A case for the cancellation of student debt

Weekly review

Commentary: As part of a generation that has suffered one unexpected economic blow after another, Laura Walters advocates for the government to write off student loan debt.

Imagine my shock when I opened my first IRD student loan bill, in the midst of a pandemic, with no stable income.

Not that I didn’t know the $ 1000 minimum, twice a year bills were coming in. But amid the turmoil of trying to stay afloat in the UK during Covid-19, I had forgotten about this additional demand on my already strained finances.

I had thought that 2020 would be the year I would pay off my student loan. Instead, Covid-19 happened.

Being part of a generation that has faced one economic challenge after another, student loan debt is just one of many factors that cause me to reconsider what my life will be like.

But unlike other obstacles to a productive life without undue financial stress, this problem is much easier to resolve.

Since 1992, 1.37 million Kiwis have borrowed money from the government to study or train.

During those 28 years, they borrowed a total of $ 28.8 billion and repaid $ 17 billion.

In FY2020, the face value of all loans was $ 16.1 billion, of which $ 1.6 billion was in arrears.

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IRD spends millions every year ($ 2.2 million in 2018) chase down this debt, knowing that it will not recover much of it.

Per person, the average loan is $ 23,307.

A study from the University of Auckland published in 2019 says it takes 8.3 years for a person with an undergraduate degree to pay off their loan and 7.4 years for postgraduate students.

But these numbers seem conservative when you consider my own experience and that of my friends and family.

Obtaining an undergraduate degree, a graduate degree in journalism, and a loan to cover living expenses left me with a loan of over $ 55,000.

Although journalism is not known to be a high paying profession, I managed to steadily increase my income for nine years in the job market, and by the time I left New Zealand my salary was d ‘about $ 80,000.

As a result, I was able to remove $ 35,000 from my loan through automatic payments made as an employee based in New Zealand.

And before Covid, with some savings in the bank, and plans to land a local job in the UK in 2020 – where I expected to be paid in pounds sterling – 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 graduate degree in elementary education – a notoriously underpaid profession.

Despite choosing careers with modest salaries, we never envisioned leaving college at age ten 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 role in achieving us and our peers at this point, as well as some rather frustrating domestic ones.

Millennials studied at a time when we were led to believe that higher education was a requirement.

The global financial crisis saw the labor market contract and an undergraduate degree became the bare minimum required to get a job.

Those who were unemployed returned to education and training to upgrade their skills or change careers.

When I graduated in 2011, finding a job was difficult and the wages were low.

A decade later, as our earning potential reaches respectable levels, Covid-19 hits and another recession looms.

Not only have people lost their jobs, but companies are now looking to hire. “Inexpensive desperate children who will put up with anything”.

All of this is happening against a backdrop of frenzied growth in house prices.

My partner and I aren’t the only ones wondering if we will ever pay off our student loan debt, if we can ever own our own home, and if we can afford to have children.

This experience is typical of our friends and colleagues.

While some received help from parents, scholarships or work to cover their education costs, most left university with loans between $ 30,000 and $ 75,000. Those who studied medicine or were unable to complete their course on time ended up with loans the size of a security deposit.

Some of these people have made additional payments and have now paid off their loans, while others plan to pay off their debt for five or ten years.

Those who have moved abroad – for whatever reason – often see their loans increase, with standard interest rates surpassing other borrowing rates in New Zealand and abroad (3.5%). The penalty rates for late payments are even higher.

For some it is a lifelong burden.

In 2020, nearly 2,000 people had their loans canceled because they died.

The idea that some New Zealanders will never be able to repay their student loans – or avoid higher education because of debt – seems incompatible with the value our society places on public education.

“The stress caused by student debt is also considerable and has a significant impact on their lives and careers.” – Andrew Lessells, NZ Union of Students’ Associations

Studies have also found that student debt has an impact on people’s life decisions, which in turn has an impact 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 that student loans keep graduates away from low-paying public service jobs, such as teaching and healthcare, which could exacerbate labor shortages in these fields.

There is also some evidence to suggest that it impacts people’s ability to buy a home, start a business, get married, and have children.

Of course, some studies show that only women stunt the growth of their families because of a student loan.

Again, academic research in New Zealand does not match the anecdotal evidence.

In 2017, the New Zealand Union of Student Associations (NZUSA) surveyed 40% of all graduates and found that 88% of expected student loans affect their decision to have children.

And in 2020, New Zealand’s fertility rate fell to an all-time low.

There are a number of reasons for declining fertility, but as Professor Paul Spoonley writes in The Spinoff: “Having children is replaced by economic survival.”

While a smaller population can be seen as a good thing for the environment, it can also lend itself to an unbalanced population.

When the young, productive and taxable part of the country becomes smaller than that of those over 65, there are economic implications.

The NZUSA survey also found that 79% of students expected their loan to impact their ability to buy a home.

The association’s national president, Andrew Lessells, says the impact of student debt on people “cannot be overstated.”

“The stress caused by student debt is also considerable and has a significant impact on their lives and careers,” he says.

“This is not a good way to get degrees from well-educated, well-educated citizens who can significantly contribute to the shape of Aotearoa.”

These are the experiences that are not captured in annual report infographics or academic articles.

“People retire and die with student debt. It is neither fair nor fair. “- Andrew Lessells, Union of New Zealand Student Associations

Of course, falling homeownership rates aren’t just fueled by student loan debt.

But successive governments have made it clear that they will not take any bold action to bring down house prices.

And while they keep doing a buck-passery dance with the Reserve Bank, there needs to be a discussion of other ways to help reduce barriers to homeownership.

Canceling student loan debt could be part of a series of interventions to help Kiwis rise through the ranks, and with that comes other economic and social benefits.

At $ 16 billion, student loan debt is a significant sum, but to put it in perspective, it’s a small fraction of the country’s $ 315 billion home loans.

And right now, loan debt is hurting the economy, putting the brakes on everything from starting small businesses and buying a new home, to marriage and reproduction.

So rather than offering interest-free loans 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, strongly advocates for the cancellation of student debt.

He found positive macroeconomic feedback effects by running simulations through two different debt cancellation models. It has seen the net worth and disposable income of average households increase, leading to further consumption and investment spending.

Should we write off the $ 16 billion in student debt? Click here to comment.

In short, the analysis shows that debt cancellation would increase GDP, lower the average unemployment rate and cause little inflationary pressure, while interest rates increased only modestly.

Of course, there is also the values-based argument, which centers on the idea that all education should be free (within reason).

In a country where some form of higher education or education is now a necessity for so many people, removing tuition fees and student debt is an obvious decision.

Lessells of NZUSA says debt has ruined the lives of thousands of students and set back the goals of many more.

“People retire and die with student debt. It’s neither fair nor fair, ”he said.

“There is no economic argument that can be advanced to continue this farce of the system and no social argument that can justify the suffering that the debt has caused to the hundreds of thousands of Kiwis who have gone through the tertiary sector.”

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