Student allowances are now a thing of the past for New Zealand's post graduate students.

Changes to the student loan scheme, announced last year, kicked in today (Tue 1/1/13) and the Labour Party has warned the new system will cost the country dearly.

Under the new scheme, postgraduate students are not eligible for the student allowance. A cap of four years has been placed on undergraduate students receiving the allowance, and the loan repayment rate has increased from 10 per cent to 12 per cent for any earnings over $19,084. The parental income threshold for student allowances has also been frozen for four years.

Labour's Tertiary Education spokesman Grant Robertson said students from low-income families would be worst hit.


"Thousands of students, mostly from low income backgrounds, will no longer have support to do postgraduate qualifications.

"For many this will mean that they simply will not be able to complete or even undertake their course.

"This means they may never achieve their potential and that as a country we will all miss out," Mr Robertson said.

Tertiary Minister Stephen Joyce said the new rules would save millions of dollars.

Over four years, $33 million will be saved by removing the eligibility of the student loan allowance for post graduate students.

Mr Joyce said the Government wanted to focus student allowances on the first years of tertiary study and on students from low-income families, which was the original intent of the policy.

"Government expenditure on student allowances has increased significantly in recent years from $385 million in 2007/2008 to $620 million in 2010/11 (a 62 per cent increase) and this is simply not sustainable," he said in a statement.

But a recent survey indicated cutting student allowances would result in a lack of research in New Zealand.


Of the 202 participants in the Victoria University study, 158 said they would be severely disadvantaged by the changes, and 76 said they would cut short their postgraduate studies as a result.

Mr Robertson said many Kiwis would head overseas because of the new scheme.

"I've heard from students and their families who are distraught about these changes.

"It's especially hard on people, such as those wanting to be clinical psychologists or architects, who have to undertake postgraduate study to be able to work in New Zealand."