Public gets chance to debate student loan proposals

By HELEN TUNNAH deputy political editor

An overhaul of the student loans scheme to be reviewed by the Cabinet this month includes a proposal to link any money paid to a person's academic results.

The Government's long-awaited discussion paper on student loans and allowances is expected to be released for public debate after Cabinet ministers see it, probably on July 27.

The Herald understands options outlined include introducing a flat interest rate for all borrowers, endorsing private savings schemes to pay for education, wiping student loans after a set number of years and boosting the number of students who can claim allowances.

Associate Education Minister Steve Maharey, who has responsibility for tertiary education, was yesterday reluctant to comment on the review.

He said any change in policy would not be implemented before next year's budget.

Mr Maharey previously said the review would be publicly released in May or June, but it is now believed a paper will go to the cabinet at the end of the month.

In its election manifesto last year Labour pledged to raise the number of students eligible to receive study allowances, and also to review the loans scheme to make it fairer.

After being elected in 1999, the Labour-led Government changed the law to ensure students did not have to pay interest on their loans while still studying.

In this year's May budget it made allowances more available to very young tertiary students while allowing more part-time students to get loans.

But the latest edition of Education Review says the Government may change its policy on interest-free loans while people are still studying, and the discussion paper will float the introduction of a flat interest rate of 3 per cent to be applied to all borrowers.

Mr Maharey and Finance Minister Michael Cullen this year publicly highlighted how much interest was written off under the student loans scheme.

Inland Revenue estimated two-thirds of all students had interest repayments written off on their loans in the year ended March 2002.

It also said most borrowers paid less than the present interest rate of 7 per cent and about 57 per cent of all interest accrued on student loans in the 2002-2003 year was expected to be written off.

About $4.5 billion in student loans is owed and Inland Revenue is chasing $71 million in overdue payments.

Mr Maharey has previously said students might be better able to pay off debts if they had greater access to allowances while studying.

Mr Maharey and Dr Cullen said in March that the interest rate of 7 per cent would be kept pending the outcome of the review.

The review was prompted by the burgeoning level of student loans and worries about recruitment and retention of graduates, with increasing numbers heading overseas after completing their qualifications.

New Zealand University Students Association president Fleur Fitzsimons last night urged the Government to ensure it consulted properly before adopting any changes.

She told the Herald the association would reserve comment on the review until details were released, but would oppose any Government backing of private savings schemes in which parents and employers would contribute to a child's education fund from birth.

The options

* Options to be debated as part of the review include:

* A flat 3 per cent interest rate for all borrowers.

* Backing, possibly through an initial Government payment, private savings schemes where employers and families pay into a child's education fund.

* A 10-year or 20-year time limit for repayments, after which loans are wiped.

* Linking eligibility for student loans to academic achievement.