Thursday, 11 August 2016

Zero percent

I kinda agree with the Child Poverty Action Group on student loans policy.

Last week, CPAG issued a report on student support making the following points:
  • Tertiary participation rates peaked in 2005 and have declined since;
  • Access to loans has been getting harder: restrictions in borrowing for part-time students and for older students, lifetime maximums, limited borrowing for living costs;
  • A third or so of full-time students are eligible for student allowances (means-tested), with drops in access with a freeze on the nominal income threshold;
  • Accommodation supplements for low-income students are pretty poor as compared to accommodation benefits for the unemployed, and especially where CPI adjustments understate the increase in rental costs; 
  • Students have been turning to other sources of credit, including credit card debt, to cover the difference;
  • Interest-free loans let the wealthy cover their kids' education while pocketing the interest rate difference between 0% loans and the term deposit rate;
  • Secondary schools aren't properly preparing Maori and Pasifika students for tertiary education, forming a barrier to their accessing tertiary study.
There's not much to disagree with here. 

In the press around the report, Auckland University's Susan St John suggested that the government could reintroduce interest on loans as a way of funding things like allowing more borrowing and funding more generous means-tested support for tertiary students; I didn't see that come through in the report.

That's a theme I'd have liked to have seen more of in the report. The symptoms that CPAG finds, in my view, are direct consequence of the costs of lending at zero percent. To prevent people from borrowing infinite amounts and putting it into Rabobank term deposits, the government had to cap how much students could borrow at zero percent. Any cap that would be generous enough to accommodate the needs of the most needy students would provide substantial arbitrage opportunities for every other student. And so the caps have to be binding. There are lots of consequences of this stuff, not just for students but also for tertiary institutions. 

Next week, The Initiative will be releasing Khyaati Acharya's report (with some editorial contributions by me) Decade of Debt, taking a retrospective look at the Labour/National zero-percent loan policy. I'm a lot closer to Susan St John than I am to Minister Joyce on this one. Reintroducing interest would not really add that much time onto repayments and could allow a lot of other problems to be solved. 

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