Nats confirm student loans policy

Interest payments on student debt would be made tax deductible by a National government, National Party leader Don Brash confirmed today.

Releasing the party's tertiary education policy in Christchurch, Dr Brash said it would cost around $70 million a year to implement, and meant students would take several years off the time it took to repay their debts.

Dr Brash said National would make "all net interest payments on student loans tax deductible against earned income".

He said young workers or apprentices who borrowed for the purpose of buying tools or setting themselves up in business were able to deduct the cost of interest from their taxable income.

"Students who borrow to invest in knowledge should be treated the same way," he said.

The tax deduction, revealed in the Herald today, would only be available to student loan holders who were paying tax on earned income in New Zealand. It would apply from April 1, 2006.

The deduction would be made automatically by the Inland Revenue Department (IRD).

Finance Minister Michael Cullen issued a statement ahead of the policy announcement, saying National was reinventing "a whole series of tax rebates which will involve much bureaucracy for very little benefit".

"It is surprising that Don Brash, who in the 1980s was one of the architects of New Zealand's simple GST regime, is now going back before 1984 to recreate a tax system marked by great complexity and great unfairness."

Dr Brash said those undertaking expensive courses, such as medical students, who ended up with large loan balances but also higher incomes on graduating, would find the initial annual value of their tax deduction "more valuable".

National said it would continue to grant interest write-offs that borrowers were currently entitled to. It would retain the write-offs but only make the actual interest paid tax deductible.

As at March 31, there were 461,632 borrowers living here and overseas, with an average student loan of $14,871.

Student debt stands at about $6.9 billion.

The average amount of time taken to repay student loans is 9.3 years.

Borrowers are required to start repaying their loan when their income hits $16,588 a year.

The interest rate charged on student loans is currently 7 per cent. Full interest write-offs apply while students are studying.

Green MP Nandor Tanczos issued a statement before the policy release, saying National must be hoping graduates had short memories as having got students into "this mess" it was now saying it had the answers to get them out of the debt scheme it created.

National had offered nothing to address high student fees and lack of access to student allowances -- the main drivers of student debt, Mr Tanczos said.

- NZPA