I had a free education. Most of the politicians in this and recent parliaments had a free education. More recent students have not been so lucky. Student loans are a 10 Billion dollar burden on the young. It’s crazy – the state spends all this money to educate people in NZ, and as part of the process creates huge incentives for them to take their expensive education away overseas to earn higher wages to repay their debt, or perhaps to simply escape their debt and never return. Young Kiwis have always been travellers, have always left to see the world, we didn’t need to create any more reasons for them never to come back.
It started in 1990 when the Labour government (stupidly!) increased student fees from the existing nominal $200 to $1,250 pa. It was election year, and National’s spokesperson on education, one Lockwood Smith, promised to abolish the fees, and famously signed a pledge to resign from parliament as minister if National broke this promise. National won the election and instead of abolishing the fees they increased them. (Lockwood Smith did not resign.) The student loans scheme was introduced in 1992, and student debt began accumulating fast. The most recent Labour government took some steps to slow the juggernaut (interest free loans and more) – but to my mind we should have done much much more. Student debt is $10bn and increasing at $1bn a year.
This post has been prompted by a few articles on student debt that I’ve encountered recently. Here’s one on the situation in England:
Once upon a time, graduates could leave university relatively debt-free and walk straight into well-paid jobs, their first taste of big borrowing being the mortgage on their starter home (roses round the door being optional). Today that seems like a plotline out of Narnia…
This one about America puts it pretty bluntly:
Student Loans are the New Indentured Servitude
The Wall Street Journal ran a post over the weekend about a new credit crunch among low income borrowers, noting it is now ‘payback time.’ What they didn’t go into is that their primary interviewee is drowning not on expensive cars loans but student loans. This former student’s debt is far from extraordinary. It is, in fact, tragically ordinary, as student loans have become the 21st century version of indentured servitude.
And here in NZ Bernard Hickey recently wrote a brutally honest and depressing assessment of the situation:
Dear Generations X and Y
Did you realize the baby boomers running the country have just decided to make you poorer for decades to come so they can retire early with all the assets and high incomes?
Did you realise your taxes are going to rise and you won’t be able to afford your own home? Did you know the baby-boomers are refusing to save their own money now for their retirements so they can live off your hard work? Did you know you will be slaving away paying high taxes in your 40s and 50s to pay for their pensions and health care? Did you know you’re wasting your time trying to build a family and life in New Zealand? Did you realise you have huge student loans while they received free tertiary education?
There were two big decisions in last month’s budget that guaranteed this intergenerational transfer of wealth, but they are not the only factor. Prime Minister John Key and Finance Minister chose to abandon contributions to the New Zealand Superannuation Fund (the Cullen Fund) for the foreseeable future. Yet they also guaranteed their fellow baby-boomers (they were both born in 1961) they would keep their pensions at 66 per cent of the average wage and could still retire at the age of 65. John Key has even promised to resign if he breaks this promise.
Your only choice is to migrate as soon as the global economy starts recovering and the jobs become available again. This will be the best revenge you can get. They will have to watch their grandchildren grow up by email and the occasional flying visit. I’m not kidding. Leave ASAP.
It will be tragic if more young people take that advice, but on purely economic terms it’s hard to argue against. We need to fix this. Labour made a start but didn’t get far enough. My fear is that National will take us backward. In 2010 the Finance Minister (and it will be no credit to this government if that is still Bill English) will be facing very hard choices in the budget. They will be looking for places to swing the axe, and will be tempted to take the easy path of further intergenerational theft. I can’t imagine a choice that would do more damage to NZ. Do anything but that. Put up the age of eligibility for super instead. John Key can simply break his promise to resign. It didn’t do Lockwood Smith any harm.