Comment: As a member of a generation that’s taken one unexpected economic hit after another, Laura Walters makes a very self-interested case for the government to wipe student loan debt
Imagine my shock when I opened my first student loan bill from IRD, mid-pandemic, without a stable income.
It wasn’t that I didn’t know the minimum $1000, twice yearly invoices were coming. But amid the turmoil of trying to stay afloat in the UK during Covid-19, I’d forgotten about this additional demand on my already stretched finances.
I had thought 2020 would be the year I’d pay off my student loan. Instead Covid-19 happened.
As part of a generation that’s been hit by one economic challenge after the next, student loan debt is just one of myriad factors that is making me reconsider what my life will look like.
But unlike other barriers to living a productive life, free from excessive financial stress, this issue is much easier to address.
Since 1992, 1.37 million Kiwis have borrowed money from the Government to study or train.
In those 28 years, they’ve borrowed a total of $28.8 billion, and repaid $17b of that.
In the 2020 financial year, the nominal value of all loans was $16.1b, with $1.6b of that overdue.
IRD spends millions each year ($2.2m in 2018) chasing down that debt, knowing it won’t recover much of it.
On a per-person basis, the average loan is $23,307.
A University of Auckland study published in 2019 says it takes 8.3 years for someone with an undergraduate degree to pay off their loan, and 7.4 years for postgrads.
But those numbers seem conservative when considering my own experience, and that of my friends and family.
Completing an undergraduate degree, a post-graduate diploma in journalism, and borrowing to cover living costs, left me with a loan of more than $55,000.
While journalism isn’t known to be a well-paid profession, I’ve managed to consistently increase my earnings during nine years in the workforce, and by the time I left New Zealand my salary sat at about $80,000.
Because of this I was able to knock off $35,000 of my loan through automatic payments made as a New Zealand-based employee.
And pre-Covid, with some savings in the bank, and plans to snap up a local job in the UK in 2020 - where I’d expected to be paid in pounds - paying off my loan balance seemed like a realistic goal.
My partner racked up a similar amount of debt, with an undergraduate degree and a post-graduate diploma in primary school teaching - a notoriously under-paid profession.
Despite picking careers with modest pay, we didn’t envisage being a decade out of university with five-figures of loan debt still hanging over us.
Looking back, there have been a series of global financial factors that have played a part in delivering us and our peers to this point, as well as some rather frustrating domestic components.
Millennials studied at a time when we were led to believe tertiary education was a requirement.
The global financial crisis saw the job market contract and an undergraduate degree became the bare minimum required to get a job.
Those out of work turned back to study and training to upskill or change careers.
When I graduated in 2011, finding a job was hard, and wages were low.
A decade later, just as our earning potential meets respectable levels, Covid-19 hits and another recession looms.
Not only have people lost work, but companies are now looking to hire “cheap desperate kids who will put up with anything”.
All of this is happening against a backdrop of unbridled growth in house prices.
My partner and I aren’t the only ones now asking whether we will ever pay off our student loan debt, if we’ll ever be able to own our own home, and if we can afford to have children.
This experience is typical of our friends and colleagues.
While some have had help from parents, scholarships, or work to cover their study costs, most left university with loans between $30,000 and $75,000. Those who studied medicine, or couldn’t complete their course on time, have been left with loans the size of a house deposit.
Some of those people have made extra payments and have now paid off their loans, while others are looking at another five or 10 years of servicing that debt.
Those who’ve moved overseas - for whatever reason - often watch their loans grow, with standard interest rates surpassing other borrowing rates both in New Zealand and overseas (3.5 percent). Penalty rates for overdue payments are even higher.
For some this is a lifelong burden.
In 2020, almost 2000 people had their loans forgiven because they died.
The idea that some New Zealanders will never be able to pay off their student loan - or will avoid tertiary study because of debt - seems incongruous with the value our society places on public education.
“The stress the debt causes students is also considerable and has significant impacts on their lives and careers." - Andrew Lessells, NZ Union of Students' Associations
Studies have also found student debt impacts on people’s life decisions, which in-turn impacts on society and the economy.
University of Auckland research says its impact on people’s decision to study in the first place is inconclusive, but it does affect what people choose to study.
There is evidence to suggest student loans drive graduates away from low-paying public-interest jobs, such as teaching and healthcare work, which has the potential to exacerbate labour shortages in those areas.
There is also evidence to suggest it impacts on people’s ability to buy homes, start businesses, get married and have children.
Of course, some studies find only women delay growing their family due to student loan debt.
Again, the academic research in New Zealand doesn’t match the anecdotal evidence.
In 2017, the New Zealand Union of Students’ Associations (NZUSA) surveyed 40 percent of all graduates, and found 88 percent expected student loan debt to affect their decision to have children.
And in 2020, New Zealand’s fertility rate sunk to an all-time low.
There are a range of reasons for dropping fertility, but as professor Paul Spoonley writes in The Spinoff: “Having children is replaced by surviving economically.”
While a smaller population might be seen as a good thing for the environment, it can also lend to an unbalanced population.
When the young, productive, taxable portion of the country becomes smaller than the over-65s, there are economic implications.
The NZUSA survey also found 79 percent of students expected their loan to impact their ability to buy a house.
The association’s national president Andrew Lessells says the impact student debt has on people “cannot be overstated”.
“The stress the debt causes students is also considerable and has significant impacts on their lives and careers,” he says.
“This isn’t a good way to graduate well-educated well-rounded citizens who can meaningfully contribute to the shape of Aotearoa.”
These are the experiences not captured in annual report infographics, or academic papers.
“People are retiring and dying with student debt. That is not equitable and is not just." - Andrew Lessells, NZ Union of Students' Associations
Of course, declining rates of home ownership aren’t just fuelled by student loan debt.
But successive governments have made it abundantly clear they will not take any bold action to bring down house prices.
And while they continue to do a dance of buck-passery with the Reserve Bank, there needs to be a discussion about other ways to help lower barriers to home ownership.
Cancelling student loan debt could be one of a suite of interventions to help Kiwis onto the ladder, and it comes with other economic and social benefits.
At $16b, student loan debt is a large sum, but to put it into perspective it’s a small fraction of the country’s housing loans at $315b.
And at the moment, loan debt is hurting the economy, holding back everything from small business formation, to new home buying, and even marriage and reproduction.
So rather than offering interest-free borrowing, or expecting people to refinance their loans, the Government could try something more ambitious.
The Levy Institute, a non-partisan think tank in the United States, makes a strong case for student debt cancellation.
It found positive macroeconomic feedback effects from running simulations through two different models for debt cancellation. It saw average households’ net worth and disposable income increase, driving new consumption and investment spending.
In short, the analysis shows debt cancellation would lift GDP, decrease the average unemployment rate, and result in little inflationary pressure, while interest rates increased only modestly.
Of course, there is also the values-based argument, which centres around the idea that all education should be free (within reason).
In a country where some form of higher training or education is now a necessity for so many, doing away with study fees and student debt is an obvious move.
NZUSA’s Lessells says debt has ruined the lives of thousands of students, and set back the goals of so many more.
“People are retiring and dying with student debt. That is not equitable and is not just,” he says.
“There is no economic argument that can be made to continue with this farce of system and no social argument that can justify the suffering that debt has caused the hundreds of thousands of Kiwis that have been through the tertiary sector.”
