Upston Louise: Student Loan Scheme (Repayment Bonus) Amendment Bill — Second Reading 
Upston Louise: Student Loan Scheme (Repayment Bonus) Amendment Bill — Second Reading 
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LOUISE UPSTON (National—Taupo) 
: 
 I rise in support of the Student Loan Scheme (Repayment Bonus) Amendment Bill at its second reading. The bill will make a substantial difference to hard-working New Zealanders who have a student loan and who want to be proactive in paying off debt. This Government believes that people do want to pay off their student debt so that they can take on other projects in their lives such as setting up a business getting married having children or taking on a mortgage. This bill provides the incentive to do that so I strongly disagree with Mr Nash who said that this bill does not favour New Zealand students. Of course it does because New Zealand students like any other students around the world do not want to be burdened with debt indefinitely. This bill gives them an incentive and I think that that is what we should keep our focus on. This bill is about an incentive. It is about encouraging our young people to get out of debt faster. I will not go into the level of indebtedness New Zealand has; we have all heard and seen the figures. But with this bill we send an important incentive and an important message to our young people who have student loans that we will assist them and incentivise them to pay off their student loans faster. 
This bill amends the Student Loan Scheme Act 1992 by providing a bonus of 10 percent on any payments that exceed the borrower’s compulsory repayment obligation for a tax year by $500 or more. They can drip-feed repayments or they can make a one-off bulk payment once a year. The options are open to them in terms of how they wish to do that but the important thing is the message about encouraging borrowers to repay more than the compulsory minimum in order to pay off their debt sooner. Shorter repayment times mean that young New Zealanders will be debt-free earlier which frees them up to put other choices in front of them sooner. 
The secondary aim of course is to reduce the cost of the student loan scheme to the Government. The bonus will be credited to the borrower’s student loan account at the end of the tax year which will reduce his or her loan balance. For borrowers paying off their loan in full the maximum bonus payable will be one-eleventh of the loan balance. For example if the loan balance is $1100 the borrower would make a voluntary payment of $1000 and the maximum amount of the bonus would be $100. Borrowers wanting to repay their loan in full before 31 March 2010 will have a few options. They can pay the loan balance in full and the bonus will be credited to their loan balance after 1 April or they can pay ten-elevenths of their loan balance with their bonus being credited after 1 April 2010. 
I will focus for a moment on why it is important to provide incentives for students to reduce debt. A recent study conducted at Canterbury University by one its PhD students tracked 1232 final-year secondary school pupils through their first 2 years of university study. The study found that the students both underestimated the cost of tertiary study and overestimated what they would earn at the other end which is having a compounding impact on those who take on debt when they go to university. Nearly half of the students said that debt was a normal part of today’s lifestyle but if we talked to their parents or grandparents I think we would find that they have quite a different message. The PhD student said the students were not fully aware of the cost of a student loan and the options available so let us look at this in a bit more detail. The school-leavers estimated that their annual expenditure would be $12000 which is significantly less than the actual $19000. They expected to earn an average income of $11000 or close to $12000 and they overestimated that amount by $5000. 
The University of Canterbury Students Association has said that students are losing their concept of debt. That is a worry. I will share with members an example of a student I have been speaking with recently or I should say an example of someone who has actually completed university studies. This young woman was at university for 5 years. She went to university straight after school. She earned two bachelor’s degrees and an honours degree. Despite this young woman working part-time throughout her degree the balance of her student loan when she left university was $60000. Even though she now has a fulltime job this young woman will be 50 years of age before her loan is repaid based on the current minimum repayment amounts. That will be a huge obstacle in her future ventures in life whether it is starting a family taking on a mortgage or starting a business. The Student Loan Scheme (Repayment Bonus) Amendment Bill will be a huge incentive for students to pay off more than the bare minimum and be debt-free earlier. 
I will mention another study about students. The report  
Living with a Student Loan 
 incorporates Statistics New Zealand data from the Ministry of Education the Ministry of Social Development and the Inland Revenue Department. It is one of the few studies undertaken since student loan schemes were introduced. A couple of changes were made during the select committee process where the bill gets to be debated at length where we listen to submitters and where we take on board their comments. We made some minor changes in the areas of commencement provisions—for non-salary and wage earners and also for the multiple voluntary payments made in a year—but I remind the House that this is yet another pre-election commitment on which this Government is following through. This is a Government that does what it says it will do. We are keeping our promises. 
In terms of this particular bill which was an election promise that we are delivering here today there is a public perception that student loan balances are very high and that it takes borrowers years to repay them. Since the inception of the interest-free component from 1 April 2006—surprise surprise—there has been a downward trend in student loan repayments received directly from borrowers and also a decrease in the number of people who fully repay their loans each year. Who pays for that? Well it is hard-working New Zealanders; it is the taxpayers of this country who pay for student loans that are not paid off early. As Mr Douglas said it is hard-working New Zealanders—perhaps those who do not have a tertiary education or those who left school perhaps at 16 or 17 and went straight into the workforce. It is their hard-earned tax dollars that are paying for student loans when we are offering students with loans a means for them to be debt-free earlier. We are giving them the opportunity to rid themselves of their burden of debt earlier by incentivising them to pay it off. We are not presuming that hard-working New Zealanders who do not have a tertiary education should carry that burden. We are putting in place incentives for students with loans to pay off their loans. 
It is estimated that student loans will grow to $15 billion by the year 2014. That is an extraordinary amount. There is no time limit on entitlement for this bonus scheme. For example if people have worked for a few years and are in a better financial position then they are able to make those extra payments later in their working life. That will fit in with this scheme. They will be able to take advantage of the bonus incentive when it better suits their financial position. We are not saying that there is an expectation on those who have just come out of university and taken on their first job to start their repayments straight away. It is entirely up to them and it is a matter of when their financial circumstances suit them. We are giving them that choice but more important we are giving them an incentive. 
I add that as well as this bill delivering on an important national election promise in this bill we are going further than we promised we would. This is an example of where the bill is more generous than what was promised before the election because it includes overseas-based borrowers. It is not limited to repayments made 10 years after a person graduates and the $500 repayment does not have to be made in one hit. We know that in terms of cash flow it would make it easier for a lot of people if they were able to spread that payment over a longer period of time. All these changes where we are over-delivering are good news for those people who want to pay off their student loans sooner. 
This bill is a significant step to encourage student loan repayment and more important to reduce the overall repayment times. The message very clearly is that our young people will be debt-free sooner and that is an important thing for all New Zealanders. I am pleased to support this bill.