English Bill: Questions for Oral Answer — Questions to Ministers 
English Bill: Questions for Oral Answer — Questions to Ministers 
[Volume:627;Page:22119] 
3.  
Hon BILL ENGLISH (National—Clutha-Southland) 
 to the  
Minister of Education 
: Does the estimated cost of “a maximum of around $300 million” for the policy proposal to abolish all interest charges on student loans for all students and New Zealand - based graduates from 1 April 2006 include the cost of an increased number of students taking up student loans; if so what is the expected increase in student loan uptake? 
Hon TREVOR MALLARD (Minister of Education) 
: 
 The maximum is $302 million in 2008-09. The cost is based on 70 percent of full-time and 13 percent of part-time students paying their fees through a student loan and up to 50 percent of full-time students drawing down living costs. The costing is also based on up to 60 percent of full-time and 18 percent of part-time students drawing down course-related costs. 
Hon Bill English 
: Can the Minister confirm that after “no interest while studying” was introduced the average loan balance rose by $2700 to $14500 and the proportion of students who took up student loans rose by 20 percent; and why does he imagine that an average 18 or 19-year-old will not take the opportunity to borrow more money and hold it for longer when there is no interest on the loan? 
Hon TREVOR MALLARD 
: I apologise in advance for this answer being slightly longer but it is an important point. The first point is that in 1999 there were 296000 equivalent full-time students. By 2003 there were 428000 equivalent full-time students. The prediction in June 1999 under the previous Government was that in 2005 total student loan debt would be $7279 million. The current estimate of student loans is $7203 million. That shows that notwithstanding the change that has been made we are under what the track was for student loans when we came into Government; notwithstanding that there has been a massive increase in the numbers and that interest has been received whilst students are studying. Turning to the question of uptake that the member asked about in 2000 before interest-free loans the uptake rate was 55 percent. In 2004 following that and following some behavioural change the uptake rate was 55 percent. 
Lynne Pillay 
: What feedback has he received on the proposal to scrap interest on student loans? 
Hon TREVOR MALLARD 
: I think it is fair to say that Kiwis love it. I have had feedback from nurses doctors teachers parents grandparents students uncles aunties and through Marian Hobbs’ daughter and everyone loves it. People are so keen to see how this works that over 300000 people have checked out the website. However I give one warning. If people have less than a year left of study there is a technical error on the website that is giving inaccurate results. For the people who had a loan under the Tory policy and who would have taken 30 years to pay their loan back the figures are quite accurate but for those who have a few weeks to go it needs a bit of fine-tuning. 
Hon Brian Donnelly 
: Is it not true that over 30 percent of full-time students take out no student loan whatsoever and is it not a foregone conclusion that Labour’s interest-free policy will guarantee that that percentage drops rapidly to zero? 
Hon TREVOR MALLARD 
: Yes and no. 
Deborah Coddington 
: Why will the Minister not tell the country what both Treasury and the Tertiary Education Commission told his Government in 2000—that the real cost of writing off interest on student loans at net present value is not $300 million but $4.5 billion or is he worried that Kiwis will not love that one? 
Hon TREVOR MALLARD 
: The Tertiary Education Commission did not exist in 2000. 
Nandor Tanczos 
: What is the estimated cost of the other half of that policy initiative which is to ensure that 50 percent of full-time students become eligible for a student allowance in the next term of Government? 
Hon TREVOR MALLARD 
: I do not have those figures with me but I do want to point out to the member that it is not a lot extra because already built into the baselines for the last financial year and for this financial year in fact were estimates that would have a much higher uptake of student allowances. Of course the booming economy has meant that that has not been the case. 
Bernie Ogilvy 
: What confidence does the Minister have in the estimated maximum cost of the $300 million for zero-interest charges on student loans when the response of Associate Minister of Finance to my written question asking how much it would cost to make a much smaller cut to the interest rate of 3.7 percent was that: “The fiscal cost to the Government is difficult to estimate with any degree of accuracy as there are likely to be large changes in the number of borrowers and in the size of the average loan as a result of such a policy change.”? 
Hon TREVOR MALLARD 
: I agree with the Associate Minister of Finance—[ 
Interruption 
]; the other one I hope—that it is difficult to calculate. 
Hon Bill English 
: Can the Minister confirm that a student who is currently fully supported by his or her parents and is eligible for a student loan but does not have one will be able to take up his or her interest-free student loan for living costs and put the $150 per week directly into an interest-earning bank account and therefore be better off; and why should taxpayers pay for that? 
Hon TREVOR MALLARD 
: Some things have changed in the last few years one of which is that interest came off student loans quite a few years ago. They could have been doing that for a number of years and it has not— 
Hon Dr Nick Smith 
: Rubbish! 
Hon TREVOR MALLARD 
: The member says “Rubbish”. It has not happened to the extent that it would make behavioural change and the member is just wrong. 
Nandor Tanczos 
: Can the Minister confirm that his answer to my previous supplementary question—that the increase in eligibility would not cost very much—means that the Government does not intend that many more students will be eligible for a full allowance just that a whole bunch more will get $5 a week? 
Hon TREVOR MALLARD 
: Not at all. 
Rodney Hide 
: Referring to the Minister’s answer to the primary question which estimated the costs could he tell the House what percentage of eligible students who can take out a loan he is assuming will not take out a loan at the full amount? 
Hon TREVOR MALLARD 
: Quite a wide variety depending on the component of the loan. 
Hon Bill English 
: Can the Minister confirm that it is now the Labour Party’s position that in charging no interest on student loans students are likely to borrow less and pay it off quicker or does he accept the common sense of everybody else—that if the loans are completely interest free students will borrow more more of them will borrow and they will have much less incentive to pay it back? 
Hon TREVOR MALLARD 
: I think my best estimate of the situation is that they may borrow slightly more and they will pay it off much more quickly.