Debt's bad, right? So why is National asking our best and brightest to take on more if they want to get smarter?

Steven Joyce is one of the smoothest operators in politics - whether you agree with him or not, he's gets is evidential ducks in a row and you can only guess at the number of spreadsheets he's crafted to back his decisions. Which is why the twisted nature of his student allowance reforms is kind of surprising.

How twisted, you ask?

To explain, let me see if we can agree on a few things to start with. First, private debt is one of the biggest problems this country is facing. Arguably it's the biggest economic problem and certainly the biggest risk to our credit rating. Bill English repeatedly takes pride in how his policies have - how does he put it? - nudges people in the direction they were already going, when it comes to saving more.

National has argued long and loud that debt is their biggest fear and returning us to surplus their greatest goal.

Second, we want a knowledge economy. Or a smarter economy. Call it what you will. Essentially, we want to rely less on exporting logs and milk powder and be more innovative. As Sir Paul Callaghan used to say, we want to become a country where smart people want to live.

Can we agree on those?

If so, why would you cap student allowances at four years of study? Why would you do anything that could discourage people from doing post-grad study. Surely one of the most vital questions for Steven Joyce as both minister for the tertiary sector and innovation is: How do I get more people doing more post-grad work.

The numbers have been increasing in the past decade, at least. (I haven't seen any numbers further back than ten years, so it could be a longer trend). But it's not enough. So much of America's economic success has come from the quality of their universities - and the number of students staying in them and studying longer.

Joyce seems to get the importance of the former point, but not the latter. Yet it's by keeping more students in the lab and in the classroom that we'll get more patents, more innovation, more marketable ideas.

Bottom-line: Will capping allowances help grow the number of post-grads in New Zealand? I'd assume the opposite. So it's hardly a policy that encourages the knowledge economy, we (hopefully) agreed earlier was what we wanted.

Hang on, says the minister, there's nothing to stop students studying more. They'll just have to take out a bigger loan.

Which takes us to the second point, about debt. It's bad, right? It's so bad that everything this government does comes back to reducing it. Well, everything except student loans.

In this case, the minister is saying to students that if they want to study more, get smarter and be more innovative, you should go deeper into debt. On your head be it. We won't encourage you or help you. You just borrow away.

So the best way for us to grow our knowledge economy is for grad students to take on more personal debt? Before they even start earning. Before they want to buy houses or start families. How's that good policy, again?

As we know, it's personal debt that is much more of a threat to New Zealand than government debt. So why is National shrugging off its growth and innovation priorities and pushing the debt off its books and onto graduates'?

It makes no sense. Indeed, it leaves National arguing vehemently against debt on one hand, yet on the other, encouraging our best and brightest to take on more debt.

You're left to conclude that it comes down to politics. Perhaps its growth and innovation priorities are shallow and, more than else, it just hates the fact it's stuck with a policy it hates.

John Key once called interest-free student loans "reckless". But that was before it - in large measure - cost them the 2005 election. National had to realise that a policy it hates is actually incredibly popular.

As a result, Key swallowed that dead rat and gave Joyce the task of nibbling away at the scheme incrementally (in a rat-like manner), destroying it from within. Maybe that's just the nature of politics. And maybe National can get away with hating debt and increasing it at the same time.

But the sad thing is that National has puts its political displeasure towards interest-free loans ahead of its common-sense and any it has to desire to see a smarter, more prosperous New Zealand.

Comments (26)

by nommopilot on May 06, 2012

"So why is National shrugging off its growth and innovation priorities and pushing the debt off its books and onto graduates'?"

It's worse than that:  Since the government is the lender they get to count the student debt as an asset.  They're not just pushing it off the books:  they're pushing it to the other side of the balance sheet so the more students borrow, the more successful their economic policies appear (as long as you don't look at private debt statistics).

by Brad Gibbons on May 06, 2012
Brad Gibbons

I was just talking about this yesterday with a friend who I studied with in my honours year last year. She has been out of uni 6 months and found work in a (temporary) position and has been in the job for a few weeks. She was saying that she'd like to go back to uni to do a Masters degree, but because of this new student allowance policy  she cannot purely because she has already claimed student allowance for four years. It really boggles the mind, especially with the enormous incentives offered in Australia to attract students into postgrad study. They get it, as opposed to this govt

by Chris de Lisle on May 06, 2012
Chris de Lisle

At first I wondered whether Joyce was intending to migrate us across to being primarily scholarship funded. Then I thought that perhaps this was an oversight of some sort- that the policy has an exception for post-graduates which had not been thought important enough to mention. 

But I think I'm being overly optimistic. More likely he either doesn't care about us, or just completely forgot that we existed.

by AIC on May 06, 2012

Tim - I agree that really good research universities can serve as big drivers of growth.  Witness the impact of Berkeley/Stanford/Caltech et al on Silicon Valley.  I do have one question for you though.  New Zealand is quite a small market, and lots of our best and brightest postgrads will end up working abroad because of a dearth of opportunities at home.  Investing more in them is great for the individual, but how do we make it a winning proposition for New Zealand? 

In this sense NZ seems very different than the US, mainly because much of their tertiary system is private, and because most US grads will probably stay in the country.   

by Paul on May 06, 2012

I find these so-called "minor" changes to Student Loans quite disturbing, in fact really "reckless".  Though I ancticipated something like this after National's re-election I still can't quite believe its being pushed through in such confident and casual manner. It needs a lot more discussion and more importantly a strong collective response. 

It is impossible for Joyce to deny that his policy will increase personal debt, anxiety and stress, and the exodus of talented individuals overseas, while decreasing the quality and amount of research.  His fantastic assertions that post-grads easily get high-paying job to pay off their loan, or that post-grad students can sustain themselves on the living-costs component of the loan ($170 a week), or even that borrowing tens of thousands in living-costs does not disincentize study, are simply bullshit (unless you're wealthy of course). 

This policy is reactionary and anti-democratic insofar as it makes advanced education a privilege for the wealthy.  It is inhuman and alienating insofar as it further commodifies education by prioritizing courses (science, engineering) deemed "profitable".  For instance I wonder about the wider spiritual impoverishment that will occur by discouraging those who study in the arts or humanties, where higher degrees don't equate to higher wages.

by nommopilot on May 06, 2012

AIC:  This is a fair question and it would be great to see how Steven Joyce would answer it.  I would say that reducing the number of people studying for post graduate degrees would be a big step in the wrong direction.

Decrease the number of PG students = decrease the amount of resources put into PG courses = decrease the amount of research being done in our univesities = turn our tertiary sector into more of a giant BCom factory than it already is.


by DeepRed on May 06, 2012

Prostetnic Vogon Joyce is probably gambling that students are too apathetic or politically weak to challenge his student loans & allowances policy. Or, my inner Machiavellian suspects divide-and-rule social engineering at work - to foment a sense of sour grapes in those affected by the policy, in the event that it's reversed. Think, "if I can't get an allowance, why should anyone else?"

by Tim Watkin on May 06, 2012
Tim Watkin

AIC, sure, some will always go overseas. My father and many of his students did. But he and many of his students came back or sent their own students here or kept sharing research with folk here.

But I'd expect some sort of virtuous circle. The only way to create the kinds of companies and institutions that offer more opportunities and keep people here is to encourage innovation and research. Some of that comes from individual entrepreneurship, but some of it is creating the right environment and incentivising the right kind of behaviour. The government's very hot on this sort of thinking when it comes to tax, but ignores the same logic when it comes to investment, certainly in this case.

We can't compete with Stanford, Berkeley (a state school) and the like in scale, but we can do the same thing on a smaller scale. We can still hope to turn some post-grad work into start-ups and some start-ups into viable, medium to large-sized businesses. There are plenty of smart, innovative people who want to stay – or return – here.

I'd say that's still worth an investment in the public good those few may create. What else can government do to help create those opportunities at home?


by Scott Chris on May 06, 2012
Scott Chris

Debt's bad, right?

No. Unsustainable and unproductive debt is bad.

Investing in your future is good. Mind you, post grad study in, say, anthropology mightn't be the best investment.

by stuart munro on May 06, 2012
stuart munro

"What else can government do to help create those opportunities at home?"

Pandering to the tax evaders, but, below a certain size - say $50k of sales, the tax return to NZ remains quite small. Exempt those businesses from tax and startups enjoy the kind of margin  over property that property has for the last three decades enjoyed over them.

It wouldn't cost much - but it would change 1 person start-ups from being an unprofitable whim to a rational preference for many people. Recover the lost tax by a 1% hike at $1 million plus level, 2% at $10 mill, 3% at $100mill etc.

by nommopilot on May 07, 2012

"Recover the lost tax by a 1% hike at $1 million plus level, 2% at $10 mill, 3% at $100mill etc."

Or a capital gains tax !

by AIC on May 07, 2012

Tim - I guess my broader point is that, given how portable qualifications are, we should be wary of investing too much in tertiary students.  The amount of New Zealand tertiary investment now sitting in South London alone is staggering! 

I don't begrudge these people their opportunities, but we are not wealthy enough as a nation to pay 80% of the costs of a student's education, only for that student to spend many of their most productive years working abroad (this also ignores the extent to which the remaning 20% of the cost is not actually being repaid).  I think the degree of emigration amongst our graduates (which is not just a function of our economy, but is part of our culture) makes tertiary spending a different value proposition in New Zealand than somewhere like France, and requires either that the private component of tuition should be higher, at least for those who head overseas.

I do agree that we do need to invest more in our universities, but I think we also need to be reorienting spending away from BCom's and towards research, including more support for certain types of postgraduate work.  I'm wary that this makes education less egalitarian, but I think there is a danger that our system, with generous student support and high undegrad numbers in many disciplines that don't provide enough value add, is progressively undermining the quality of our institutions. 

by Tim Watkin on May 07, 2012
Tim Watkin

Scott, I take your point but you never know where a great idea might come from. Steve Jobs said Apple's success with fonts stemmed from a calligraphy class he once took. And if Newton hadn't stayed at home and hung out under that apple tree...

by Tim Watkin on May 07, 2012
Tim Watkin

AIC, I get the point but I worry you're being short-sighted. You're seeing the cost of education, not the investment. I'm not entirely convinced by the 'we're not wealthy enough as a country for X' arguments, because we're still wealthy by world standards, even if our OECD ranking has dropped. But even accpeting we have limits, I'd argue education's not the place to cut. We're not wealthy enough not to invest in it.

It's a fair point about the cultural aspect of our travelling graduates. But how many of those would like to come home if we created the sorts of jobs they value?

And I absolutely agree with the final point... the post after all was about not disincentivising postgrad work. A BCom can be done in three years, so no allowance punishment for them! I agree we need more money targetted at universities and research. Joyce seems to get that, but the money for that shouldn't come at the expense of the people doing the research!

by Tim Watkin on May 07, 2012
Tim Watkin

Oh, and Stuart... interesting idea. You'd want to be sure of the costs, but if you're right it makes a lot of sense. That's one for you to ponder, Iain Lees-Galloway.

by AIC on May 07, 2012

Tim, I am seeing the investment, but I am worried about the ROI.  A lot of the value of our education spending benefits countries other than New Zealand. 

In fact, I'm not arguing for a cut in education spending at all - I think we should be spending more.  What I do think is that the incentives are wrong at the moment, and our spending needs to be targeted so that the benefits will stay in New Zealand. 

Most of the benefit of education is private, not public.  In autarky, we can fund publically and it doesn't matter too much.  But as globalization has increased, this has become a problem.  If you are a top lawyer, scientist, banker, or entrepreneur, New Zealand will always be too small, and you will have to head abroad to challenge yourself.  We can improve the opportunities available in NZ, but I can't see this ever changing: distance and agglomeration are just too important.  Thus, this class of people gets a big subsidy from the taxpayer, as the benefits of that education end up as pounds or $US in their pocket.  Historically, we didn't worry about this leakage so much, but now that such a significant percentage of young Kiwis are studying at tertiary level, I don't think we can ignore it.

I think the model needs to change.  People should be paying more of the cost of their undergrad or professional education, either through loans or savings, with targeted scholarships to those who are either top achievers or who could not otherwise afford to attend (a more US style model, albeit not privatised).  In contrast, I'm very comfortable with the government making a lot more research funding available, as I think the benefits of that investment are public.  But I think we need to be clearer as to what is or isn't deserving of support, rather than our current carte blanche approach.  I don't, for example, like the idea of lots of government meeting most of the cost of LLM's and MBA's, but I would happily see tax dollars paying for more health research or biotech, including better support for research students.

by Alan Johnstone on May 07, 2012
Alan Johnstone

" The amount of New Zealand tertiary investment now sitting in South London alone is staggering! "

Although in relative terms we export a huge percentage of graduates, in absoulte terms I'd guess we are well up on the deal. I'd be stunned if the number of overseas degree holders now living in NZ wasn't much greater than the Number of NZ graduates now overseas.



by stuart munro on May 07, 2012
stuart munro

@ mic - not or but and.

& Tim - I have the biography of the bloke who did Korea's economic development - from poorer than Somalia to richer than New Zealand in 60 short years.

NZ's erstwhile economic thinkers are obviously oblivious to proven methods, they only bloviate Friedmanite cant. Chile ran Friedmanite policies under Pinochet, and they talked a great game, but their economic performance languished - does that sound like anywhere you know?

First requirement would be a government that took our economic problems seriously. In Korea, even though they were poorer than Somalia, that took a coup d'etat. If a few of the empty heads in Wellington were removed it would be a small price to pay to end this era of inane and feckless economic policy.

We need an outfit that gives a feck.

by Alan Johnstone on May 07, 2012
Alan Johnstone

You're confusing cause and effect there Stuart, you need voters that give a feck.

Right now we don't have them. The people in Wellington are just the sympton


by Andrew R on May 07, 2012
Andrew R

The change is another (of a long line) of breaches of contract by the government.  People who borrowed did so on the understanding that the repayment rate would be 10%.  Unilaterally it is going to be increased to 12%.  he only fair way to do that is to say that all loans issued after date XX will be at the repayment rate of 12%.

 The above comment all pre-supposes that student loans is a good concept in the first place (it isn't). 

by Alan Johnstone on May 07, 2012
Alan Johnstone

It's not a breach of contract; I'm pretty sure the contract they signed says the payment rate is whatever the state deems it to be :>

by Tim Watkin on May 07, 2012
Tim Watkin

I think you're right Alan re repayment rate. I'm pretty sure it's a floating loan, not a fixed one.

AIC, I'm not sure I can so easily say that most of the benefit is private. More educated populations make for wealthier countries. And perhaps it's got worse in recent years, but globalisation has been around a long time and so has the NZ diaspora. NZers have been going away and coming back for more than a century. So I'm not sure that's a reason to lower investment in tertiary education.

Look at India and China – churning out Phds, many going to the US. But that's creating networks, dragging investment anc contract back in their countries and still creating many who stay. I went to a seminar at Berkeley about four years ago when the Chrisco CEO was saying that Indians were taking over Silicon Valley. He had no problem per se with Indians, but was lamenting the lack of US post-grads. I have no doubt that one way or another many of those Indians in California are helping their families, friends, former colleagues etc back home.

But I accept we could nudge people more, perhaps. I can't remember the numbers, but we're producing many more media studies grads than biotechies, lord preserve us! That can't be a good thing. There is some bonding in place once more around med etc, so maybe more of that – reduced fees if you stay or come back or somesuch? Of course you get accused of picking winners, but then the South Koreas of this world never seem to care about such niceties and do rather well out of it!


by stuart munro on May 07, 2012
stuart munro

Development economics was doing well until Friedmanist policies became the preferred dogma. But Korea is a nation of scholars,they did the math - and still do. Friedman is a beautiful theory, and like most beautiful theories fares poorly in reality.

I wouldn't hurry to blame voters either - NZ is not exactly swarming with economic alternatives. But I think you'll find the modernist position, that progress is possible, has a logic that appeals to the NZers who are sick of watching us fall behind.

Watch a New Zealand team on a sports field, then go home and say "New Zealanders don't really like to win". But the political choices they face include few or no winning options. The political high ground has been captured by time-servers and vested interests, and soon or late they are going to have to be thrust out.

by Frank Macskasy on May 08, 2012
Frank Macskasy

The irony is that John Key and Steven Joyce received their tertiary education free - prior to 1992, when student fees were enacted. Plus they probably had the benefit of a student allowance on top of a free education.


Paula Bennet, on the other hand, had her student fees paid for via the Training Incentive Allowance - which she later canned as the Minister for Social Welfare.


Joyce's plan to cap allowances is simply another example (as if we needed one) that centre-right parties know the cost of everything - but the value of nothing. Setting barriers to education for cost-cutting reasons is proof of that, and shows the craziness of centre-right policies.


Whilst our elected representatives made the most of free education and understood it's value, it appears that are quite willing to deny that same opportunity for others.


As usual, it is our society and economy that will reap the consequences and National will simply duck for cover and point elsewhere to sheet home responsibility for their short-sighted policies.

by Wayne Sloane on May 09, 2012
Wayne Sloane

It might sound a bit weird at first, but I wonder if a post-graduation allowance for those that stay in Aotearoa New Zealand after having graduated, is worth considering as an incentive for graduates of qualifications perceived as being of public value? 

Such an allowance could be targeted to reward those who complete, to use engineering as an example, the two-year National Diploma in Civil Engineering (Applied), or the four-year Bachelor of Engineering degrees, as well as masters or doctoral degrees.  Larger allowances could be used to attract students/trainees to particular fields of academic or vocational study and/or training for which there is high employer demand and/or high-public value. A graduate from a Bachelor of Dental Surgery (BDS) might attract an allowance of NZ$100K over five-years after graduating, for instance.  Whereas, an MBA might receive NZ$40K over five-years.  The MPhil or PhD in Anthropology graduate might attract NZ$60K and NZ$80K respectively.  The graduates of the two-year Diploma Applied Sciences (Anaesthetic Technology) might attract $40K over, say three years, despite the shorter duration and lower academic level of their qualification because of its demand and/or public value. 

The beauty of a post-graduation allowance, is that it not only rewards achievement; and acts as a carrot towards completing what one has started (think better tertiary completion rates). It also serves to keep graduates in this country, both because they have to stay to qualify for the allowance, and because the allowance tops-up their wages - mitigating the attraction of higher wages in Perth, W.A, or London, U.K etc. This of course also helps students and trainees to tide themselves over should they stuggle to find work immediately (i.e. 1-6 months) after graduating; and helps with the post-qualification burden of paying-back their student loan. ... Anyway, it is just an idea.  What do you think of it, or something like it?

by AIC on May 10, 2012

Tim - I suspect most of those Indians working in the Silicon Valley would have received their PhD's in the US, rather than India.  The distribution of postgrads in the US skews heavily towards internationals, which I think is what that CEO was alluding to. 

Again, it reflects a different model of education - much higher cost of undergraduate study and a culture of alumni giving - with this funding used to subsidise research and PhD students, areas which are not economically viable on their own, given the universities can't capture the externalities.  It works (again, just my own view, as you  feel most of the benefit of education is public) because most of the benefits of undergrad are private (higher wages), thus students can justify taking loans for university as an investment, and because most of the PhD's will stay in the US (so businesses are willing to engage with and invest in the universities - witness the large amounts of funding B-Schools and things like computer science often get from US companies).  I think it is a good model, but one New Zealanders are unlikely to embrace. 

As, for globalization,  I think New Zealand has always tended to look outwards.  What has changed is the uptake of university education.  Tertiary education has expanded massively - more than doubling in the last 20 years alone.  The amount of money we invest in the tertiary sector compared to the 1970's for example is immense, so I think we need to be much more careful about our ROI.  I also think out outward orientation has changed - we used to head abroad, but mainly to the UK.  We are now more engaged with Asia and Europe, and I think the younger generation are more likely to make a career overseas. 

Post new comment

You must be logged in to post a comment.