fund more places. Institutions increased fees substantially to help cover shortfalls.

By 2000, the Labour-led government had introduced a "fees freeze" in return for increased funding for institutions and some subsidised elements.

Since 1992, participation rates have grown significantly. But the collective debt stands at NZ$5 billion (£1.6 billion), the average debt is about NZ$12,500 and the loan scheme is high on the political agenda.

Steve Maharey, associate minister for tertiary education, said possible reforms of the scheme included lower fees, greater accessibility to allowances, limiting the amount a student could owe and limiting the maximum fees an institution could set.

A graduate contribution scheme would mean no upfront debt for students but repayment once they were in work.

There could be a fixed term of, say, 20 years for repayment, and anything not paid off at the end of that time could be written off.

A third possibility, private individual learning accounts, has also has been floated.

Andrew Campbell, co-president of the New Zealand University Students Association, said the government had made the current scheme more palatable, but the NZUSA still wanted no fees and a universal living allowance for students.

Waikato University vice-chancellor Bryan Gould acknowledged that the loan scheme had widened access to higher education.

But he said it was "a monster" and, given that a publicly funded system was unrealistic, he would prefer students to pay for their higher education through the tax system after graduating.