Monday, October 31, 2011

The Madness of Student Loans: Starting Adult Life with a Noose Around Your Neck

It is not easy starting working life. I remember entering the work force as a young teacher back in the day. While it was great to get paid at last, the challenges were many as I came to terms with "real life." As I read today's NZ Herald Article "Hundreds of Students in Debt for $140k-plus" by Elizabeth Binning (http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10762805) my heart sank. According to the article there are:

  • 270,040 with loans up to $10,000.

  • 209,071 with loans of $10,000–25,000.
  • 110,186 with loans of $25,000–50,000.
  • 29,203 with loans of $50,000–100,000.
  • 1500 with loans of $100,000–120,000.
  • 617 with loans of $120,000–140,000.
  • 541 with loans of $140,000.

That is over half a million NZers, not only starting their working life with the many challenges of finding their way in the workforce, but with a financial noose around their neck. I have always questioned this system. Living in Auckland and going through the struggle of trying to raise enough to buy our own home, I can't imagine what it is like trying to make your way with a huge debt around the neck.

Sure, it is a huge cost to a nation to pay for tertiary education. Perhaps, it is too great a cost, and we need a loans system. But, if we are going to have a loan system, we need some way to help people pay down the debt. Something has to change.

The thing is that we need an educated workforce. We are isolated and need young people who are creative, innovative and able to be productive and creative in a competitive world. Being competitive in the world demands that we help our young people get well educated, so the money spent on educating our young is effectively an investment in our nation's future. It is crazy to have a system that sets them back before starting.

I see this issue at Laidlaw College where I work. Young people come to Laidlaw, borrow to study, and then go out to work, often in lowly paid ministry positions. They often pay the price as life goes on, and it is not easy.  

Going into the election, I think this is an important issue to consider for us all. It is great to see some parties confronting this. The Green party is proposing a debt write-off scheme whereby if a graduate stays in NZ and works and contributes to the scheme, a year's worth of debt is wiped off. They and the Maori Party propose a universal student allowance at the level of the unemployment benefit for all full-time students. The Maori party is also proposing bonding students, and writing off student loans. They suggest repayments should start when one is earning 150% of the average wage and a five year period of grace. United Future proposes a zero-fees policy for tertiary education in place of the student allowance meaning students can only borrow living costs. NZ First is suggesting match a dollar for dollar on repayments. I like the Maori policy. While I am not sure how we can pay for any of it, it is worth finding a way to do it.

There is an oppressive sense to the loans system. It is designed to level the playing field so all can do tertiary education, yet it is not working in this way, with Maori and it further marginalising the poor. Those who want to study know that if they do, they will likely carry a massive burden into their working lives—something they may never overcome.

I encourage all to consider this as they vote this election. 

  
 

 
 

15 comments:

Stephen K said...

Hmmm, interesting thoughts Mark..

I really can't speak for people who decide to contribute to society in a way that isn't fairly rewarded financially (Arts, Social work, Teaching etc.), but from an engineer's (or other degree that will get you a better paying job) perspective, in most cases it's gonna be your own fault if your student loan becomes a noose.

I like the idea of FEES being paid for/slower to pay back for everyone, but ideally there would be a fairer way to distribute living costs. At the moment people in my situation are blowing ridiculous amounts of money (which becomes a huge student loan) on food, beer and cars while the BAs struggle along at McDs.

I do like the idea of only paying back the loan when earning %150 of the average wage, this sounds like a good idea.

Ideally everyone would do there best to pay back their loan to help the economy and also use their degree to contribute to our country's well being somehow, then we'd all be a big happy family :)

brookwarner said...

I'd love to know how the debt becomes a "noose"? It's interest free, it dies with you, and minimum repayments are very little per week.

Mark Keown said...

It becomes a noose for several reasons. First, the interest free dimensions makes younger people feel unconcerned about racking it up. I know a heap of people who now look back and deeply regret it. Secondly, it dies with them, but what about when they are living. Thirdly, it is not until you get out and find out how hard it and expensive it is in our culture to realise it is a noose. I value tertiary education highly enough to believe there must be better models. Perhaps, we change the interest rate option so that they can "work it off" by remaining in NZ and if they don't, after a while interest kicks in and hard. Most of the reason it is a noose is because younger people don't look forward to consider implications. I never did at that age. It is a noose even with the help they get. It would be worse if it was not interest free.

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