Student Loan Scheme (Repayment Bonus) Amendment Bill

I move, That the Student Loan Scheme (Repayment Bonus) Amendment Bill be now read a third time. Before commenting very briefly on the bill’s provisions, I take this opportunity to acknowledge the members of the Education and Science Committee, and the chairman, Allan Peachey, for the job they did in considering the bill. I also acknowledge the work the officials have done in the preparation and development of the bill, their advice to the select committee, and some of the subsequent developments that have taken place. It has been a very worthwhile process and I simply want to place on record my thanks to all those who have contributed to the outcome we are about to put in place.

The bill is a comparatively straightforward measure that introduces a repayment bonus of 10 percent for students who seek to repay their student loan balances early, having a minimum balance of $500 at the time. This is consistent with an election commitment made by the National Party at the time of the general election. When the bill was in the Committee stage an amendment was moved by the Hon Trevor Mallard, effectively to provide for a health warning - type statement to be included in the advice the commissioner must give to prospective repayers if they are considering making early repayments. I acknowledge him for the work he did in the preparation of the amendment. The Government was pleased to accept the amendment, because it does, I think, contribute to the spirit of the legislation. I also think it is consistent with the general view that has been developed over a number of years about people obtaining good financial advice before making prudent, or otherwise, investment decisions.

The real point here is that the bill seeks to incentivise students who are in a position to do so to pay off their student loans sooner. One of the Opposition speakers during the Committee correctly described that as a highly laudable objective. We have approximately $10 billion in outstanding student loan balances. It is in both the Crown’s interests and the interests of individual borrowers that the loans be repaid as quickly as possible, and anything we can do to incentivise that situation has to be beneficial. Those were the main reasons behind the bill. It has emerged from the Committee with pretty much universal support across the House. As I indicated to the Committee, 1,800 student loan borrowers have already sought to take advantage of it. That is a good testament to the impact the legislation will have. I am more than happy to commend the bill to the House.

I rise to take a call on the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I too would like to add my thanks to the work that Allan Peachey has done as chair of the Education and Science Committee in the consideration of the bill. I will also underscore the Minister of Revenue’s thanks to officials for their work in revisiting a number of issues that arose in the course of the debate in the Committee stage and during the select committee’s consideration of the bill. I am grateful to officials for their work and their support in that regard.

I also congratulate the Minister on accepting the Supplementary Order Paper that was put forward by my colleague Trevor Mallard. That is the bit that redeems the legislation.

Although I understand the intention is to incentivise repayment of student loans earlier than might otherwise be the case, this legislation does need close consideration by any students who are looking at taking up the offer and maximise the benefit of the legislation.

Maximising the benefit of this legislation—that is, getting the 10 percent return on any amount over $500 that is repaid on a student loan, over and above the statutory repayment amount required—may fly in the face of how students might be able to maximise the return on that additional money. The problem is that it will only be towards the end of the lifetime of a student loan that there may be any financial advantage. Of course, retiring debt is highly desirable, but if students are faced with the choice of placing money into an interest-bearing account and having it work for them in a way that, over time, gains them more than having a slight reduction in the total of their student loan repayable, then they would be fools to take up this provision in the legislation. That is the long and the short of it. In the end, the Labour amendment in Supplementary Order Paper 37, which has been accepted by the Government and improves the legislation, allows us, albeit in a lukewarm way, to support the legislation. The amendment requires that all advertisements that go out accompanying this bill must also include a statement that people are advised to get appropriate advice so they know what they are doing with their money.

I cannot see why this legislation was ever brought to the House under urgency, and I dispute, even at this stage, the need for that to happen. But I support the legislation now, given its improvement with the addition of the health warning that has to go out to all students who take on student debt. They will be able to work out exactly at which point in their loan repayment there may be a financial benefit to them. It certainly will not be apparent in the first few years when they are likely not to be earning very much.

I am pleased to stand to speak to the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I start by saying a word of thanks to the able chair of the Education and Science Committee, my colleague Allan Peachey; the deputy chair, Trevor Mallard; the other committee members; the officials who have worked particularly hard on getting this bill through; and the Minister of Revenue, whom I applaud for accepting the Supplementary Order Paper put forward by Trevor Mallard today to make sure that we have broad support for this bill. I think that does make a big difference. It is a strong message to New Zealanders when the Government is supported by the Labour benches in legislation. This bill provides an incentive for young New Zealanders who have a student loan to pay off their loan faster.

I just make a couple of comments to put some context around why the Government believes that it is important for young New Zealanders to pay their debts off faster. I refer to an article in the New Zealand Herald earlier this year that talked about the surge in individual debt, which has gone from $62.7 billion to $175 billion. So basically New Zealanders are borrowing at a significant rate, and we have now individual borrowings of $41,000 per head of population. Student loans are obviously a small component of that figure, but today I saw that the student union’s website had put that figure on its ongoing loan calculator at $10.599 million. It is small amount of the overall New Zealand debt, but it is the message for young New Zealanders that paying off debt should be a priority and is important; and, in this case, obviously it is a debt to the Government so it is a debt to other hard-working New Zealanders who pay tax and therefore it is important that the Government incentivises students to pay off their loans sooner.

I was really pleased also that the Opposition has questioned why this bill was brought in under urgency. The Minister Peter Dunne indicated the level of interest already out there for this incentive—the fact that 1,800 young New Zealanders have already opted to make bonus payments, if you like, and to the value of, I think, about $875 in bonuses. That is brilliant and is exactly what this bill is designed to do. I am sure there will be an even greater level of interest, now that they see this legislation will pass and that it is supported so broadly across the House.

I am really pleased to be able to commend this bill in its third reading, because shorter repayment times for New Zealanders will mean that they become debt-free earlier. That will give them choices in their lives and their futures about buying a house, having children, going into business, and any other options, given they have removed some of the debt they had been saddled with as students.

I, again, just want to speak briefly to the third reading of the Student Loan Scheme (Repayment Bonus) Amendment Bill. I thank Government members for eventually accepting the health warning about it. That had been put to them and rejected at the Education and Science Committee, but they had some sense about this when the Minister became involved and we were in the House. So I do thank them for that.

I disagree deeply with the member for Taupō and the comments that she made as to whether the Labour Party is giving its wholehearted support to this bill. It is a matter of very fine balance and a matter of us keeping our word. We said we would support the bill if the health warning went in, but, frankly, I hope that not many students will take up this measure, especially if they do so in a period that is greater than from 18 months to 36 months before the end of repaying the loan. If they do that, they will end up, if one considers the interest effects, paying back more than they need to pay. They would be better off if they put their money in the bank and continue to make loan repayments until somewhere in the period of from 18 months to 36 months out from the end of loan.

I accept there will be a number of other reasons that people want to make repayments, and I think the most logical ones are where they receive tied contributions from other people. When a grandparent wants to help a student or graduate with repayments on his or her loan and is concerned that if he or she just gives the kid the money it might not quite make it into repaying the loan, in that circumstance, where there is an element of a tie-in, I think there is a benefit. I cannot think of many other circumstances where that will occur.

If one wants to look really carefully at who will benefit from this—

💬 Hon Darren Hughes: Who is it?

Well, it is the Minister of Finance. He is the person who will benefit from this legislation. When we look at the net situation, we see that this measure is quite fiscally positive for the Government.

💬 Hon Darren Hughes: Twenty bucks a week?

Not many people will get $1,000 a year every year out of it. The amount of repayments required to get to that level would have to be at the level of $10,000 a year. I think not many people will make additional repayments at that level, but it is fair to say it would be better to be a person in that position than to be someone who is trying to get the last 20 bucks off Bill English for his cleaning bill, paid through the taxpayer.

This is pretty minor legislation. On balance, the Labour Party supports it, because we said we would support it if the Government accepted our amendment. We will vote for it, but without much enthusiasm.

I stand on behalf of my colleague Metiria Turei. It is paradoxical that today we are voting on the Student Loan Scheme (Repayment Bonus) Amendment Bill, which, according to Mr Mallard, has a marginal positive benefit to the Government’s position, given that the Government has just announced it is giving away $400 million to the worst polluters in the country. Since 1992 we have had a student loan scheme in New Zealand, whereby students are required to borrow a significant proportion of their tertiary education costs. This scheme was a major deviation from the previous social contract, which provided tertiary education at low cost to the public. The principle behind the earlier approach—because there was a principle behind the earlier approach—was sound. Education in general, and tertiary education in particular, is a significant public good. There are immeasurable benefits to the community and economy of a highly educated population. Therefore it is of great benefit to the public overall to have significant investment of public funds in public education. For example, we know that the higher the level of a mother’s education, the more likely her children will be to succeed in education.

💬 Hon Trevor Mallard: I raise a point of order, Mr Speaker. I apologise to the member. I seek leave for the Standing Order that requires a Minister to be present in the House to be set aside—although I see there is another Minister here—so that Kate Wilkinson can accompany me to the presentation of the pay equity petition that is occurring now.

The ASSISTANT SPEAKER (Eric Roy): That is not really—

💬 Hon Trevor Mallard: I am seeking leave for the Standing Order to be set aside so that Kate Wilkinson can do that.

The ASSISTANT SPEAKER (Eric Roy): There is a Minister in the House.

💬 Chris Tremain: I raise a point of order, Mr Speaker. Given that there are a number of Ministers in the House, I would have thought that the application would be ruled out of order.

The ASSISTANT SPEAKER (Eric Roy): The member is seeking leave. If members feel it is inappropriate, they can refuse the leave. Is anyone opposed to that course of action? Leave is not granted.

We know, for example, that education is a key means to alleviate poverty, and particularly intergenerational poverty. We know that New Zealand since the 1980s has become a grossly unequal country and, as the level of inequality has grown, the level of educational inequality has also grown. However, with the introduction of the student loan scheme that social contract was torn to bits. Instead, the mantra of education as a private good was imposed, and a whole generation of young New Zealanders have borne the brunt of that failed social experiment.

Why has it failed? Because of the social and economic consequences our communities have suffered as a result. First, the student loan scheme entrapped very young students who were in tertiary education, in breach of basic contract law. The loan contracts were not enforceable against them. That loophole was quickly fixed, but the consequences of loaning thousands of dollars to young people aged 16 and 17 years old is still being felt. These young people are offered no financial advice as to the consequences of borrowing for their fees. It is more than likely that the educational interests one pursues at 16 will be quite different from those one would pursue later in life, and this leads to many young students borrowing for tertiary education degrees that they never use. The system also created an incentive for unscrupulous operators to rort the system. Some courses offered gadgets as incentives to young people who, fooled by the hype, took out thousands of dollars in loans to do courses of extremely dubious quality, finding themselves at the end of the course thousands of dollars out of pocket and still out of work.

Some remedy was made to resolve this, but the core issue, the cost of the systemic failure to provide quality tertiary education to New Zealanders as a matter of their citizenship, remained. For as long as the user-pays approach is pursued, some will rort the system, and students will continue to pay, and they do so all through their lives. We know that young people leave the country to pursue higher-paying jobs overseas and often stay there for longer than they would otherwise in order to pay off their loans. We know that young people delay purchasing housing because they must use their first 5 to 10 years of income to repay their loans, rather than save for their first homes. We know that young couples delay having children because of the financial pressures placed on them by the student loan system, and we know that Māori, Pacific, and women students are disproportionately affected by the loan scheme, and have to pay for much longer periods than their Pākehā male counterparts.

There has been a lot of tinkering with the student loan system, and this bill is just another fiddle. This bill will benefit a minuscule number of students, and otherwise provide no relief to the core problem of the student loan scheme. It is unfair and unjust. The Green Party is committed to a sustainable, prosperous Aotearoa New Zealand that is ready to meet the challenges of this new century. That is what the Green New Deal is all about. We must invest in our communities in ways that will deal with the twin crises that face us—climate change and the recession. Investing in the education of our young people now is critical to our future prosperity. The Government has chosen to take New Zealand backwards instead. Cutting the training incentive allowance so that beneficiaries can no longer access that support to do degree courses is simply increasing poverty, and pulling up the ladder after one has already climbed it. Slashing funding to universities and polytechnics is taking education out of the hands of those most vulnerable communities that need it the most. The Green Party opposes this bill. It will make no difference to the educational needs of those who need it the most.

As a member of the Education and Science Committee I too would like to join others who have congratulated and thanked Allan Peachey for the way he chaired the committee. It has been funny, from my perspective, to hear the lukewarm response to this bill from Green Party and Labour Party members and to hear them arguing generally that it is helping the wealthy more than the poor. Their argument has been that wealthy ex-students will be able to make higher levels of voluntary payments, and that therefore in some way this bill is discriminatory. The flaw in their argument is that they are comparing wealthy ex-students with so-called poor ex-students. The overwhelming majority of students improve the incomes they can get in life by undertaking tertiary education. In other words, poor ex-students are relatively wealthy by most standards.

The people we should be more concerned about are not the poor students, but the hard-working, low-income people who pay the taxes that cover the interest and loan write-offs of university students and tertiary students. The people we should care about, and whom the Labour Party and the Greens are supposed to care about, are the ones who do not go to university. They are the people who get a job when they are young. They are the people who are forced to pay for the education of those who will one day earn far more than they do.

Let us take a look at who undertakes tertiary education. Eighty percent of students come from households that earn more than the average wage. They are the families with money. They are the families with capital. They are the wealthy. A study undertaken in 2001 has shown that those in the top income bracket are five or six times more likely to go to university than the ones in the bottom income bracket. We send these rich kids, if we want to call them that, to university with lavish student loans and large subsidies paid for by low-income families. They then graduate and go into relatively well-paying jobs.

The Green members and Labour members wring their hands about the high level of student debt. Never mind that university students were wealthy when they went to university. Never mind that ex-students will pay off their loans quickly because of their higher incomes. Never mind that the people who pay for the lavish benefits are the hard-working poor who entered the labour force at 17 or 18 years of age, and missed out on a tertiary education. In fact, it is not just that this bill is in some ways unfair on people on low incomes. We would have to say that that is also true of a lot of tertiary education support.

But who do we take the money from? We take the money from the people who leave school at 17, and we deliver it generally to those with wealthy backgrounds. Policies like this one take money from the cleaners, the dishwashers, the bus drivers, and the people who work in McDonald’s who receive the minimum wage and deliver it to the sons and daughters of the doctors from Fendalton or the sons and daughters of the lawyers and accountants of Karori. That is the reality.

These programmes, unfortunately, are sold as if they come from political parties that care about those on low incomes. The Greens and Labour tell people that the reason we must give these lavish benefits to the wealthy is so that those on low incomes have access to university. Middle-class welfare is one thing. Middle-class welfare dressed up as wealth distribution to the poor is a fraud.

We have had the spectacle, in the Committee stage and in the second reading, of Labour members saying to students to not pay back their loans early because it would be to their disadvantage. In most cases I agree that it would, but it would be of benefit to the country. It seems to me that students have received lavish benefits that often were paid for by low-income people. I personally did not support the Mallard amendment, which had general agreement. It seemed to me that what we were doing was advising people to spend $200 to save $100. It simply did not make sense.

I rise to take a very brief call on the Student Loan Scheme (Repayment Bonus) Amendment Bill. The issue of student loan repayment is a very significant one facing the nation. It is a collective challenge, as the mountain of debt is threatened to grow by $15 billion by 2014. But, as other speakers have pointed out, it is not just the quantum of the debt that concerns us; it is the huge impact on students and their families. An estimated 120,000 holders of student loans are in arrears or are failing to make repayments.

We have a particular concern for the future of Māori students. The evidence tells us that more Māori have a student loan debt than any other group, although the level of debt held is similar to other groups. Five years after study, Māori students are also less likely to have made progress towards repayment of their student loans than non-Māori students. In a study undertaken by R Jefferies for Te Puni Kokiri in 1997, he concluded that the increasing participation in the student loan system by Māori students reflects the necessity that for many Māori the student loan scheme provides the financial support that is necessary to participate in higher education. So there are many complex issues, which, in and by themselves, need to be addressed, not just the issues of this bill related to student loan debt.

There is the core issue about why Māori have the lowest post-study incomes and repay their loans more slowly than other groups. The annual report from Te Tāhuhu o te Mātauranga 3 years ago tells that Māori certificate-level students carry a larger student loan debt 5 years after study, reflecting notably lower earnings. Māori with bachelor’s degrees or post-graduate qualifications also had notably higher average leaving loan balances than non-Māori.

We will support this bill at the third reading as we know that the current student loan debt is capable of impairing the long-term financial base and self-confidence of young students. We must do everything we can to protect their interests and safeguard their futures. However, I want to leave with a couple of comments that I have drawn from the excellent submissions of students from within my rohe of Te Tai Tonga, from my home town, the students association of Nelson Marlborough Institute of Technology. They told the Education and Science Committee that the bill is just a band-aid solution; only those graduates who can afford to pay $500 above compulsory payments will benefit; living costs are rising from recession; the bill does nothing to address the initial cost of tertiary education in the first place; and, if education was affordable, the Government would not have to propose such measures in the first place.

Although I agree with the previous speakers that we must incentivise New Zealanders to pay off debt as fast as they can, I do not think we can overlook the systemic issues that this students association has brought to the House. We would hope that further legislation to affect these issues will also come before the House as a matter of urgency in the direct future.

The contribution of the Green member, Russel Norman, to this debate on the Student Loan Scheme (Repayment Bonus) Amendment Bill is probably not worthy of comment, but I need to say one thing: it must be nice to be in a situation where he can stand in this Chamber, spend taxpayers’ money as if there was no tomorrow, and know that he will never have to take responsibility for it, because he will never be in Government. I wonder about all those New Zealanders who do not get to go to university, all of those young people who leave school at 15 and go into the workforce, and who are taxed from the moment they start work. They will never be able to aspire to the sort of income that graduates will be able to aspire to. All that the Green member’s contribution brought home to me was that his party represents narrow, selfish, and sectional interests. Thank heavens, for the sake of the taxpayer, that party will never be in a position to spend taxpayers’ money!

The debate has been very interesting, and I am gratified that Labour finally came to its senses and saw that in actual fact it had no choice but to accept this bill. It had no choice. There is a critical date in all of this: 1 April 2006. This legislation really has its beginnings at that point. That was the point when student loans became interest-free. From that time there has been a downward trend in the repayment of student loans. This bill is designed to adjust that balance. The most important word that has been used in this debate is “incentivise”. This relates to an effort by the Government—supported, I am pleased to say, by Labour—to incentivise students to repay their loans sooner.

It was interesting, as the debate progressed, to see naive young members like Mr Nash stand up and lecture people like myself on financial literacy. I tell Mr Nash that people of my generation knew that their first obligation was to pay off their debt. That is financial literacy. For that member and others to suggest in this Chamber that there are better uses of taxpayers’ money that has been loaned to people than for those people to pay off their debt is, I suggest, financial illiteracy of the worst type. I have to ask whether Mr Nash and some of his other colleagues—one-term MPs is all they will ever be—have ever thought about the risk of putting money into places like finance companies or Auckland apartments. I issue a caution to all borrowers who listen to the health warning to be very, very careful where they put their money. They should not listen to the financial illiterates in the Labour Party. They do not know a lot. It sounded good, but they do not know a lot.

The one message has to be that the best thing people can do—the key to their financial future—is to pay off debt as quickly as they possibly can. Let us imagine what a tragedy it would be if young person who had the opportunity to pay off part of their debt early put their money into some high-flying investment and then lost it. Do I need to remind Labour members of what happened in that party’s last years in Government? How many New Zealanders are now seriously financially disadvantaged because they did not pay off debt?

Debate interrupted.

Sitting suspended from 1 p.m. to 2 p.m.