Not a bad idea from Coughlan
Thomas Coughlan writes:
Once a borrower’s income reaches $24,128, the Government takes 12 cents of every dollar earned above that threshold to pay off the student loan. Someone earning $25,128 ($1000 above the threshold) will pay $120 in repayments. …
Australia, for example, doesn’t require borrowers from its main student loan scheme to pay a cent in repayments until their incomes rise above A$67,000 (about $80,000).
Coughlan thinks that this is part of why many graduates move to Australia.
How much would it all cost? Well, there are 504,000 New Zealand-based borrowers with outstanding student loans. Even if all of them earned over $60,000 (which they don’t), it would result in about $2.1 billion a year less being paid off in student loan balances.
That’s a very big number, but the main cost to the Government isn’t $2.1b. In fact, that $2.1b is an asset that would continue to sit on the Government’s books. The real cost is that of the Government borrowing the same amount, which, using the expected 10-year bond rate for the coming year, would work out to be about $85-$90 million.
That’s less than a third of the cost of the old first-year-free scheme for students (which several reviews have found has been ineffective at getting marginalised groups into tertiary study).
In fact, a way of funding the shift might be to axe fees-free entirely, or to put a small token interest rate back on the student loans (although this would be deeply unpopular), or perhaps to move to an Australian-style progressive system in which borrowers repay at higher rates as they earn more.
The fees free scheme that Hipkins introduced has been a disaster. Incredible costly, and has gone overwhelmingly to wealthy families. It should go whether first year or final year.
I would support a higher repayment threshold for student loans, if it was funded by scrapping the free fees policy. The other thing that would be needed would be to have interest applied to student loans – but at the rate of inflation. This means that the real interest rate would be zero, but it would remove the existing incentive to borrow the maximum (even if not needed) and repay as slowly as possible.
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