Zero percent blues

There's always an opportunity cost.

Tertiary education is heavily subsidised in New Zealand. While students pay tuition, their tuition fees cover a bit less than 20% of the cost.

And subsidies provided through the zero-percent student loan scheme are substantial - every year, the government writes down the value of the loans provided to students to reflect the combination of students who'll never pay the thing off because they don't hit the income thresholds for repayment, the students who'll just default or run overseas, and the value of the interest-rate subsidy. That's running around $650 million per year.

We'd argued that the government should reinstate interest to make the loans-scheme self-financing and use the savings to improve tertiary access in two ways: improvements in schools that need help in getting kids ready for tertiary in the first place, and means-tested funding to support tertiary students in greater need.

One consequence of the 0% loans scheme is that the government has to restrict access to loans to prevent people from borrowing infinity dollars and making an arbitrage play. And so there's a maximum number of EFTS that you can take before you can't borrow anymore. It's binding for medical students. Some of those students might have hoped the new government would ease that back; they would have been disappointed.

Labour's instead followed through with their promise to abolish tuition fees for the first year of university study.

Here's Stats New Zealand on the effects of the tuition-free policy:

The introduction of the Government’s new ‘first year free’ policy for tertiary education had a dampening effect on inflation for all households. The highest-spending households received the greatest benefit because they spend proportionally more on tertiary education.

Hooray! The cost of that? A funding freeze for the universities, or something close to it. Here's Times Higher Ed:

New Zealand universities’ worst fears appear to have been realised, with the staged elimination of tuition fees costing them any hope of a funding increase.

The Labour-led government’s first budget, handed down on 17 May, included almost no additional money for higher education. Representative body Universities NZ said that this would leave institutions about 3 per cent worse off in real terms over the next 12 months.

“This is the first time, in as long as our records go back, where there hasn’t even been a nominal cost-of-living increase,” said UNZ executive director Chris Whelan. He said that, while inflation in New Zealand was running at about 1.1 per cent, the costs of universities’ principal expenses – salaries, construction and licensing – were rising at between 4 per cent and 5 per cent.

Fun times for the universities. We can hope this means the disestablishment of some of the various administrative Associate Vice Chancellors for Virtuous but Non-Academic Things that have cropped up, and their related offices and staffs,* but the better betting odds would be on cuts or freezes on the academic side.

* I'd expect Tim Hazeldine would be the one most likely to be running a tally of these things.