Labour's Proposal Will Double Student Debt

Published: Wed 29 Sep 1999 10:55 AM
Labour's policy for interest free loans while students are studying will double student debt, and will cost the taxpayer over a billion dollars, says ACT Leader Richard Prebble.
"A third of all students today have no debt. But every student will have a huge incentive to take out the maximum loan if it's interest free, even if they intend just taking the money down to the local savings bank to earn the interest.
"Unfortunately, between receiving the loan and getting to the savings bank, many students will find the temptation too great and will spend it on a trip to Bali.
"Labour says its tertiary pledge will cost the taxpayer another $700 million, while its income tax proposal will raise only $330 million - so where is the extra money coming from? Maybe it will come from their coalition partner the Alliance's proposal for a land tax, which is of course a tax on small business.
"The figure of $700 million is clearly wrong, because it assumes students won't borrow any more money when its interest free. Obviously they will. Student debt will double, so the real cost of this policy over 3 years has got to be $1.4 billion. This one policy alone will cost more than Labour claims it's going increase taxes by.
"There are things wrong with the student loan scheme. Students are paying too much interest because the students who do repay their loans are also being forced to repay the loans of students who are delinquent. This is something that Labour 's proposal doesn't tackle. Delinquent loans should fall on the government - and that would reduce interest rates by a third.
"Students' tuition fees are also too high because students are being asked to subsidise not just the costs of tuition but also university research which is over 40% of university costs," Mr Prebble said.

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