To state the obvious: Student loans are loans. When you pay off a loan, you stop paying. So if repayments go up from 10% to 12%, graduatues won't pay more - they just pay *earlier*.
This impacts on government finances:
- The government collects future revenue earlier, allowing them to "get back to surplus" earlier. This part is purely political.
- Collecting revenue earlier means they don't have to cover interest on it. This is a real saving, but this is only worth a fraction of the "revenue increase".
- It will marginally worsen default rates, because:
- Graduates who don't default will pay the same amount (i.e. 100% of their loan), only sooner. (No effect on default rate.)
- Graduates who default because of bankruptcy or death will pay more before they go broke/die. (Very small positive effect.)
- Graduates who default by skipping the country will pay a tiny bit more before they leave. (It's for a short time while they're on a graduate wage - Very small positive effect.)
- The after-tax wage in NZ will decrease, making working overseas more attractive, causing more to leave and default on their loans. (Small negative effect.)
Increasing repayment rates DOES NOT improve default rates. It is a cynical policy, but not terribly significant either way.
Also: Stupid targeting is stupid
But this four-year limit thing. Seriously: RAGE.
This is not welfare. Welfare is welfare. We fund tertiary education because a well-educated workforce strengthens the economy and pays more taxes - it's an investment.
And it makes sense to target our investment for maximum return. Who are the people most worthy of funding? What kind of skills do we want in the economy? Where do we get the most bang for our buck?
On what planet is the answer "people who study for less than four years"?
We bemoan degree inflation, the fact that everyone is supposed to spend three years of their life at a degree factory getting a worthless undergrad that imparts neither wisdom or practical skills, and now, the government ONLY wants to give allowances to undergrads? Don't we need specialists anymore? Scientists? Doctors? Researchers? Cross-discipline study?
In terms of targeted allocation of allowances, this is arbitrary, perverse and just goddamn stupid.
Keith Ng is a self-loathing BA(Hons) graduate.