Labour’s Student Loan Policy

Labour has announced it will scrap all interest payment on student loans. This will be popular in some areas, but I suggets people look very carefully about the motivations it now gives people:

1) You will be insane if as a student you do not take out a student loan. 100% of students will take loans out.

2) You will also be insane if you do not borrow the maximum amount. Even to stick it in the bank. Students are not stupid and like interest free money.

3) Likewise one would be insane to ever make a voluntary repayment. Given a choice of repaying a student loan or paying off a mortgage or even sticking money in a bank, there will be zero incentive to make voluntary repayments.

So what will be the overall effect of the policy? Total student debt is going to explode. It will be easier for some individual students, but overall student debt will have no limits on haw fast it will grow.

This is a prime example of something which looks attractive, but in fact is extremely bad public policy.