1. Access to Allowances
   • Ensure that students are given equal treatment to young people on the dole by progressively lowering the age at which they are means tested for a student allowance based on their own income, and not their parents, from 25 to 20.
   • Assess the eligibility of married students under 25 for student allowances based on their own income, not their parents'.
   • Assess the eligibility for student allowances of students under 25 who have supported themselves for two years based on their own income, not their parents'.
2. Parental Income
   • Calculate parental income for student allowances by deducting $3000 for every other child in the family that is in study.
3. Accommodation Support
   • Ensure that students are fairly treated by increasing the accommodation supplement to match that received by young people on the dole.
4. Interest Payments
   • Recognise the impact of student loan debt on raising a family by freezing interest and writing off a portion of the debt of parents for two years after the birth of a child.
   • Ensure that the student loan interest rate is set at a level which is fair and meets the costs of running the scheme, and retain the present policy of no interest while studying.
5. Loan Write-Offs & Debt Reduction
   • Keep graduates in New Zealand and minimise their loan debt by establishing scholarships and loan write-off schemes for those who are qualified in fields facing shortages (e.g. doctors, nurses, teachers, social workers), in return for a continuous period of work in New Zealand.
   • Allow students to reduce their debt if they work for more than 100 hours as a volunteer for a registered charity (up to a maximum of $500 per annum).
6. Access to Emergency Unemployment Benefit
   • Restore access to the Emergency Unemployment Benefit for students unable to find work over summer period.
7. Scholarships
   • Establish a system of scholarships between tertiary providers and the private sector.
8. Voluntary Savings Scheme
   • Introduce a voluntary long-term savings programme that would allow parents to save for their children's future tertiary education from birth, drawing on contributions from relatives, the child him/herself, and appropriate incentives from the government.
9. Restrictions on Borrowing
   • Restrict students from borrowing more in student loans for their fees if they have continually failed to pass their courses.
10. Long-term Research
    • Commission research into the long-term impact of student loan debt on the life choices of graduates

United Future Student Support Policy
Questions and Answers

Hasn't the Government already made allowances easier to get?

Yes. Eligibility for allowances for students under 25 is based on their parents' combined income. Until recently, a student whose parents' earned $28,080 or less could get a full allowance, but the amount they received abated against every dollar earned over that, until beyond an income of $50,752 eligibility disappeared completely. Students living at home whose combined parental income was more than $45,760 got no allowance. Moreover, these thresholds had not changed since 1992.

After lobbying from United Future in the build-up to the 2004 Budget, the Government increased the thresholds to $33,696 for a full allowance and $62,148 as the upper threshold beyond which eligibility disappears (or $56,457 for those living at home). The Government has also enabled these thresholds to be adjusted for inflation. This has meant that 12,000 students who had received a partial allowance will get a full allowance this year, and 28,000 who would not have received an allowance will now get a partial allowance. In total, 22% of students under 25 are eligible for a full allowance, and another 31% are eligible for a partial allowance.

However, the Government has also cut access to allowances for those students under 25 who are married or who have worked for two years. Previously these students were assessed for allowances based on their own income, but as of this year they will be assessed based on their parents' income. This means that about 6650 of these students will miss out on an allowance this year, even though they have already demonstrated independence from their parents.

United Future does not believe that any student should still be considered financially dependent on their parents until the age of 25. The Government does not treat people under 25 on benefits this way, eg: they are assessed for the dole based on their own income. Not only are students then treated unfairly, but it sends the message that the Government prefers to pay a young person to do nothing rather than one seeking to further their education.

About half of all students under 25 miss out on allowances altogether, which is not surprising considering that for 2003/04 the average annual income for households was $60,433, which is on the outer limits of eligibility for allowance. In fact, a student living away from home whose parents earned that much would entitle them to meagre $8.25 in the hand a week.

United Future's solution is to progressively reduce the age at which students can be assessed for allowances based on their own financial circumstances, rather than those of their parents.

As a party that values fiscal responsibility, this policy needs to be implemented in stages given the significant cost involved. For example, reducing the student allowance age threshold for parental income testing to 24 would cost an estimated $33.6 million over three years. However, by helping students to pay for their living costs, we will be reducing their reliance on the student loan scheme, and removing debt as a negative factor in their lives after graduation.

How can the allowance system be made fairer in the meantime?

United Future would restore the eligibility to an allowance for those students with a work history and those who are married.

Currently, those students who apply for allowances can have their parental income reduced by $2200 for every sibling over 16 who is in full-time study. United Future would increase this to $3000 for every sibling still dependent on their parents.

United Future would also improve eligibility for the emergency unemployment benefit for students who are unable to find work over the summer months. Before 1998, all students over 20 received a benefit as long as they passed a means test, whereas students under 20 were means-tested on parental income, but then the National government changed the rules to only allow those students who receive an allowance during the year to access a benefit over the summer. At the time, Steve Maharey called it "a mean-spirited attack on students" but Labour has not reversed the changes.

Are there any other ways in which young people in tertiary study are treated differently from those who are unemployed?

Yes. For some reason, the maximum accommodation supplement available to students is generally less than half of that for young people on the dole.

We see no reason why accommodation costs for the unemployed should be any greater than those for students. United Future will increase the accommodation supplement for students to match what young people on the dole receive.

Is Student Loan Debt really that much of a problem?

As at December 2004, students owed the Government a staggering $5.9 billion, spread over 407,856 borrowers. The average amount of debt is $14,580, although this includes those who have just taken out a loan and those who have almost paid theirs off.

But the real impact of the loan scheme is on the take-home pay of students once they graduate and find work. For every dollar debtors earn over $16,172, they pay an additional ten cents to IRD to repay their loan, which is like paying an extra tax.

In December 2004 alone, more than $40 million was repaid. This limits the ability of graduates to save for a house, start a family, or put money away for retirement. A significant number of borrowers (24,649) are overseas to earn more money to help pay off their loans (their average loan is higher, at $20,273), meaning that valuable skills are lost to the New Zealand workforce.

Apart from collecting loan statistics, the Government has not embarked on any research into the impact of student loan debt on the lives of graduates.

What can be done to keep overall debt levels down?

United Future will ensure that the student loan interest rate is set at a level which is fair and meets the costs of running the scheme, and retain the present policy of no interest while studying.

The current interest rate is 7%, incorporating a 1.5% inflation adjustment rate and a 5.5% "base interest rate", but the purpose of the latter is largely to make up the difference between the inflation rate and 7%. For example, in 2001/02 the inflation adjustment rate was much higher at 3.9%, which meant that the base interest rate was 3.1%. In response to written questions, the Associate Minister of Finance has estimated that if the student loan interest rate were set to cover the rate of inflation and the administrative costs of the scheme (including covering deaths and bankruptcies), the rate would be 3.7%

United Future will allow students to reduce their debt if they work for more than 100 hours as a volunteer for a registered charity (up to a maximum of $500 per annum). This will be of particular assistance to those students who find themselves on low incomes after graduating to reduce their overall loan balance.

United Future will restrict students from taking out further student loans for their fees if they have continually failed to pass their courses.

There are no minimum requirements in terms of the number of courses that a student must pass in order to be eligible for a student loan the following year, yet to continue to receive a student allowance, applicants must have passed more than half of their most recent year's courses. It should also be noted that the taxpayer covers approximately three-quarters of course costs, and in 2002, 19% of university students passed less than half of their courses.

United Future will also commission research into the long-term impact of student debt on the life choices of graduates.

What can be done to reduce the impact of student debt on young families?

United Future will freeze interest and write off a portion of the debt of parents for two years after the birth of a child. That portion will be equivalent to the amount the parents had paid off in the year prior to the child's birth.

What can be done to reduce the impact of student debt on the labour force?

United Future will establish scholarships and loan write-off schemes for those who are qualified in fields facing shortages (such as doctors, nurses, social workers, engineers) in return for a period of continuous work in New Zealand.

This will keep graduates in New Zealand and minimise their loan debt. Targeted scholarships currently available, such as the Step-Up scholarships available to students in health, are restricted students eligible for allowances (a recent survey of Auckland and Otago medical students showed that only 17% would have been eligible to apply for the scholarships).

What can be done to help families ensure that their children don't get caught in the student loans spiral?

United Future will introduce a voluntary long-term savings programme that would allow parents to save for their children's future tertiary education from birth, drawing on contributions from relatives, the children themselves, charitable foundations, and appropriate incentives from the Government.

The single most popular suggestion (59%) among submissions to the Government's discussion document Student Support in New Zealand was the establishment of a tertiary education pre-savings scheme. The establishment of a voluntary savings scheme is not intended to justify further increases to course fees.

Tertiary education savings schemes have been established in Canada, Sweden and Britain. In Canada and Britain, the governments open the scheme with a lump sum that varies depending on parental income, but all children receive a minimum endowment. In the British case (the Child Trust Fund), this is in the form of a voucher parents can use to open an account with the provider of their choice.

United Future would like to see parents given the option of automatically diverting part of their family assistance payments into such a savings scheme. Ideally, any government incentives should be spread over time to encourage regular saving, and like the initial endowment, would also be on a progressive basis depending on the family income at the time of each instalment.

The fund will build up a stock of assets that the young person can re-invest or use when they reach 18. The British scheme allows savers to use the money for purposes other than tertiary education, if those purposes can be defined as improving life chances, such as starting a business, home ownership, or superannuation, since the main intent of this scheme is to encourage a savings culture.

United Future would envisage a similar style of scheme operating in New Zealand, given that subsidising asset creation changes behaviour in ways more beneficial to individuals than subsidising incomes.

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