Student Loan Scheme Bill

The debate on clauses 3 to 24 includes schedule 1.

I look forward to a full debate on the Student Loan Scheme Bill, a bill that Labour is supporting but with reservations. This part deals with the purpose of the bill, and I could probably begin my comments there. I will talk primarily in this contribution about the move to an electronic system for administrating student loans, but talking in more general terms about the purpose of what this Act—which the bill will become—is designed to do, clause 3 states that it is to: “(a) provide for the effective administration of student loans; and (b) provide for the collection of student loan repayments; and (c) provide transparency about student loans so that borrowers understand their obligations for those loans; and (d) encourage borrowers to repay their student loans at the earliest possible time.” Those are all good things, and those are all things that Labour supports and agrees with.

It would be fair to say that the student loan scheme at the moment is radically different from the student loan scheme that was introduced in the early 1990s, and one that has been in need of refinement for some time. I have spoken in previous debates on the loan scheme about the difficulties that I personally had as a student loan borrower in making sure that my loan was repaid and that I ended up with a zero balance. Getting accurate information about a student loan balance at any given time can be incredibly difficult. It is probably the most difficult for students who are still studying, because in the first year that their loan is drawn down it is administered by Work and Income or StudyLink, and then in subsequent years by the Inland Revenue Department. At the end of the year their loan balance is transferred from StudyLink to the Inland Revenue Department, which means that if they are in the second, third, or fourth year of study, they effectively have two loans, one with the Inland Revenue Department and one with StudyLink. It has always been a challenge for people to get accurate information about their loan balance at any given time.

What this bill does—and we are definitely in support of this—is allow for real-time transfer of information between those two administrators, if you like, of the student loan scheme, so that at any one point in time students or borrowers will be able to log in and get accurate, up-to-date information about their loan balance. That is important. It is useful. It is what we can do with all of our banking now. We can log in and check our bank balances and credit card statements without any difficulty, so why we cannot do the same with student loans has, I guess, been a point of contention. I think that all student loan borrowers will definitely welcome this measure.

However, some pitfalls still need to be worked through. With regard to the calculation of interest payments and interest write-offs, the difficulty that I constantly hear about from people is that mistakes are made in interest calculations, either on their part or on the part of the Inland Revenue Department, and in getting accurate information about exactly how much they need to repay. This generally tends to happen when borrowers get towards the end of the repayment of their student loan. They might get to the point where they have only a few hundred dollars left to pay, so they will cancel the salary deductions from their salaries because they know that their salary deductions will potentially be more than the amount that they have to pay. They will go ahead and do that. They will then try to get from the Inland Revenue Department an accurate account of how much they have to pay, and they will make that payment. However, it can then turn out that they have underpaid or overpaid, depending on the interest calculations that were made, so they could end up getting a refund or getting a bill asking for more money.

I hope that at some point in time we can get to a system where, for instance, if I want to finish paying off my loan and get a zero balance as of today, I will know that this is the amount I have to pay or the amount that I am being refunded, and that we do not have this process where once borrowers think they have made their final payment, they have to wait a long period of time before they get to find out whether the final payment has been made.

💬 Aaron Gilmore: We agree on something, Chris. We agree on that.

I am pleased to see that National members agree on that, because that has been a nightmare for people. The other thing that has been a nightmare is that the Inland Revenue Department’s administration of the scheme using its paper-based system has a few quirks in it at the moment. I finally got to the zero balance point with my loan after a year. It took a whole year to get from being near the final repayment to actually getting the zero loan balance, with a bit of backwards and forwards with the Inland Revenue Department. Then, for about 3 years after that, every year the Inland Revenue Department sent me a statement saying that I had a zero balance on my student loan, because its paper-based system had not quite kept up with the fact that I had actually managed to pay off my loan. That is something that I get from the Inland Revenue Department all the time. I am surprised that it did not add the cost of the postage to my loan balance and then send me a bill for it, because ultimately the taxpayer was paying for these loan statements to be sent out to me long after my loan had been repaid. In the move to this new electronic system we are putting in place with this bill, I hope that all of that can be avoided, that the system will be a lot more efficient, and that once someone has repaid his or her loan it will be finished. I think that members on this side of the House will be very supportive of that.

My colleagues have raised concerns in their second reading speeches about the fee for the establishment of a student loan being increased from $50 to $60, and I certainly concur with them on that. One could ask why we have to increase the amount of money that a borrower will have to pay in order to have a loan in the first place, if the student loan scheme is to be more efficiently administrated. Is this a back-door way of increasing the costs to the borrower, when the costs to the borrower should actually be decreasing? My argument is that if this bill results in more efficient administration of the loan scheme, the savings from that should be passed on to the borrower. To do anything less than that, in my view, would effectively resemble a broken promise by National. National promised that it would keep interest-free student loans. Of course, it made some other promises about making it easier for people to repay their loans faster. If this bill increases the efficiency of the scheme but National does not pass on the benefits of that to borrowers, I think that really is a breach of the good faith that many loan borrowers showed towards National by mistakenly voting for it. We can forgive them for that. But in time I think I would like to see those savings passed on.

We have already seen from this National Government the introduction of an annual fee for student loan borrowers. In my view, an annual fee is a form of interest, because even if somebody does nothing other than make the minimum repayments required to just keep it ticking over, they are now charged an annual fee. In my view, that is a form of interest. Labour is definitely opposed to the increase of the establishment fee, and we were opposed to the introduction of the annual fee. I will deal more with the repayment provisions in my contribution on the next part of the bill.

I will return to the purpose of the bill, which is around the efficient administration of the student loan scheme and greater transparency around student loans. I think we on this side of the Chamber will certainly welcome that. As I have said before, it has been a bit of a black box for loan borrowers trying to figure out exactly how much they owe, and trying to get to the bottom of how much they would need to pay if they wanted to repay their loan in full. I think this bill potentially helps that situation quite considerably, and we certainly welcome it.

I could talk a little bit about some of the definitions set out in clause 4, such as the “annual repayment threshold”. It is established as being $19,084 a year before the compulsory repayments kick in. That is not an awful lot of money. We have seen under this Government that that figure has not been adjusted in the sense that we might have hoped. It probably would have been under a Labour Government. People on very low incomes of only $19,000 a year have to make repayments on their student loans, and I think we may want to consider that situation in this current economic climate. I think everybody who borrows knows that they need to make their repayments.

💬 Amy Adams: Are you still talking, Chris? Heavens above! Haven’t you finished talking yet?

I say to Amy Adams that we are all earning $130,000-plus a year. That might not seem like a lot of money to us in this House, but for people earning $19,000 a year who are making repayments on a student loan, on top of the tax they have to pay—on top of the tax they have to pay—it is a considerable amount of money.

💬 Amy Adams: Talk about the bill.

OK. Clause 4(1) contains the definition of “annual repayment threshold”, I say for the member, who does not seem to be aware of what is in the bill we are debating.

💬 Amy Adams: What’s the change to it, Chris? What’s the change?

I do not know. What has changed? It is in the bill; therefore it can be debated. The excitable Ms Adams, I am sure, will take the next call to talk about that. What has changed? The threshold has not changed, which is the problem, because it should have been.

I will talk about two specific elements of Part 1 of the Student Loan Scheme Bill. I have a question for the Minister in the chair, the Minister of Revenue, in relation to the first of those elements. Essentially, a large part of what Part 1 does is increase the obligations on borrowers to do certain things. They are actually things that I support. For instance, if someone is going to be away from New Zealand, they have an obligation to tell the Commissioner of Inland Revenue where they are going to be, how to contact them, and how they can work on the loan scheme with the Inland Revenue Department. That is not necessarily a bad thing. In fact, I think it is quite useful.

Clause 14 is an example of a provision relating to changes to residency. But in particular I ask the Minister about clause 23, which is about the question of notifying the commissioner of absence from New Zealand of 184 or more days. The language here has changed. It very much talks about what a borrower must do. That is important.

One of my concerns over a period of time has been the awareness of borrowers of their obligations when they leave the country. As somebody with a background in working on these issues, both as a student politician working for a university and now as a constituency MP, I ask the Minister about the intent around advertising of obligations. Will any more work be done to ensure that borrowers who leave New Zealand actually know what their obligations are? I agree, regardless of whatever concerns I might have about the cost of tertiary education or the amount of debt that students have, that once a borrower leaves New Zealand we want to make sure that that borrower is aware of their obligations and is meeting their obligations. It is not fair for someone to leave New Zealand, disappear off the radar screen, and not have to make repayments, when somebody who stays in New Zealand and works hard is making those repayments. I would like to hear from the Minister about what is envisaged in terms of new ways of letting people know about their obligations, which have been enhanced. There are already obligations—I acknowledge that—but this bill enhances those obligations, and I think it is important that borrowers are made aware of them. I would like the Minister to let us know what happens there.

I congratulate the Minister and the Finance and Expenditure Committee on the way in which some changes have been made, not just in this bill but previously as well, around the treatment of borrowers who are not in New Zealand but for the purposes of the law are treated as if they are—in particular, people who work for the Government of New Zealand overseas, which has always been the case. But the question of their partners is an important one, and I think that is really useful. It is important to say today that if somebody is working overseas in the service of New Zealand, is undertaking postgraduate study overseas, or is undertaking voluntary work—and in schedule 1 there is now an explanation of what constitutes acceptable voluntary work for the purposes of this bill—for all of those people it is now possible for their partners to be treated as if they are in New Zealand. I think that is a very good thing. It is important that when people are overseas in the service of New Zealand they do not have to worry about things like interest on student loans. Clause 20 deals with that in particular, as does schedule 1. Both of those are very good things. That is my question to the Minister around the advertising of borrowers’ obligations.

The only other point I really want to make on Part 1 is about clause 10D, “Student loan establishment fee”. As I said in my contribution to the second reading, we are looking at a situation now where we are told in the regulatory impact statement that there will not be additional costs on the Inland Revenue Department. We are told that the computer system that the department is bringing in will, in fact, reduce costs. We are told that the electronic arrangements for borrowers to communicate with the department will, in fact, reduce costs. Yet in clause 10D the establishment fee for students goes up from $50 to $60. Later, in Part 5, we will come to the new $40 management fee. So we are actually talking about a $50 increase in total in costs to borrowers on an annual basis. That seems to me to be a pretty big cost increase relative to a system that we are told will actually reduce the cost to the Government.

That is why we on this side of the House are suspicious of this change as essentially being a revenue grab by the Government. We think that this looks like the reintroduction of interest by stealth. It looks to us as if a Government that wanted to bring in interest on student loans—

💬 Chris Tremain: Well, why are you voting for it, then?

I say to Mr Tremain that as an Opposition we will vote for things that are good and useful, like the electronic management—

💬 Chris Tremain: You just said that it looked like we’re introducing interest.

Clearly, Mr Tremain has not been listening to the second reading debate or to the Committee stage. Labour is supporting this bill because it brings in important changes around electronic management of student loans, but just because we are supporting the overall intent of the bill, that does not mean we have to support every single clause. Mr Tremain might like to take a call on clause 10D and tell us why the administration fee is going up to 60 bucks. Then when we get to Part 5 he might like to take a call on why a new fee of $40 is being introduced at a time when we are told the loan scheme itself will become more affordable to the Government because of the other changes in the bill that we do support.

It really does look like the introduction of interest by stealth, because this is a National Government that will not go through on what it said earlier: that it wanted to reintroduce interest to the student loan scheme. Mr Finlayson wants to introduce interest to the student loan scheme; I know that. Lots of members on the other side of the Chamber do, but they have decided for political reasons that they are not going to, so something has been brought in by the back door to increase the establishment fee to $60, and Part 5 will bring in the new fee of $40. Members on this side of the Chamber have real concerns about that.

Although there are some very good elements to Part 1 in this bill, clause 10D is one that members on this side of the Chamber find very difficult to support, because it looks like it is the National Government trying to reintroduce interest by stealth.

I will pick up from where Grant Robertson left off on clause 10D of the Student Loan Scheme Bill. I think calling that aspect of the bill interest by stealth is rather charitable to the Minister in the chair, the Minister of Revenue. Let us be honest: this is a flat fee regardless of how large a person’s student loan is, and regardless of what their income is. When we get that type of tax, the name for it is “poll tax”. That is what that fee is: it is a poll tax on graduates and students. I think “interest by stealth” is one name for it, but frankly that is rather charitable. Let us call it what it is.

That is not really what I wanted to focus on. I will go back to the purposes of the legislation. Clause 3 states: “The purposes of this Act are to—(a) provide for the effective administration of student loans; and (b) provide for the collection of student loan repayments;”. I have a question for the Minister, because I have an example of a bizarre set of circumstances that happened to me in relation to my student loan, and I wonder how often this happens.

I completed repayments on my student loan earlier this year.

💬 Hon Member: Well done!

Yes, it was a day to celebrate, it has to be said. I checked with the Inland Revenue Department, I got the repayment balance, and I even got a letter from the Inland Revenue Department saying that my balance was zero. I had completely paid off my student loan. Strangely enough, only a few weeks ago I got a letter from the Inland Revenue Department informing me that I had to change my tax code back to MSL, as did the payroll here at Parliament, and I started making compulsory repayments of my student loan. I am now $500 in credit. The Inland Revenue Department now owes me $500 in overpayments on my student loan. I would hardly call that the effective administration of the collection of repayments by the Inland Revenue Department.

💬 Grant Robertson: Get Peter Dunne to write you a cheque.

I do not expect a cheque from Peter Dunne. I have been reliably informed by the lovely person I spoke to at the Inland Revenue Department when I finally got through—the person to whom I spoke was fantastic—that I would have that money back by October. So I am very pleased that I will be able to get that back.

I have a question for the Minister about how often people who have organised themselves to make sure they have made the exact repayment required, and have faithfully and dutifully made the repayments that they need to make and are required to make by law, then find that through some error by the Inland Revenue Department they have to overpay. The Inland Revenue Department then has to make a payment back to that person due to the ineffective administration of student loans. Given that that is one of the main purposes of this bill, I would be very interested to hear from the Minister how often that happens and whether he has any plans to rectify that situation.

Kia ora, Mr Chairman. He mihi nui ki a koutou. Kia ora. It is great to take a call in the Committee stage of the Student Loan Scheme Bill. I will not harp on about the use of urgency to pass this law, but I just want to note that a wide discussion is happening online by people asking why Parliament is under urgency to pass this law and other laws on the Order Paper. People are baffled, because they do not see the urgency in this. What it does is reduce the public’s perception of the use of urgency in Parliament. I just wanted to note that before I start.

I will take a look at three parts of Part 1 of this bill: clauses 10D, 4(1)(a), and 21. But first I acknowledge the debate of Chris Hipkins, who is no longer in the Chamber. Chris Hipkins was the student president when I first studied as an undergraduate at Victoria University. We have had a robust discussion with Labour members about what they did and did not do when they had the opportunity when Labour was in Government. I quite rightly remember the member Chris Hipkins, when he was the student president, vocally opposing the Labour Government for not acting fast enough on student loans. But I will not harp on about that point either. I acknowledge that the Labour Government did take interest off student loans—

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member. The time has come for me to leave the Chair for the State farewell for His Excellency the Governor-General. In accordance with that decision of the House yesterday, the Committee is temporarily suspended. The Speaker will resume the Chair at the ringing of the bells.

Debate suspended.

Sitting suspended from 11.45 a.m. to 2.20 p.m.

House resumed.