Sparing the interest doesn’t spoil the child

No government that reintroduces interest on student loans should take another term in power for granted. Too many people - students past and present and their parents - have benefited from the scheme to take its axing lying down.

So the call from a right-wing thinktank to put interest back on loans because it’s costing the country $600 million a year is really just a shout into the wind. It won’t happen. Quite apart from avoiding the political risk there are valid reasons to keep student loans interest-free that a balance sheet of financial costs and benefits can not adequately convey.

To understand those benefits it is worth going back to the early 1990s when university fees began to rise quickly and loan interest was introduced. Suddenly, tertiary education was not largely free. Suddenly, it cost a lot and students, who grew up with the expectation university would cost them little but four years of relative poverty and hard work, were expected to keep paying for their education well into their 30s.

Those who took out loans had little understanding of the impact 9 per cent compounding interest would have on their lives down the track and many were horrified to find their loan growing faster than they could pay it off, even when they found a job.

Many took the decision to leave the country in search of work that would make paying off their loans easier. Others simply left to escape a debt they felt they could never repay. Undoubtedly, many would have left anyway, that’s what Kiwis do, but the loan was always there to help tilt the argument in favour of going rather than staying.

Even a right-wing thinktank would acknowledge the inherent inefficiencies in any policy that increases the number of students heading overseas after a country has invested so much in their education. So anything that can limit that should be taken into account when tallying the true cost of interest-free loans to the country.

There is no question some students abuse interest-free loans. They take them out and invest them somewhere else for personal gain. Those who do this will manipulate any system and we cannot build our policies around them. But there is also no question the majority use interest-free loans to make themselves better – to lead a more fulfilling life. Whether they would express it in such idealistic terms is another matter.

That they live in a country that’s willing to give them that opportunity at a favourable rate is sending the message their success is important and worthy of every investment that can be afforded. That matters because it’s things like this that make New Zealand the type of country you can be proud of – that make it the type of country you want to call home.