Scoop Analysis: Student Loans And The Brain Drain

NEWS ANALYSIS

The relationship between the $3 billion student loan debt and record numbers of young New Zealanders who are leaving this country has become an issue which the government is being pressed increasingly hard to deal with - not the least by their own rhetoric.

Figures released by Alliance Education spokesperson Liz Gordon show that the students or ex-students leaving New Zealand for abroad owe 21 per cent more in student debt than those who stay.

Currently over $100 million is owed by nearly 4,000 students who have decided to leave New Zealand, and the highest student debt of a person overseas is over $100,000. The average debt for students or ex-students in New Zealand is $11,000 whereas that debt for those who have left the country is significantly higher at $14,000.

These figures support the claim that rising student debt is acting as an incentive for loan borrowers to pack up and leave. Over 20,000 people under the age of 30 leave New Zealand every year and among this number appear to be some of our brightest young people.

Indeed as an opposition politician said earlier this month, our young graduates have fast become one of New Zealand's biggest exports.

This must be a big worry for the government who consider the $3 billion debt as an asset on their balance sheet. They know that this debt is projected to increase about $1 billion per year from here on in, and that the average student loan debt has doubled over only the last two years.

Current projections indicate that by the year 2020 student loan debt will be around $20 billion - roughly the same as present net public debt.

The full impact of spiralling student debt is only now beginning to sink in and the issue now promises to be a key election issue. A revue of the loans scheme was completed last year and some minor changes made, such as the abolition of lump sum payouts in favour of drip feeding.

However the revue appears to be ongoing and a spokesperson from Education Minister Max Bradford's office confirmed today that Treasury is looking further at the scheme.

Meanwhile the Minister himself has been making a great deal of the need for New Zealand to consolidate a "knowledge base" and he will be aware that this goal is at odds with the loan-driven brain drain the country is currently experiencing.

It is worth pointing out that, in his address to the National Party conference, Treasurer Bill English made reference to how long it would take a woman to pay back a student loan.

Prime Minister Jenny Shipley however, seemed to miss the point, saying that increased taxation under a Labour-Alliance coalition would ensure "Bright young graduates would look elsewhere".

They are looking elsewhere right now. In droves.

Recently there has been some speculation the government has delayed launching its White Paper on Tertiary Education because it recognises changes are needed to the loan scheme and needs time to formulate a reform package.

Max Bradford has said a new policy framework for the tertiary sector is to be announced at a conference in mid-August following extensive consultation with institutions, providers and students.

One could almost guarantee that, given the level of concern at the state of the student loans scheme, the need for significant amendments to the scheme will be forcefully bought home to the government through this consultation process.

The fact that the Treasury are involved in this revue also promises to be interesting. Treasury will know that it is false economics for the government to continue representing the student loan balance as a simple cash asset, given that the scheme will never return what is currently projected.

Treasury will know that the student loans scheme is clearly unsustainable.

People are defaulting on their loan debt by skipping the country and others, women in particular, will often die with an outstanding loan balance. Given the huge public concern and the inconsistency between the current scheme and wanting to retain young talent, this is not obviously a loans scheme a government would want to carry into an election campaign.

Sweeping changes to the scheme are clearly needed. The question is whether the government will admit this before or after this year's election? They have been slow learners to date on this issue.

The government have been approached a number of times by private sector companies wishing to purchase the loan scheme as a cash asset, however Tertiary Education Minister Max Bradford has been unequivocal that the scheme is not for sale.

But, given the recurring headache that the scheme must cause the government, one can imagine he has been sorely tempted.

New Zealanders are only now beginning to feel the effects of the student loan scheme. The first graduates who used the scheme to cover the rising costs of an education - fees have tripled since 1991 - are now looking for work, mortgages and are facing starting their working lives owing tens of thousands of dollars.

The downstream effects of the student loan scheme promise to haunt a generation. We will see the effects over the next five to ten years.

Liz Gordon uses the example of a young New Zealand woman, currently overseas, whose student debt is increasing at the rate of $120 per week, or $6,240 per annum. "What incentives are there for these talented people to come back to New Zealand?" she asks.

Whether you agree with Gordon's politics or not, it is certainly a fair question. The student loans scheme is a huge push for students considering taking their skills elsewhere. And a huge barrier for those who would otherwise have returned.

Whether the government have in fact recognised the loans scheme as the extremely serious social and economic problem that it is remains to be seen. And so does the other partys' approach to the problem.

The debt is now such a major part of the balance sheet that drastic measures to deal with it look more and more unlikely. Labour are set to announce their education policy any day and, as the main opposition party, they will feel the responsibility to future generations to deal with the scheme decisively.

Virtually every young New Zealander will hope they can.

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