Means-test interest rates on student loans

Means-test interest rates on student loans

Universities New Zealand notes that the return on investment on student loans is extraordinarily high. Contrary to urban myth, even plain BA and BSc graduates earn many hundreds of thousands more in lifetime earnings than non-graduates. So we are giving interest free student loans to many people who don’t need them. This means (1) that our universities are cash-strapped with much lower per student funding that in Australia and (2) that the amount we can afford to let students borrow doesn’t actually cover the cost of living and studying, so many poor New Zealanders are effectively locked out of the benefits of tertiary education. This is harmful economically and potentially socially (note that low level of tertiary education was one of the best predictors for people voting for Trump and for Brexit). Solution: graduates should pay interest that is proportional to their incomes - market rates for those on above average incomes; reserve bank cash rate for those on on lower incomes and no interest for those earning less that half the average income.


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