3 March 2016

Student loan debt has just hit $15 billion and is likely to increase further. Despite various efforts by successive government over the years to curb debt levels, and significant progress along the way in tracking down recalcitrant borrowers notwithstanding, the debt monster rampages on.

The problem is what to do about it. There have been over the years various calls for some sort of amnesty. While that might help clear the debt decks for a while, it would send the most perverse signal to the vast majority of borrowers who pay off their debt within 5 to 6 years of graduation. Those who lay the blame for the burgeoning debt squarely at the feet of interest free student loans may have a point, but have no sense of political reality if they seriously think there is any prospect of reintroducing an interest component on a student loan. In any case, at least in the short term, such a move would be likely to increase rather than reduce debt levels.

The only way to tackle the student debt problem seriously is to tackle the more fundamental problem of the cost of tertiary education and where that falls. Labour’s recent announcement of moving to free tertiary education for a first qualification is a  potential first step in the right direction, but the policy details released so far are too cumbersome and protracted to offer much confidence that the policy will work. But they at least have recognised the right end of the problem tio start resolving.

At the last three elections UnitedFuture has promoted the idea of a fees/allowances swap. This involves abolishing tertiary fees for students and funding the switch through doing away altogether with student allowances, for which not all students qualify anyway, and a modest top-up from the government. UnitedFuture would maintain a loans scheme, but only for living costs, meaning that the current bugbear of costly courses would also be done away with. All students with a loan would carry the same level of debt on an annual basis, probably no more than about $6,000 a year, regardless of the courses they were undertaking.

Parents like the idea; students looking forward to the student allowance as their first real bit of steady independent income do not; and tertiary institutions are wary of another feature implicit in the policy – a subtle control of their costs – a good reason in itself for the policy.

Whatever the outcome of the current debate, it is the time for bold ideas. Strong steps in the compliance area which have made their mark in recent years, and have generally been supported, are sadly not going to be enough to slay the debt monster. And writing off debt just punishes the diligent who complied with and honoured their responsibilities. It is time for all parties to engage in a first principles debate about the future funding of tertiary education.