Student loans have hit the news again in the run-up to the September election, after New Zealand First late last month announced a plan for debt forgiveness. Other parties have panned the scheme as too expensive. Regardless of what happens at the Beehive, student-loan debt has major effects on borrowers' lives, determining whether and when they can buy a house, new car and even afford rent. Bay of Plenty Times Weekend reporter Dawn Picken speaks with former students about living with loans.
Sky-High Student Loan Debt
Elton Haakma greets me inside Gyrate, a business in which he's recently become co-owner, thanks to family and investor help. The small hangar sits on the outskirts of Tauranga's airport next to a grassy strip. Haakma is a friend of my husband, but this is the first time I've been inside the business. He wears a red flight suit as we walk past gyrocopters en route to the training aircraft he uses to teach students. It's white, topless and looks like something you'd see zooming along the highway. "They call it the motorbike of the skies," says Haakma.
His path to the gyro started in a cable factory in New Plymouth, when Haakma was 25 and facing a life crisis. "I thought, 'I can't work in this factory the rest of my life', and I'd always wanted to fly." In 1999, he started a helicopter course with Massey University, earning his commercial pilot's licence (CPL). Haakma says the flight instructor job he was promised never materialised, so he worked mixing chemicals for an agricultural pilot before returning to the factory; then completed an air traffic controller course; earned his fixed-wing CPL; ran flight courses in Auckland and Tauranga and piloted a rescue chopper in Whangarei. After all the training, Haakma says he's racked up well over $100,000 in student loans. At age 43, he has twin 6-year-old children and a grown son. He's never owned a home and drives a 21-year-old car. "I've never done big purchases. It would be a pain with my situation."
Haakma's most lucrative job, flying a rescue helicopter, paid $50,000. He says he was told he could earn more than $100,000 flying around oil rigs in Australia, but the hours of experience required kept shifting beyond his reach - from 50 to 250 to 500. "You gotta really think about it when you start these things. I just thought it would be cool to fly a helicopter. Back in 1999, people said they were screaming out for chopper pilots."
The Careers NZ website lists helicopter pilot job prospects as poor, with starting pay at $41,000 per year.
The New Zealand Airline Pilots Association (NZALPA) says the total training bill alone for a graduate fixed-wing pilot is $100,000. NZALPA president Tim Robinson says following graduation, many pilots must "do their time" in jobs such as flight instruction. Starting pay for the job, according to Careers NZ, is $33,000 per year, barely above minimum wage. Robinson says, "That time is particularly hard in their career. They're not getting enough to live on, they're trying to get their hours up and applying to as many airlines as they can."
One pilot whose student loan is paying off is former Tauranga resident Nick Laban. Laban worked as a flight instructor, "earning probably $100 a week, if I was lucky". Laban says he ended up making around $30,000 per year as an instructor before getting hired as a first officer with Air Nelson (a subsidiary of Air New Zealand) with a salary of $50,000.
Today, he's a captain with the company and puts his annual earnings range at $80,000 to $100,000. The 37-year-old plans to pay off his $70,000 student loan within three years. "I consider myself one of the lucky ones. Of the people I started with, 13 of us - I can think of two with Air New Zealand. If you don't get a break early on, it's pretty hard to stay in it."
Government figures show more than 90 per cent of students borrow to pay fees. Even doctors, whose salaries start at $70,000 for a trainee (Careers NZ) struggle under debt's burden. A study published last month in the New Zealand Medical Journal showed nearly a third of medical students have $90,000 or more in student-loan debt. The report shows the average medical student debt has increased by $20,000 in the past decade - a rise of 565 per cent.
Reasons cited for the increase were higher student fees and living expenses.
The nominal (unadjusted for inflation) value of all loan balances has risen 37 per cent the last nine years, according to comparisons from Ministry of Education annual reports. The rise is also attributed to higher course fees and living costs.
Smaller debts still a hurdle
It's not just those with debts around the six-figure mark who are impacted. A Welcome Bay resident tells the
Bay of Plenty Times Weekend
making payments on her $8000 loan is unmanageable, even while working full-time. The solo mum (we'll call her Jane) asked to remain anonymous. Jane completed a one-year veterinary nurse training course at Toi-Ohomai Institute of Technology (formerly Bay of Plenty Polytechnic) and works at a vet clinic to support herself and her daughter. "It sucks that you go into debt to go straight into a minimum wage job. I'm stuck with a debt when earning bugger-all money." Jane says she can't afford the $90 per fortnight repayments, and is asking Inland Revenue if she can defer the loan until she can climb the pay ladder. "I don't wanna sit on a benefit the rest of my life. That's not who I am. I wanted to show my daughter you work in life."
Borrowers earning more than $368 per week must make student-loan payments, sending Inland Revenue 12 per cent of each dollar earned over that threshold. An IRD spokesman reports 5827 borrowers had an amount in default deferred due to hardship grounds for the year ending March 31, 2017. In the year to June 30, 2016, the Government wrote off a record $17.6 million due to bankruptcy and another $15 million due to death of the borrower.
Mai Kaewseam says she borrowed $9700 to complete a one-year tourism course at Toi-Ohomai in 2013. She couldn't immediately find work in her field, so she got a part-time, minimum-wage café job and a full-time job packing kiwifruit for one dollar over minimum. After several months, she secured full-time permanent employment as a customer service agent at Tauranga Airport with Air New Zealand. Kaewseam says she started at around $32,000 per year and now makes $42,000 after three years with the company. She's 23 years old and says she paid off her entire loan last December as a Christmas gift to herself. "Every pay, $300 to $400 went out of my account. I thought best to pay it off quickly so I have money in my account for the future so I can buy a house and a car. I don't like having debts."
Diane Drummond completed a Masters in Business Administration at the University of Waikato in 2011 after finishing a Business Diploma at Toi-Ohomai. She says she became a parent at age 16 and saw education as a pathway to a better life for herself and three children. Now aged 50, Drummond repaid her $35,000 loan within one year of getting a high-earning job in Wellington. "It has totally paid off and I would do it again in a heartbeat. An interest-free loan is an amazing gift."
Tracy Allan completed a Bachelor of Management Studies (BMS) from Waikato University based in Tauranga last year. She says her loan sits around $38,000, and she hasn't found a job in her field. "My student loan is weighing on my shoulders ... there are a high number of students that do the BMS and very minimal jobs ..." The 26-year-old single mum says she's been turned down for lower-skilled jobs after employers deemed her overqualified. If she moves overseas for work, as planned, her student loans will accrue 4.4 per cent interest. The IRD calculates it would take Allan 19 years to wipe the debt. She wishes she had had more information about the job market before choosing her area of study. "My decision was based mainly on subjects I did well on at school."
Viv Quinn completed a Masters in Arts Management in 2015 via distance learning through Whitecliffe College of Art and Design in Auckland. The Tauranga resident says she has $15,000 in student loans and has found competition for arts jobs in the Bay to be "really stiff", with an average 50 to 100 applications for each position. Quinn is 46 years old. After working part-time contracting jobs, she has started her own business called Backstage Projects, which supports arts, education and health. "I'm very much hoping it will take off, as quite frankly, I don't know how long I can stick to my guns with wanting to work in the arts in this region, and have a hope of paying off this loan any time soon."
Planning and tackling
Pushpa Wood, director of the financial education and research centre at Massey University, told the
New Zealand Herald
there was not enough emphasis on careers advice for students before deciding on university study. She said students often felt university was necessary even if the course would not guarantee a job. "When it comes to taking on a student loan, [students need to look at whether] the qualification they are going for is going to increase their ability to earn income or extend their horizon." Wood said even interest-free debt is debt. "It still needs to be paid off. Therefore you need to have a plan before you start borrowing."
Tauranga Budget Advisory Service manager Diane Bruin tells the
Bay of Plenty Times Weekend
some clients she sees get a $1000 initial loan to register for a course, then fail to continue, complete or pass it. Bruin encourages clients to determine whether they're likely to get employment with a particular qualification before taking out a loan. "Also, for student loans that have been around for a while, the debt does need to be addressed and factored into the budget. This could delay chances in the future for home ownership."
Toi-Ohomai offers a Certificate in Study and Career Preparation to help people enter into degrees and diplomas. Academy Lead: Community, Wellbeing & Development Gil Brocas says the level 3 programme is designed so people can discern what they want to do in the workforce, "and the student investigates what further education they need to move into that industry". Level 3 is free for domestic students.
Out of sight, out of mind
Even with six-figure debt, Elton Haakma says he has no desire to fly helicopters or airplanes for a living and figures he may never pay off his loan. "If I won a million bucks, probably not. Because if it's still interest free, it's just sitting there and when I die it's all written off. I've learned not to think about it. Otherwise, you'd have the weight of that on your shoulders every day."
Costs and benefits
Around 20 per cent of New Zealanders have a student loan with IRD. Almost 731,800 people owe a collective $15 billion. While it's considered "good debt" and is interest-free, many financial experts say students often don't consider whether they'll recoup their investment or how to minimise the amount they borrow. Government numbers show the average student is $21,000 in the red.
Bachelor degree students borrowed an average $9676 in 2015, while masters and post-graduate students borrowed an average $10,300. The average amount borrowed for course fees was lowest at wananga ($3475), while students at private training establishments borrowed the most for course fees ($7513).
Government numbers show half of student borrowers who stay in New Zealand will have repaid their loan in fewer than six and-a-half years. Median repayment time for borrowers who spent time overseas was 17 years (see graphic).
The MOE annual report shows people with degrees far out-earn non-degreed peers: Median earnings of young bachelor's degree graduates were 31 per cent above those with a diploma and 43 per cent above those with a level 1-3 certificate (graphic). Universities New Zealand, which represents the country's eight universities, reports graduates earn between $1.3m and $4m more over their working lives than non-graduates.
Recouping and writing off costs
Meanwhile, the Government continues targeting overseas borrowers who aren't repaying their loans, which have interest added. Inland Revenue has taken legal action against at least 15 Kiwi debtors based in Australia. UK-based defaulters are being warned to expect the same.
Tertiary Education Minister Paul Goldsmith says an important measure in the MOE annual report is the amount of new borrowing the Government does not expect to recover, or writes down, each year. In 2015-16, that figure was roughly 43 cents of each dollar, or $659 million in total. Estimated cost to taxpayers in the nine years dating from 2015-16 was around $2 billion. "This measure also reflects overall student loan costs, not just the interest-free policy costs." Think Tank The New Zealand Initiative last year released a report stating the Government had written off $6 billion in interest charges between 2005 and 2015.
The number of domestic students enrolled in tertiary education has declined since 2005. The report says the main reason is a decline in certificate-level qualifications after moves to strengthen quality. A stronger labour market since 2010 has also influenced young people's decisions about whether to study.
Politics of interest
Independent Crown entity the Productivity Commission last year recommended interest be charged on new student loans as part of a proposed overhaul of the tertiary education sector. ACT party leader David Seymour has also called for a re-introduction of interest, telling the
Bay of Plenty Times Weekend
the current scheme "is a terrible policy that gives taxpayer dollars to the most privileged. Interest free student loans mean that, instead of paying for your own education once, you end up paying for other people's extravagant decisions for the rest of our life through taxes."
National, Labour and the Greens have said they're not keen to resume charging interest on student loans. NZ First leader Winston Peters announced last month he wants to go one step further and wipe student loans for graduates who remain in the country, though other parties say it's probably not affordable.
Tauranga National MP Todd Muller says compared to some overseas schemes, New Zealand's approach is generous. "But it also assists a huge number of Kiwis who otherwise may not have been able to have access to tertiary and vocational study." National MP Simon Bridges agrees, saying his party is committed to retaining interest-free loans for students. "We don't want to see young people starting their working lives with unmanageable debt ... Taxpayers already fund around 80 per cent of student study, a balance we think is reasonable."
Tauranga Labour Party candidate Angie Warren-Clark says the Labour Party's plan for students after high school includes up to three years' free training/study. She says she paid interest on her own student loan debt after being enrolled in university in 1990. "By the time I finished university I had $38,000 debt which continue to accrue interest until I paid it off later 10 years later. This impacted absolutely on my standard of living and my ability to save for a home, prepare for retirement and support my family."
Even ACT's David Seymour is resigned to keep in place what he believes is a government handout. "With no other party willing to take on the issue, ACT has accepted that student loans will remain interest free."
Current students struggle, says union
The New Zealand Student Union earlier this year published a survey of 1000 students nationwide which found eight in 10 students expressed doubt they would be able to afford retirement or a first home. The survey also showed a third of students do not have enough income to afford basic needs.