Study calls for the scrapping of interest-free student loans and University Entrance as part of a radical shake-up.

A radical new report calls for interest on student loans to be reintroduced and University Entrance to be scrapped.

The 527-page study, out today, was commissioned by the Government to examine how well the tertiary education system is set up to respond to trends in technology, internationalisation, population, tuition costs and demand for skills.

Recommendations of the Productivity Commission report include:
• Abolishing University Entrance (UE).
• Better quality control and self-accreditation for strong performers.
• Making it easier for students to transfer between courses.
• Better career education.
• Enabling tertiary institutions to own and control their assets.
• Making it easier for new providers to enter the system.
• Facilitating faster innovation by tertiary education providers.

Another suggestion was scrapping interest-free loans - but that was quickly shut down by Tertiary Education Minister Paul Goldsmith.


He said: "We do not want to see young people starting their working lives with unmanageable debt."

But Goldsmith said the Government would keep an open mind to every other recommendation, including dropping UE.

"The current University Entrance requirements provide a clear bar for entry to university, which students, teachers, and tertiary providers can easily understand, and is consistent across the country," Goldsmith said.

"The Government will consider the recommendation regarding University Entrance as part of its further work to consider and respond to the recommendations of the Productivity Commission."

UE is comprised of a package of credits achieved at NCEA level 3, including a minimum number of credits in literacy, numeracy, and various "approved subjects" for those under the age of 20.

The report stated that UE does not reliably signify preparedness for higher-level study and it also implies that a student with UE is best off going to university, when this might not be the case.

UE does not guarantee a student entrance to university study. Each university is free to add requirements for entrance to particular courses. Conversely, not having UE does not prohibit access to universities. Each university has alternative admission pathways for promising students who lack University Entrance.

The report said UE encourages secondary teachers to arrange NCEA assessments into one "approved subject", rather than take advantage of the intended flexibility of NCEA to teach and assess learning from multiple disciplines within a single project or theme. For example, teaching elements of maths, physics, design, carpentry and art, via a single project to design a skateboard.

"University Entrance holds little or no value, and may do harm," the report stated.

Hon Paul Goldsmith - Minister of Tertiary Education - will keep an open mind to all of the recommendations except interest on student loans. Photo/Supplied
Hon Paul Goldsmith - Minister of Tertiary Education - will keep an open mind to all of the recommendations except interest on student loans. Photo/Supplied

Auckland University's Students' Association president Will Matthews was cautious about scrapping the UE requirement.

"It's about making sure the students who are coming in to our university are adequately equipped to protect those students and ensure we have high quality university entries as well."

Labour Party education spokesman Chris Hipkins said his party would "not go anywhere near" student loan interest.

But he did agree with the finding that careers advice in schools needs work.

Universities New Zealand chair professor Stuart McCutcheon said the commission failed to understand the real challenges facing universities. He said New Zealand probably has the world's most efficient and effective university system.

"Despite having the lowest funding levels per student in the developed world, all of the New Zealand universities are ranked in the top 3 per cent of universities internationally. Our teaching is regarded as world-class and our qualifications are internationally recognised and highly regarded around the world.

"Compared to every country for which we can locate statistics, our graduates have the best qualification completion rates (84 per cent), highest graduate employment rates (98 per cent) and lowest under-employment rates (12 per cent).

"Our research is also outstanding - with international citation rates at 1.4 times the average. We have struck a good balance between research intensity and teaching quality."

Universities New Zealand executive director Chris Whelan said the report argued that deregulation and opening the market up to more international competition is the key to producing a better system for students and employers. He disagreed.

"The reality is that our funding levels are too low to attract high-quality international providers or to produce the innovative new forms of teaching that are appearing in other parts of the world.

"All of the universities identified previously by the Productivity Commission as demonstrating international best practice, are funded at rates at least three times that of New Zealand providers."

But the business-funded NZ Initiative think-tank supported bringing back interest on student loans.

"When the government writes off forty percent of the value of every new student loan, it has to find other ways of containing its costs," said its research head Dr Eric Crampton.

"The costs of the consequences of interest-free loans are disproportionately borne by the poor: students without parental support unable to borrow enough to cover living expenses, students who cannot borrow against tuition costs outside of the traditional tertiary sector, and capped enrolments that restrict access to tertiary study,"

He said charging interest on new student loans would allow the Government to ease restrictions placed on the tertiary sector to enable greater access.

​Student loans 'screw this'

Shayla Foster graduated after six years of study with a $70,000 student loan. Photo/supplied
Shayla Foster graduated after six years of study with a $70,000 student loan. Photo/supplied

Shayla Foster, 30, racked up a student loan of more than $70,000 while she studied for six years at Canterbury University.

Foster tried part of a nursing degree before switching to a Bachelor of Arts, which she completed and then did a postgraduate teaching diploma so she could be a high school teacher.

Foster now works at Whangarei Boys' High School as a health teacher. She estimated she had paid off around $15,000 of her loan. It would take at least another 15 years to pay off the rest.

When Foster started university she had no idea how a loan would affect her life. She doesn't think youth fresh out of high school have enough maturity to make informed decisions around a student loan.

"I had no idea about the impact the loan was going to have and it didn't feel real. I didn't understand money and how it worked.

"It's insane. If I didn't have the student loan I'd be further ahead than I am now."

If interest was reintroduced to loans Foster would feel completely hopeless. She said it would be disheartening to see debt mounting while graduates worked low-paying jobs.

"I'd think 'give up, screw this'. I wouldn't feel inclined to try to pay it off faster.

"I wouldn't be able to buy a house, it would take me even longer."

Productivity Commission

A crown entity of three commissioners with 15 staff

They conduct inquiries and productivity research to expand knowledge about productivity.

They were asked by the government to examine how well the tertiary education system is setup to respond to trends in technology, internationalisation, population, tuition costs and demand for skills.