Labour denies student loan calculator inflates savings

Labour admits there are problems with its online student loan calculator but is rubbishing National's claims the device is exaggerating the savings people would make from its promise to scrap interest on debt.

National yesterday accused Labour of deceiving voters with its calculator, saying the saving estimates it was giving were on average 30 per cent higher than the Inland Revenue student loan calculator.

But Labour is standing by its calculator - which has had more than 300,000 hits since it was launched on Tuesday - and says it provides a reliable estimate of how much a person could save under its promise to scrap interest for students who stay in NZ.

Education Minister Trevor Mallard conceded in Parliament that the calculator needed some fine-tuning and was giving inaccurate results for people who have less than a year to study, but said it was otherwise accurate.

A senior lecturer in Massey University's department of finance, banking and property, Claire Matthews, said Labour's calculator was fairly accurate and "within the ballpark" of other calculators.

"My overall assessment is it might not be 100 per cent accurate but it's not grossly misleading.

"Once you start comparing figures like that you can basically make it show whatever you want by changing those variables. There are so many variables."

National education spokesman Bill English said his office had been contacted by students who had run their own personal loan figure through the Labour calculator and the IRD calculator and had found substantial discrepancies.

"We found the Labour Party calculator for saving on student loans exaggerates the benefits of their policy for students by up to 50 per cent ... We believe this is a gross exaggeration and it is deceitful."

Mr English called for Labour to shut the website down until it was working properly and to release a statement informing voters that the calculations on the website had been wrong.

The differences in results appear to be due to the different assumptions the two calculators are designed around.

The Labour calculator includes a setting for annual income growth, which users can set or use the default setting of 3 per cent (Statistics NZ's labour cost index estimates the average salary increase to be 4.8 per cent).

The IRD calculator is based on the assumption that a person's income remains static.

Labour's calculator also assumes the income threshold upon which the repayments are based is increased each year by the rate of inflation, which is 2.8 per cent, but the IRD calculator does not include that assumption.

Mr Mallard said these assumptions explained the disparities between the calculators.

He said it did not mean the IRD calculator was wrong, it just meant they were based on different assumptions and were not comparable.

Ms Matthews agreed, saying too many variables were factored into such equations to draw fair comparisons.


TWO DIFFERENT CALCULATORS, TWO DIFFERENT RESULTS

'Jane' has a $15,000 student loan and earns $45,000 a year.

Labour's calculator says:
(assuming 3 per cent annual salary growth)
The current time to pay loan back: 6 years 3 months
Current repayments: $19,147
New time to pay back under Labour's policy: 4 years 12 months
New repayments: $15,000
Under the Labour policy Jane saves: $4147

IRD calculator:
Current time to pay loan back: 6 years 7 months
Total amount repaid: $18,570
Interest charged: $3570

In this situation, Labour's calculators says Jane will pay $577 more in interest under the present system than the IRD calculator.