Of Pensioners and Student Loans: An Indictment on New Zealand

Up until 1989, you could attend a New Zealand University, and never need to pay a cent for your education. That then changed, of course. The sadists of the Fourth Labour Government introduced substantial fees for study, having never had to pay a cent for their own education. The even greater sadists of the subsequent National Government not only massively increased those fees, but also created the current student loan system, whereby students take out loans from the New Zealand Government, and then repay it over the following years. Initially, National imposed interest on those loans, accruing while you were studying. Yes, they were that evil. Labour in 2000 froze interest while you were studying, and then in 2005, scrapped the interest altogether.

Now, student loans remain interest free, though the John Key National Government added some cruel additional tweaks. You are only eligible for seven full-time years worth of loan in your lifetime (after that, you are on your own, in terms of paying fees). Post-graduates cannot access the Student Allowance. The over 55s cannot get a student loan, full stop. Labour from 2017 to 2023 did not do anything to undo this, and nor did they undo National’s imposition of Voluntary Membership of Students’ Associations. The Ardern-Hipkins Government represented six wasted years, and multiple broken promises on the Tertiary Education front. And here we are – with the Universities now facing a shortage of students, and many thousands of people in mid-life unable to retrain because of the expense.

Thus, it genuinely angers me to run across news like this:

https://www.1news.co.nz/2024/05/25/tens-of-thousands-of-pensioners-still-paying-off-student-loans/

To clarify, what has happened is this:

  • Middle-aged people (or older) have sought to retrain, or to advance themselves via tertiary education. They have taken out a student loan to cover this. A pensioner who went to University in their youth would not fall into this category, because they pre-date 1989.
  • These people are still paying back their student loans to the New Zealand Government after the age the pension kicks in (65). The student loan repayments constitute 12% in the dollar, over a certain level of annual income (which is currently $24,128). Since the pension is over that annual income, that means people in this situation are essentially paying an extra 12% tax.
  • New Zealand pensions are a state-provided pay-as-you-go universal payment. They are the core income for the elderly (unless those elderly happen to have substantial investments). So for a certain type of older person, this extra 12% tax is indeed a recipe for poverty. And all for the crime of wanting to access education.

As I have said, I am angry about this. Very angry. This state of affairs is not only bad for Universities, who are literally being starved of potential students who would enrol, but can’t afford it, but also bad for New Zealand, full stop. Tertiary Education is a Public Good – it benefits everybody in society, quite apart from its role in social mobility. We are not simply talking about the role of Education as a means of boosting income, but as a means of improving us as people and as a society. I would rather have people taking classes on Ancient Greek Literature or Chemistry or Marine Science than playing video-games all day, or watching the drivel that passes for contemporary television. But the system, as it currently stands, would rather let a certain class of New Zealander rot, and our public discourse is increasingly reflecting that.

(And, as noted, we now have a non-trivial number of older people facing poverty in later life, because the New Zealand Government wants its pound of flesh for providing a Public Good. Utterly criminal, especially when one recalls that elderly poverty was such a salient social issue prior to the development of the Welfare State).

But there are, of course, the people who insist “you took this debt on. Pay it back.” There really ought to be a special level of Hell reserved for such creatures – or at least Jacob Marley’s ghost ought to show up on their doorstep, show them their chains of selfishness, and demand that they back back their own moral debt.

To point out the obvious – student loan debt is not like a mortgage, where you acquire a private asset. Rather, the money goes directly to the institution, and you get the privilege of sitting in a classroom and sitting an exam. Basically, you get knowledge at the end, and a bit of paper to say you have this knowledge, and that’s it. We are not talking a standard investment, except the sense that you are investing in knowledge. And knowledge is not, nor has ever been, simply a means to acquiring more money. But the idea that there are over 65s out there, on limited incomes, paying a special 12% tax rate for education is just vile.

So what is the solution? Well, we’re talking a Public Good here, so this really ought to be a matter of Tertiary Education being funded via progressive taxation, so rich people who benefit from their education can pay back into the system. But failing that… ending the John Key-era restrictions, and exempting the pension from counting towards the repayment threshold seems like a reasonable start – if they’re earning above the pension, then by all means take a cut of their investments, but leave the pension alone to serve its purpose.

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