Parties vie for student vote

August 12, 2005

New Zealand's Labour Government has put student debt at the centre of its campaign for re-election in September.

It promises to abolish interest charges on loans for tertiary fees, as well as on living expenses for graduates who remain in New Zealand and postgraduates studying overseas.

New Zealanders who leave to work overseas would still accrue interest, but graduates who returned home to work in 2006 would receive an amnesty on any penalty payments.

The initiative is a vital part of Labour's re-election plans. At the start of the year it looked certain to win a third term, but then suffered a series of embarrassments - including the failure of the new school-leavers' scholarship qualification.

The May budget posted a record surplus, which the opposition capitalised on by promising tax cuts.

About 10 per cent of New Zealanders have student loans, but Labour is banking on the fact that parents and grandparents, worried about their offsprings' indebtedness, will also warm to its plan. A student-commissioned survey last year showed that students were increasingly relying on relatives to fund their studies.

According to the survey, average loan debt among current students was NZ$16,200 (£6,300) in 2004, and tax department figures showed an average repayment time for loans of 9.3 years. Interest is charged at 7 per cent.

Vice-chancellors have shown scant enthusiasm for the scheme. They said its NZ$300 million estimated annual cost was "likely to pre-empt any substantial improvement in tertiary education resourcing, including salaries".

The opposition National Party, which released its own plan to make interest on student loans tax deductible, criticised Labour's proposal.

Bill English, National Party Education spokesman, said that students would borrow billions of dollars they did not need, and put the money into interest-bearing accounts. "They'd be mad not to," he added.

His criticism was echoed by Brendan O'Donovan, chief economist of Westpac Bank, who described the proposal as better than free money, with a negative real interest rate of -3 per cent.

If students borrowed to their maximum entitlement under the scheme, he said, it would cost the Government an additional NZ$1 billion a year rather than the NZ$300 million that Labour estimated.

Trevor Mallard, the Education Minister, said that similar increases had been predicted in 2001 when interest charges were removed for students still studying, but had not transpired.

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