The Green party, Child Poverty Action Group and student associations are outraged at a Government plan to change the student loan repayment rate.
More than 500,000 people will have to pay back their student loans more quickly and people studying for more than four years will no longer be able to claim an allowance, the Government announced this afternoon.
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Green Party student spokeswoman Holly Walker said hard-working young families would be most hurt as the Government tried to balance its books in this month's Budget.
"Graduates repaying student loans were set for a cut in income this budget that could wipe out large parts of the tax cuts they received last budget,'' she said.
"John Key has blithely waved away concern about the impact of increased loan repayments saying the effect will be `fairly mild' while, in the same breath, he'd rake in tens of millions of dollars from them.''
Child Poverty Action Group said the changes would hit young struggling young families.
Spokeswoman Susan St John said the threshold for repayment was already far too low, at an annual income of $19,080, and the 10 per cent repayment rate on income above that threshold is far too high.
"About 40 per cent of couples with children aged between 18 and 24 have student loan debt and about 30 per cent of those aged 25 to 34 are also paying off student loans,'' said Ms Walker.
"These young parents did not have the benefit of a free education, like most ministers did, and are locked out of the housing market by a lack of a capital gains tax that concentrates wealth among older home owners.''
Auckland University Students' Association president Arena Williams said students were concerned about the repayment threshold being increased.
"Moving the repayment rate to 12 per cent meant that New Zealand's repayment rate would be three times the base rate of Australia,'' she said.
Ms Williams said research suggested 15 per cent of students were in dire financial difficulty and the university had many requests for financial support and food parcels.
The changes would see more than 500,000 people forced to pay back their student loans more quickly and people studying for more than four years would no longer be able to claim an allowance.
Loan changes: Details revealed
Tertiary Education Minister Steven Joyce announced the latest range of changes to the student loan and allowance schemes ahead of the May 24 Budget.
The repayment rate for loans will be increased to 12 per cent from 10 per cent for any earnings over $19,084.
The parental income threshold for student allowances will also be frozen for four years, and students will not be able to receive an allowance after four years of study.
Mr Joyce said the Government wanted to focus student allowances on the first years of tertiary study and on students from low-income families.
He also announced that the Government was reconsidering a scheme that rewarded borrowers for repaying their money on time.
The changes would be explained in further detail on May 24.
Savings on the student loans and allowances would be reinvested into improving teaching and research in tertiary institutions.
National has been reluctant to scrap interest-free loans, but is slowly tightening the rules and raising the amount students need to repay.
Under the current rules, students qualify for a full student allowance if their parents' combined income is lower than $55,026. It abates above that up to $83,449.01 for students who live at home, or $90,554.74 for students who do not live at home. The average student allowance is $6000 a year.
Labour party tertiary education spokesman Grant Robertson said the increase in the repayment rate would encourage people to move to Australia where the repayment scheme was more lenient.
"Increasing it to 12 per cent changes that balance and will put graduates - already facing increasing costs of living - under further financial pressure. Graduates are also parents, looking to buy homes and or start families. This will act as a disincentive for them to stay in New Zealand.
"Student loan repayment starts as soon as someone earns just over $19,000 a year. This is far lower than Australia where it does not begin until someone is earning around $48,000, and even then only at 4 per cent.''
Mr Robertson said the four-year cap on student allowances would ensure that only students from wealthy families would pursue post-graduate studies.
"The Government's choice of graduates and students and their families as the target to cut costs is strange and wrong. We must view tertiary education as an investment.
"This Government can choose different priorities - like not selling assets or taking on millions of dollars of consultants to restructure the public service. They don't need to scapegoat people who are just trying to get ahead.''