Adding interest to student loans ‘scary’

University students and school leavers are balking at the idea of interest being added to student loans.

The Productivity Commission has recommended the Government consider making students pay interest on their loans to cover the cost of the loan scheme.

The commission is also suggesting the Government increase the income threshold for repayments, and is seeking feedback on an idea to give all New Zealanders a $45,000 ‘‘budget’’ to spend on tertiary study once they turn 16.

Scrapping University Entrance and allowing tertiary institutions to set their own entry criteria has also been put on the table.

The recommendations are included in a draft report as the commission undertakes a yearlong investigation into universities. It was prompted by concerns around universities’ ‘‘inertia’’ in responding to the needs of future students.

Not charging interest on student loans was costing the country about $300 million a year, commission chairman Murray Sherwin said. ‘‘It’s a big lump of money and it’s not, by our reckoning, the most efficient way to spend it to get value for kids in a post-secondary, post-compulsory system.’’

Interest on future loans could be charged at a rate that covered the cost of running the scheme.

But students say that, if they had to pay interest on top of already ‘‘intimidating’’ amounts of money, they might reconsider their options.

Anneke Tomkins, in year 13 at Auckland’s Diocesan School for Girls, planned to study medicine next year, a long and expensive course. The idea of having interest added to her loan was daunting.

It had been suggested the money from interest could go back into education but Tomkins believed that funding could come from somewhere else.

‘‘I 100 per cent support providing opportunities for people to go to university, I just don’t think the money would be coming from the right place.’’

Victoria University first-year student Morgan Probert said he had heard ‘‘horror stories’’ of

Abolishing University Entrance, leaving all universities free to set their own entry requirements.

Reforming the Ministry of Education’s approach to schoolbased career education, so students, from an early age, develop the skills and knowledge to make effective decisions about their study options and career pathways.

A new quality control regime for tertiary education that encourages innovation, takes a risk-based approach, and enforces minimum standards of quality.

Students should be able to mix and match courses from different providers.

Every student should receive an invoice from their provider for government-subsidised education. This should explicitly show the full price of education, and the Government’s contribution alongside the fee payable. people coming out of university with six-figure debts.

He might have considered a trade, rather than tertiary study, if the student loan scheme had changed. ‘‘I would have wondered if it was worth going at all.’’

The commission also sought feedback on everyone who was 16 being given a grant of $45,000 to go towards tertiary study, through a voucher-like system.

Probert believed a $45,000 allowance for 16-year-olds to spend on tertiary education would be better spent on subsidising bachelor degrees.

‘‘Giving that much money to 16-year-olds and trusting them to make proper decisions for their future . . . that’s ridiculous.’’

Ali Leota, also a first-year student at Victoria, said the recommendation to bring interest back was ‘‘a bit unfair’’. He definitely would have thought twice about going to university. Adding interest to loans would make inequality deeper, rather than less.

‘‘It’s scary, it is a big issue. You don’t really think about it until you’ve entered the real world of the workforce, that’s where it really hits.

‘‘It makes it harder for Kiwis to be homeowners.’’