Expensive middle class welfare

Stuff reports:

The Government has written off $6 billion in interest on student loans in the last decade but a new report says the policy is a poor use of money and should be scrapped.

More than $1.5 million has been lent by the government to students in the last year alone and $602m was immediately written off, said Eric Crampton, head researcher at the New Zealand Initiative.

The loan scheme is a poor use of $6 billion and ultimately it’s a subsidy for “upper and middle class households who can afford to pay their own way,” he said.

It is very low quality spending. I’d much rather that money was spent on early childhood education or increasing Pharmac’s budget.

The only thing the zero interest policy does is shorten the repayment period and Crampton argues that for many it only cuts about one year off their repayment, which isn’t a lot for the sake of $6b.

“A student leaving university with $16,000 in student loans would take about an extra year to pay off their student debt if interest rates were 7 per cent rather than zero percent.”

At a minimum the interest rate should at least match the inflation rate, so students are not incentivised to borrow the maximum – even if they don’t need it.

Labour’s education spokesman Chris Hipkins takes that a step further and says taking away interest-free student loans “reinforces inequity”.

“It would make inequity worse because those on the lowest incomes would be penalised the most. It’s an incredibly regressive system.”

Hipkins is wrong. It takes money away from poor people who don;t go to university and gives it to doctors and lawyers.

Hipkins said the think tank was taking a “narrow view of the value of tertiary education”.

“This is exactly the type of ideological right wing clap-trap i’ve come to expect from the successor to the business roundtable.”

“They assume it’s all personal benefit, they don’t look at the fact we put significant taxpayer subsidies into higher education…because it is not a purely personal benefit, the whole of the country benefits,” he said.

The NZ Initiative has not made that assumption. Few argue that there are not country benefits from having a more educated population. That is why over 70% of the costs of tertiary education are met by taxpayers.

Labour of course want to have taxpayers pay 100% of the costs of tertiary education and have truck drivers pay even higher taxes so doctors and lawyers can get their degrees for “free”. This is what happens when most of your front bench are former student politicians.