Sunday, May 22, 2005

The true problems with Student Loans

So many people are arguing against the student loan system and how unfair it is, personally I think Student Loans are not the issue, student allowances are the key issue. I have no problem with people having to borrow money to pay for their course fees. Universities are 60% government funded anyway so the fact that we have the ability to borrow the rest of our fees (interest free while we study) is a pretty good deal. I think some student bodies have focused too hard on fee increases instead of focusing on the key issue which is allowances and borrowing for living costs. I think the fact that government would even consider having a system where it will loan money to students to live is a disgrace. If they paid a universal student allowance for anyone over 18 (not 20 like United Future suggest) they could cut out the option of borrowing to cover living costs. I believe no government with a surplus should ever be forcing (or even allowing) people to borrow money to live, that is the true issue with student loans


Andrew said...

I think that without Student loans, then a lot of people couldn't afford to do tertiary study. Of course, we'd all love free education, but in todays world, it's user pays. The thing is with the loans is that people are happy just to pay them off at the minimum rate, which I don't think covers the interest charges. Once you set your mind to it, you can pay if of pretty quickly. I had a loan that started at $5000, and got up to $10,000 before I really started paying it off. Once I started concentrating paying it off, I was gone within 6-9 months I think. Too many students are going to Uni with no intention paying off the loans which is irresponsible.

Jo said...

Hey Aaron

I agree that the student loan idea is good. I'm happy to borrow money to pay for my study but what bothers me is the interest they charge afterwards. It's the interest that is going to make it 15-20 years before I could pay it off (according to Sorted). If I make the minimum payments I'll pay over $20,000 in interest which is going to nearly double the loan I'll have when I'm finished.

Aaron said...

Nice to see you post here Jo :-)I agree, I think alot of people get stuck with their loan due to only paying the minimum. Personally I think their should be some interest charged once you stop studying but I think they should offer an incentive like for every voluntary dollar you pay above the minimum the government will match it by writing off 25c of your loan. The reason why they can't have something like this at the moment is they let people borrow money for things other then study (to live!!) and so if they were offering a write off lots of people would be borrowing and investing and only paying off 80% of the loan. Once they tidy up the Student Allowance side of things it could free them up to offer other options of repayment.

Sharyn said...

I also think the problem with student loans is that they are so inflated with living costs. The basic student loan, for your average degree is not too steep, only about $20,000. That's obviously a huge amount of money, but not too horrible. The real problem is that so many people have to borrow for living costs, and thats when you end up with a bare minimum of $50,000 dollars which is another kettle of fish altogether.

I do have a problem with student loans, in that I think it is frustrating to start off life with a debt, and a sizable one at that. If the government wants us to be staying here working for less money and buying houses (whose prices are artificially inflated so they say) then ensuring that people start off with debt in the beginning is not the greatest plan.

Plus, if they can afford to fund 60% as you say, is the other 40% such a huge amount? Wouldn't it be cost effective in the long run? People would be more inclined to remain in NZ (no more brain drain) and buy houses earlier etc. I wont be able to consider buying a house until I am 30 at the earliest, and I'm not borrowing for living costs.

I dunno, your point is good though.

Aaron said...

I am not sure if having free education would stop the 'brain drain'. I would be silly to think it wouldn't reduce it in some way, but the real reason people leave is they can earn so much money overseas and see the world.

Personally I am reasonably happy with a 60-40 split, however I can see arguements for both sides.

SubversNZ said...

"In today's world it's user pays"

I do not understand why people do not believe that we can have free (or near free) education again. It is simply untrue, we can if we want to.

One of the central premises of student loans is that input=output, and that the education is purely an personal choice and investment.

We have moved from valuing education as an investment in people to seeing it as a personal consumer choice.

An educated society will be healthier, freer, and happier. Rates of abuse and violence will (and do) go down, etc. etc.

It is attrocious that students are required to borrow just to live, but the deeper problem is that we do not value education as important for the social fabric.

Education is a social investment in individuals, not an individual investment in the self. It is not about money, but teaching people "how to fish" for themselves.

In a society where we have to be educated to earn a decent living it is imperative that education remains (or becomes) accessible to all.

Student loans may make education immediately accessible, but at the expense of the rest of life afterwards. Instead of education being an investment it becomes a burden.

A universal student allowance would be a good start, and would certainly decrease the size of loans dramatically. However, there are plenty of students who do not borrow for living costs who later become burdened by their loans.

Abolishing interest charges (except for base) would be another good step, and I still can't believe we charge interest on loans.

I think a system wherein 1/3 (and increasing) of the government's net worth is comprised of unsecured debt in the form of loans to its own citizens is unsustainable anyway.

Any system of debt binds people unnecessarily, especially when that debt is the price for participating fully in society. I think that because education is, in many cases, a prerequisite for people participating in society it is unjust to charge them the sort of prices we do.

Society is better off that we are educated, not worse off, and society is better off when we are debt free, not worse off, so why don't we change it?

Aaron said...

Some very good points about society valuing education. I still think it is right for an individual to contribute financially in some way to their studies. (given that the government is meeting more then 50% of the cost) Incentives to pay a loan off faster (which would only be available to people still resident in NZ) would offer a better solution then removing the "CPI" part of the interest (as the base interest is the larger part anyway). By offering a write off incentive you also deal with the issue Andrew raised which is many people are not proactive about paying off their loan.

Aaron said...

I am interested in persuing this free education idea further. What would be the impacts on the education sector if everything became free, we would obviously see a large increase in enrollment numbers, but what would be the impacts of this? Ideas anyone???

Andrew said...

It wouldn't surprise me that you'd have students "collecting" degrees.
Staying a Uni for a long time because deep down they don't want to work in the real world.

Sharyn said...

I doubt that would happen - even if by some random chance they did give us universal student loans they wouldn't be much more than they are, and it's damn hard to live on $150 a week. This would mean that the vast majority of students would get their degree asap and get into the work force, just like they do now. 'Cept without the loan. And they might just buy a house and start contributing to the economy, you never know.

Sharyn said...

and by 'loan' I mean allowance.

Karen said...

I believe that there should be a universal student allowance to be used for living costs which is not means tested. Just because your parents earn more does not mean that they will contribute towards your costs. In regards to student loans I think it is fair to charge interest. Paul, it is a choice to pursue education and whilst education does improve society I am a well-rounded person who contributes to society and my husband pays his large amounts of tax to help society run and yet neither of us have a degree. Whilst education is a good thing it is not essential to being a worthy responsible member of society. If I have to pay interest on my mortgage then you should pay interest on your student loan. Especially since as Aaron said many people use the loan system to borrow for non-education related expenses or 'desires'. I am the only person in my large family without a degree yet I have brothers and a sister who have come through the university/teacher college without a student loan in evidence by the time they have finished or with such a small one that they had it paid off within two years thus allowing them to buy a house etc etc. They did get to live at home board free but other than that did the rest themselves. We sometimes need to be prepared to do it tough and work damn hard before we start uni (and during uni). I remember life before big student loans and then people used to undertake degrees that they weren't even sure what they would do with them just for fun. Gone are those days! If you want anything in life it does not come free. I think if they made the tax pressure alot easier than it would not be so hard for those with 'small' student loans to pay them off if their tax burden was not so tough when they came out of study.

Aaron said...

I think Karen makes some good points. If their was a universal student allowance and the government was still 60% funding universities I believe this would be placing a large amount of value on education. Being able to borrow the rest interest free while you study is a fantastic deal. Also the interest rates on student loans are low compared to most other forms of credit.