Last week PPTA and the Students Association took a hard look at the untenable situation in which many students find themselves. ‘Having to borrow to eat’ as panellist Grant Robertson put it at the conference. The latest Students Association Income and expenditure report paints a grim picture of increasing student hardship and mental distress.
Many leave university with eye-watering levels of debt, not just to the student loan scheme but increasingly to fringe lenders and credit card companies, (to say nothing of the bank of Mum and Dad).
Grant Robertson himself remarked he was a student at the ‘unluckiest’ time, in the 1990s, when high interest student debt could compound out of control. In contrast I was a student at the luckiest of times, emerging from a first degree with no debt, in fact enjoying a subsidised last year with a teachers training college bursary. After another subsidised year at college there was a rich jobs market. I later had a second chance to reinvent myself and my career with a second degree. Oh how things have changed.
In 2005, the Labour government instituted full interest-free loans for New Zealand domiciled students. This was dismissed at the time as an election bribe and a betrayal of the role of market signals in allocating the educational dollar. While undoubtedly, interest-free loans also encouraged more borrowing by students from wealthy families and a reduction in early repayments, it also meant a fundamental improvement for low income students.
So yes, interest-free loans are good but, one has to ask, did they make it easier for government to ratchet up the fees? Between 2010 and 2015, the average fee rose 31%, outstripping inflation. Will this trend continue this month when the universities set their fees for 2016? More worrying, a raft of petty, sometimes major, changes in access to allowances and student loans has been this government’s way of making students pay for the costly ‘interest free’ policy.
From the vantage point of 2015 we can agree that interest- free loans made a bad policy less bad, and less dire for women. But outstanding loans have mushroomed as the Ministry of Education Annual student loan scheme report shows:
And gender does matter. Of those with student debt, 58% are women and 42% are men.
Women are leaving study with higher median balances that take longer on average than men to repay. As a rough rule of thumb women can expecton average, 80% of the pay of men, for 80% of the time for 80% of a working lifespan. They retire with significantly less wealth than men, but also live longer on average.
Averages and generalisations are easy, but to continue them it is pretty clear the model of student loans is a male model. It is predicated on the notion of a full-time degree, followed immediately by a well-paid job with rapid promotion and repayment of the loan within a short time horizon without impediments of children or other caregiving duties such as older parents.
Some women fit this male loans model and there are men it clearly doesn’t fit, but overall the policy adversely affects women whose lived experience is often very different to that of men.
Social security provisions that are tied in some way to paid work generally don’t work well for women. Those that are not tied to paid work like NZ Superannuation and free tertiary education are more beneficial. Policies conditional on paid work such as paid parental leave or KiwiSaver with employer subsidies, much less so. Similarly, income-contingent student loans require paid work for their repayment, placing many women at a disadvantage.
Having children requires two parents but is a highly gendered experience. Out of the workforce rearing their children, her student debt is put on hold, but if her partner may quickly get on top of his. Unlike repaying the mortgage that increases their joint property equity, repaying his loan benefits him alone. If the partnership breaks up, she still has her debt and with children may face years of restricted earning capacity.
There has been little thought give to how student loan repayments interact with other policies. Repayment is required from a very low income of just over $19,000 and at the punitive rate of 12%. If she has to go on Sole Parent Support, the repayments of her loan will reinforce the poverty cycle. Because the gross benefit is nearly at the low repayment threshold, it doesn’t take much part-time work to trigger repayments. An absurd situation is reached whereby if she earns over $200 a week, which is just 13.5 hours on the minimum wage, she faces an effective marginal tax rate that is around 100%. (17.5% tax+1.4% ACC+12% Student loan+70% loss of net benefit) A real poverty trap.
Over 90% of those on Sole Parent Support are female so it is a gender specific problem. The severe and punitive repayment regime can affect a woman’s capacity to live adequately over long periods, perhaps a lifetime, reducing her capacity to save for retirement. At the same time, there may be little human capital to show for her investment in tertiary education and she may never repay all her debt in her lifetime.
I have become very concerned at the absence of sole parents at university and the stress endured by the remaining few.
I met up again recently with a former student who has two young teenage boys. She had been attempting to do full time university on a benefit, surviving by drawing on foodbanks and supplementary hardship payments from Work and Income. No teenage mum, she is now age 39. She had been married, but he had been violent and left 7 years ago for Australia. Hardworking frugal, no car, not a smoker or a drinker but without adequate financial support she had to withdraw from study.
Today with two boys, one special needs, and in poor health herself she is unable to work consistently at a formal job. She has a student debt of $15,000. The debt seems unreal when she is trying to stretch the last $10 at the end of each week. It is not worthwhile to earn much on the benefit, nor can she be in KiwiSaver, nor can she re-partner because of relationship rules. She is caught in a cycle of fear, and is lacking a glimmer of hope for the future.
It is time to debate ways of reigning in the monster that student debt is becoming. Much more tax-funded support is required. Repayments could be subsidised or at least deferred while on a benefit or studying. Perhaps the government could recognise unpaid work and write off 10% of a mother’s debt for at least say the first 5 years of the child’s life. Repayments should be at a much lower rate from a much higher income threshold like in Australia. We should also be urgently debating how we could implement a fair system of debt forgiveness.