The upside: Better earning potential

Damion Mitchell is a 39-year-old father of two who is still paying off a good chunk of his $100,000 student loan — but he says he wouldn’t change a thing.

The software engineer from Tauranga and Hamilton started borrowing when he was 16 to do short courses in business, then computing, then chef work and hospitality, accumulating debts of more than $10,000. He then started work in minimum-wage hospitality jobs, unsure of his goals.

He was typical of many young people in the 1990s/2000s who took advantage of the loans to try out different things. Some didn’t care about the cost, others were happy to take a gamble that the growing debt would pay off when their qualification landed them a well-paid job.

The question now for those still repaying debt is: Was it worth it?

At 27, Mitchell hit the books again, this time to do an information technology (IT) degree at Waikato Institute of Technology (Wintec). That’s when his loan peaked, but the degree also enabled him to get much better-paid work and he is now on an “above-average” income as an IT consultant.

Two years ago he was borrowing again to do an online Master of Business Administration (MBA) at the University of Otago. He is still doing it even though he has taken a work contract in Melbourne this year. His loan is still about $30,000.

“I’ve had student loan debt my whole life,” he says.

But, unlike many others, the debt hasn’t stopped him from having children or buying a home and, despite ending up overseas, he has no regrets about taking on the loans.

“When I was back in New Zealand, you don’t notice it. It’s well worth it,” he says. “It’s definitely less money that’s coming in, but we never went without.”

Mitchell is one of 708,518 Kiwis still repaying student loans.

Student fees and loans were introduced 30 years ago on the basis that most graduates gained financially from their education by getting higher-paying jobs, so they should pay for a share of it.

Taxpayers fund 81 per cent of tertiary education costs, while students pick up the rest. On average, the investment has paid off for graduates and our economy.

Over a 40-year career, the OECD says, the average tertiary-educated Kiwi male ends up nearly $380,000 better off over his lifetime than someone who had only a schoollevel qualification.

The returns on study are less for women because on average they earn less and have more time out of paid work, but their average net lifetime gain is still a tidy $318,300.

The Government also profits, making a net lifetime gain of $140,400 from male graduates, and $65,200 from women, through the tax paid on their higher incomes.

But some graduates have taken on so much debt (the highest loan amounts sit above $400,000) they have been declared bankrupt or live overseas, afraid to come home where they can be arrested at the airport for overdue payments.

Some say they’ve delayed having kids or been unable to afford a home till much later in life and wonder if the borrowing was really worth it.

Others say the debt was difficult but their study resulted in a decent job and better income than if they had not taken a student loan.

Researchers say there is some evidence the scheme has driven borrowers to seek higher-paying jobs so they can repay debts faster.

And that may be exactly what it was designed to do.

Hiking fees from negligible levels before 1990 to an average of $6900 a year today was intended to make students weigh the costs of study against the likely benefits, reducing the amount of taxpayer spending being “wasted” on study that didn’t lead to high-paying jobs.

The loan scheme, introduced in 1992, intensified the financial calculations. Students then had to weigh up not just the cost of their study, but also the future interest costs of borrowing to pay their fees, against their likely future earnings.

That interest cost was removed in 2006 for people who stayed in New Zealand, but still applies for NZ graduates who go overseas for at least six months.