WILL FEESFREE CHANGE LIVES?
Simon Collins talks to Kiwis who are battling the burden of student loans
When university started last year, more than 46,000 students walked into class with one less burden than those who have gone before them.
They didn’t have to worry about how they were going to pay for their first year of study. They could focus on learning, not debt — roughly to the tune of several thousand dollars.
The 2018 cohort of tertiary students were the first in 29 years to benefit from essentially fees-free study, unlike hundreds of thousands who have gone before them and ended up with loans reaching well into the tens of thousands. The top 10 borrowers still owe more than $400,000 each.
Released from at least part of their debts, how will the lives of this generation be different from those who had to pay for all of their study?
Will it encourage more young people to pursue higher education?
Some surveys indicate that has been the case, but it is early days.
The savings
Most first-year domestic tertiary students have saved an average of nearly $7000 since last year under the fees-free scheme.
Those whose family incomes are low enough to get student allowances — about a quarter of them — should be able to come out of study that much less in debt than those before them. That’s a significant saving on average debts of $27,000 for students leaving bachelor-level study in 2016.
That saving is already relieving financial stress for hard-up students, and is encouraging a few more people to give tertiary study a go.
In the longer term, it may also reverse some of the changes the student loan scheme has wrought in “Generation Debt”, the group who started tertiary study in the years from 1990 to 2017 when they had to pay significant fees every year.
The fees-free generation may feel slightly more free to make life choices based on lifestyle rather than just pay, to cope with living expenses better after paying off loans faster, and buy homes sooner.
These effects may be slight as long as only the first year of study is fees-free. The Labour Party promised at the last election to make three years fees-free by 2024 but that is now in doubt.
On the other hand, if the National Party wins next year’s election, it says the fees-free scheme will not survive “in its current form”.
Giving study a go
The evidence suggests that making the first year fees-free from last year has enticed more people to give tertiary study a go.
At first glance, it’s hard to see any sizeable effect. The number of fulltime-equivalent students dropped by 1 per cent and workbased trainees fell by 5 per cent, last year. Universities NZ says domestic university enrolments have fallen by a further 0.7 per cent this year.
However, Ministry of Education forecasts last year, without allowing for fees-free, projected a decline in the number of students based on low unemployment rates so it’s no surprise there are no large increases in enrolments.
That doesn’t mean the initiative isn’t working though.
A survey of all first-year students at Canterbury University last year found that 6 per cent said the feesfree policy had “a lot” of influence, and a further 29 per cent said it had “some” influence, on their decision to enrol.
A smaller survey of 150 stage one psychology students found 20 per cent said they would not have enrolled if they had had to pay fees.
A survey of 297 students who got the fees-free subsidy at Napierbased Eastern Institute of Technology (EIT) found that fourfifths had already decided to study before the subsidy was announced, but 90 per cent of those who had not already decided said the feesfree policy encouraged them to study “some” or “a great deal”.
EIT researcher Pii-Tuulia Nikula found that older students, aged 25-plus, were most likely to say the fees-free policy encouraged them to take up study.
But there is no sign of this in the national statistics, which show a slight drop in the proportion of people aged 25-plus in tertiary education last year, in line with the decline in unemployment.
If fees-free had any effect, it was in the 18-19 age group where the proportion in level-3-to-bachelor’s study levelled off last year after declining since 2012.
Most older people are shut out of fees-free because they have already done some tertiary study.
Less debt, more freedom
So far the fees-free scheme has had only a modest effect on total student debt. Although borrowing for course fees last year fell by almost $200 million, borrowing for living costs rose by almost half of that because both student allowances and the maximum loans for living costs were raised by $50 a week — an amount that has to be paid back.
It is still a sharp break with the past, though. Students who started last year are likely to be the first cohort since 2006 to complete their bachelor’s degrees next year with less debt than the previous cohort.
Economist Isabelle Sin, who found that graduates with bigger loans between 2005 and 2013 were more likely to move regions to seek higher-paid jobs, expects that to reverse when the average debt falls.
“If you benefit from fees-free, you will come out with a much less powerful driver to go to the highestpaying job in the country you can find,” she said.
“Students coming out of fees-free will be more likely to go and live where they want to live for lifestyle reasons, and less likely to choose the highest-paying jobs.”
In 2016, half of bachelor-level graduates were expected to repay their loans within nine years, and 90 per cent within 21 years.
Less borrowing means that on average they will pay off their loans faster. The 12 per cent student loan surtax will drop out of their taxes at younger ages, relieving financial stress in the child-rearing years and making it easier to afford a mortgage.
What’s next?
Labour’s 2017 election policy promised to extend fees-free to two years from 2021 and three years by 2024, to “reverse the worrying decline in tertiary participation” and to “equip the younger generation for the jobs of the future”.
Its manifesto earmarked $340m a year from last year, $743m a year from 2021 and $1.2 billion from 2024.
But it actually spent only $300m on free fees in the year to this June. Finance Minister Grant Robertson said the original costings assumed enrolments would rise by 15 per cent. In fact, as we’ve seen, they fell.
Robertson said no decision had been made on whether to extend free fees to a second or third year, saying that remained Labour Party policy “until it’s not”.
The Ministry of Education website records that the ministry briefed Education Minister Chris Hipkins on August 13 on “options to expand fees-free”.
Asked to elaborate, Hipkins gave the Herald a brief statement: “As outlined in the Speech from the Throne, the Government will look at expanding fees-free in future terms of government. Any changes to the student loan policy is a matter for future Budgets.”
Universities NZ chief executive Chris Whelan says he would be surprised if Labour makes the second year fees-free, and suggests that the extra $250m a year that it would cost could be put into more targeted support.
“There are models,” he said. “Waikato University offers a system where they send a bus around all
their local schools so the schools that can’t afford to run the full secondary school science curriculum can send their kids to do it at university. “Massey sends out university teachers to schools to support schools in the science curriculum.” National Party tertiary education spokesman Dr Shane Reti also mentions Waikato’s bus, saying the best way to lift access to tertiary learning is to close the shocking gap in school eavers with University Entrance 71 per cent in decile 10 schools and 13 per cent in decile 1. “Fees free is the wrong lever to increase participation,”p he said. “On a principled basis, in its current form, we will not be supporting fees-free. “We are looking at what our policy will be, but it will be on a principled basis that support for students will be through levers that increase participation, and increase completion rates, in a way that is sustainable.”