More than 20,000 students are missing out on student allowances because of tighter eligibility rules since 2010, a new report says.

The report by student Max Lin for the Child Poverty Action Group has found that student allowances have dropped from 95,945 in 2010 to 75,051 last year, and now support only a third of the country's 210,000 domestic fulltime tertiary students.

It recommends lifting parental income limits to extend allowances to more students - even if that has to be funded by bringing back interest on student loans.

It says many students are living in overcrowded flats and in financial hardship because the income limits for student allowances and other support have been frozen despite rising rents, textbook prices and other living costs.


An engineering student says in the report: "I have had to share a tiny room with a roommate... to bring down rental costs. We would alternate between sleeping on the bed and the floor."

Former engineering student Michael Lai, 26, said he lived for the year 2012 in the living room of a tiny two-bedroom central Auckland apartment with five other students paying $155 a week in rent each because he didn't qualify for a student allowance and his separated parents were not in a position to support him.

He survived on just $20 a week for food.

"It was $2.50 for a kilo of frozen vegetables, 95c for half a kilo of pasta, that lasts you like two days," he said.

"It's hard, but that's just when you don't have money you just try to last as long till the next summer work comes along."

The stress was made worse when a close friend committed suicide just before Lai's exams.

"I failed every paper except one in 2012," he said.

Student allowances were axed for postgraduate students in 2012; the lifetime limit for allowances was cut from 200 weeks to 120 weeks for students over 40 in 2014; and the parental income limit for the full student allowance has been frozen at a pre-tax combined income of $55,028 from 2012 to 2019.

The effect has been to cut students getting allowances from 43.1 per cent of all fulltime domestic students in 2010 to 35.7 per cent last year.

Students who can't get the allowance can still get student loans, but the numbers borrowing for living costs and not getting an allowance have increased only slightly from 30 per cent of fulltime domestic students in 2010 to 32.9 per cent.

That means a growing share of fulltime domestic students, up from 26.9 per cent to 31.4 per cent, are not getting any state help with living costs and must be supported by their parents and/or their own part-time work.

National student president Linsey Higgins said the last survey in 2014 found that 63 per cent of students worked part-time during term time for an average of 14 hours a week.

"Because they have this pressure to work and study and manage their commitments, there is a big increase in anxiety and we are seeing a massive increase in pressure on counselling services," she said.

The current maximum allowance for single students under 24 living away from home is $175.10 a week plus up to $40 for accommodation.

Students who can't get an allowance also can't get any accommodation support and can borrow student loans up to $176.86 a week for living costs.

Yet the 2014 survey found that students in Auckland were paying an average of $218 a week just for rent.

The report says: "If it is a genuine trade-off between higher interest on debt in the long-term versus short-term support to ensure students can complete their degrees, the latter should be prioritised."

However Tertiary Education Minister Steven Joyce said he had no plans to either bring back interest on student loans or relax eligibility for support because student numbers in higher-level courses were still "at or near record highs".

Labour spokesman Chris Hipkins also rejected bringing back interest on loans but said Labour would widen access to student allowances and provide three years of free tertiary education by 2025.