Student Loan Scheme Annual Report 2008
The Annual Report for 2008 provides information on the scheme and those who borrowed from it in 2007, as well as the financial schedules for the fiscal year to 30 June 2008.
Key findings in the report are:
- The nominal value of loan balances was $9.573 billion as at 30 June 2008
- 174,000 students borrowed from the loan scheme in 2007 (66% of eligible students)
- As at 30 June 2008 530,000 people had a student loan with Inland Revenue for collection
- The median repayment time for those who left study in 2005 is forecast to be 7 years.
Author(s): Ministry of Education
Date Published: October 2008
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Chapter Two: Outcomes of the Student Loan Scheme
The student support system aims to enhance access to tertiary education by making it easier for people to study at the tertiary level. The loan scheme helps to achieve this.
The costs of tertiary education are shared between the taxpayer and students and their families to facilitate participation in tertiary education. This means that the government is able to fund more places in tertiary education organisations than would otherwise have been the case.
Students are able to borrow money to pay their fees and, for some, to assist with their living costs. In providing money for fees payment, it removes the need for people to save large amounts to pay fees upfront.
Repayments are based on the individual borrower’s income. Borrowers who do not manage to earn a high income as a result of the study they have completed will repay much less or even nothing. People who do gain from their tertiary education pay a share of the costs of their studies.
The loan scheme contributes to tertiary education outcomes by:
- providing finance that puts tertiary education within the reach of all New Zealanders
- helping people to gain qualifications that are of high quality and, therefore, improve their quality of life, employment opportunities and income prospects
- sharing the costs of tertiary education appropriately between government, students and their families
- targeting the costs of tertiary education appropriately – so that those who do not benefit financially from their tertiary education are protected.
This chapter looks at the extent to which the loan scheme contributes to the affordability and accessibility of tertiary education and how that improves the outcomes for New Zealand and New Zealanders. It also explores any unintended outcomes of the loan scheme.
Student Loan Scheme outcomes
The agencies that manage the scheme have developed a statement of their shared outcomes for the loan scheme:
‘Affordable and accessible tertiary education improves the social and economic wellbeing of New Zealanders.’
The following diagram illustrates how the Ministry of Education, the Ministry of Social Development, Inland Revenue, the New Zealand Qualifications Authority and the Tertiary Education Commission9 each contribute to the shared outcome for student loans. It describes the linkage to each agency’s outcomes and interventions and it explains how the loan scheme is linked to the government’s goals for New Zealand. It also recognises the contributions of other government agencies to the shared outcome.
The agencies are currently working to broaden the scope of that shared outcome to include all aspects of student support.
Evidence for Student Loan Scheme outcomes
Participation in tertiary education
Participation in tertiary education in New Zealand has increased significantly since the loan scheme was introduced in 1992. The student support system has maintained and improved the affordability of tertiary education and helped our tertiary education system to become a more accessible, diverse and inclusive system with higher levels of participation.
Growth in participation is reflected in the following trends:
- The number of tertiary students (including domestic2and international students) has nearly doubled, from 252,000 in 1994 to 484,000 in 2007.
- There were 444,000 domestic students in 2007.
- The proportion of all New Zealanders aged 15 and over at 31 December 2007 who participated in tertiary education in 2007 rose to 13.3 percent, up from 8.9 percent in 1994.
Figure 4 shows student numbers and equivalent full-time student numbers and the participation rate in tertiary education from 1994 to 2007. The differences between student numbers and equivalent full-time student numbers relate to the proportion of part-time students enrolled and the study load they enrol for.
The significant increase in the level of participation from 1998 to 2005 has abated in 2006 and 2007. The reduction is largely due to a decline in enrolments in certificate-level qualifications, largely in response to moves to strengthen the quality and relevance of lower-level qualifications.
Figure 4: Participation by domestic students in tertiary education
- Data before 1999 excludes private training establishment and ‘other tertiary education provider’ students.
- Data relates to domestic students enrolled at any time during the year.
- The participation rate is the number of enrolments as a percentage of Statistics New Zealand’s estimate of the population aged 15 and over at 31 December 2007.
- Excludes industry training, non-government-funded private training establishments, formal courses of a week or less, and all non-formal learning.
The expansion in enrolments between 1994 and 2007 has been especially marked among women, Māori and Pasifika. Over this period:
- enrolments by women in public tertiary education providers grew by 69 percent. Of all enrolments by domestic students in 2007, more than 54 percent – 241,000 – were by women
- enrolments in public providers by both Māori and Pasifika grew by 166 percent. In 2007, there were 84,000 Māori with formal enrolments in tertiary education providers, 19 percent of the total, while the 29,000 formal enrolments by Pasifika represented 6.6 percent of all enrolments.
The Student Loan Scheme is part of the broader programme of student support that includes targeted student allowances and some scholarships. The combination of loans and targeted allowances has been reported in North American research3 as a good way of improving participation in tertiary education. The research shows that people from lower-income backgrounds have shorter decision-making horizons, leading them to discount the potential returns from tertiary education. This suggests that those from lower-income families may be more averse to borrowing large sums to fund their studies.
There have been no studies on whether the presence of the loan scheme has led to a change in the socio-economic mix among students in formal education in New Zealand. However, research4 on the Australian Higher Education Contribution Scheme – which has many similarities to the New Zealand loan scheme – concluded that the scheme had no adverse effects on the socio-economic mix of the Australian student population.
A shared contributionWhile the loan scheme is only one of several factors affecting the level of participation in New Zealand since 1991, its introduction has enabled the government to share the costs of funding tertiary education with students and their families and hence to provide funding for more places in tertiary education organisations. Without this funding, many providers would have needed to limit entry to courses.
Since 2000, the government has shifted the balance between the share of the full cost of tertiary education borne by students and their families and the share paid by government. In 2000, students paid 33 percent of the full cost through their tuition fees. However, as a result of fee stabilisation policies, this figure has fallen steadily since then, reaching 26 percent in 2007.
While the government’s share was nominally 74 percent in 2007, in practice it is larger than that. This is because much of the student share is met through borrowing through the Student Loan Scheme to pay compulsory fees. There is an implicit government subsidy in that component of the student’s share. Discounting for that subsidy, the government’s share rises to 79 percent.
One way that students meet their share of the costs of tertiary education is through paid work during the year. In its triennial survey of student income and expenditure, the New Zealand Union of Students’ Associations5 reported that full-time students work an average of 14 hours a week. This is comparable with the numbers of hours worked in some other countries such as the United Kingdom6 and the United States.7
Many students also receive financial support from their families. One in six respondents to the New Zealand Union of Students’ Associations’ 2007 income and expenditure survey received financial gifts from their parents, but both the number receiving that form of support and the level of support had fallen since 2004 when one in four received money from their families.
More people with tertiary qualificationsAs enrolments in tertiary education have risen, so has the number of people completing tertiary qualifications. Census data shows a steady rise in the number of people holding tertiary qualifications, especially at degree level, between 1996 and 2006:
- The number of people with a bachelors degree or higher qualification almost doubled, from just over 224,000 to nearly 448,000.
- The proportion of the population aged 25 to 64 with a degree or higher rose from 8 percent in 1996 to 14 percent in 2006.
Figure 5: Domestic students completing tertiary qualifications by level
- Data relates only to domestic students.
- Where a student completes two qualifications at different levels in a year, each of these completions is recorded in the appropriate category in that year. The total, however, is a count of the unique students completing qualifications in that year
While Figure 5 shows a downturn in the number of completions in 2006, this is a consequence of a 12 percent fall in the number of completions of non-degree qualifications that followed the government’s moves to strengthen the quality and relevance of non-degree provision. There was a 4 percent increase in postgraduate completions and a 5 percent increase for degree-level qualification completions between 2005 and 2006.
Economic benefitsWhile the loan scheme has helped New Zealand lift participation in tertiary education, the ultimate aim of the scheme is to help people acquire qualifications that are valued by employers. Research and analysis8 have shown that qualifications gained in the New Zealand tertiary education system lead to greater earnings. This obviously benefits the individuals with those qualifications. It also indicates that employers value the skills acquired during tertiary study. The premium paid to those with qualifications is an indicator of the acquisition of human capital and therefore the extent to which our student support system and the tertiary education sector contribute to our national economic development.9
Data from the Statistics New Zealand Household Labour Force Survey shows that those who complete a bachelors degree or higher earn, on average, more than 2.5 times the amount that someone without qualifications can expect to earn. Statistics from the integrated dataset on student loans and allowances show that employers pay a premium for completed qualifications. Of bachelors degree students who left study in 2000, data shows that after three years those who graduated had a 28 percent income margin over those who did not.10 After six years, the margin rises to 31 percent.
Census data shows that those with a tertiary qualification have a greater chance of employment.
In the 2006 Census:
- people with no qualifications had an unemployment rate of 4.1 percent
- people with school qualifications had an unemployment rate of 3.9 percent
- people with higher degrees had an unemployment rate of 2.5 percent.
Benefits to wellbeingTwo recent studies by the Ministry of Social Development show that people with tertiary qualifications in New Zealand have higher living standards.
The Ministry of Social Development’s Economic Living Standards Index (ELSI) consolidates large amounts of information about different aspects of economic wellbeing into a single score.
Analysis of the effects of education on the ELSI index shows how increased education has a positive effect on living standards. Overall, 20 percent of the total population fell into the bottom three categories of ‘very restricted’, ‘restricted’ or ‘somewhat restricted’, compared with only 10 percent of those with tertiary degrees. While 58 percent of those with tertiary degrees fell into the top two categories of ‘good’ or ‘very good’, only 40 percent of the total population were in those categories.
Figure 6: Living standards of New Zealanders by qualification level 2000
The Ministry of Social Development’s study Trends in economic wellbeing: changing patterns in New Zealand 1989 to 2001 analysed the impact of education qualifications on the living standards of New Zealand economic family units (EFUs) between 1989 and 2001.12 This study used data from Statistics New Zealand’s Household Economic Survey to calculate an estimate of the median disposable income of the EFU, adjusted by an equivalence scale for factors such as number of children. This measure was used as a proxy for the living standards of New Zealanders.
Figure 7 shows the relative living standards of EFUs by level of educational qualification. The base category is an EFU where the principal income earner has a university qualification – it is set at 100 percent. The analysis showed that those with degrees and those with vocational or trade qualifications had an advantage over families with a principal income earner who had no qualifications or only school qualifications.
Figure 7: Relativities of real median equivalised disposable incomes between different educational qualifications.
Higher qualifications are also associated with better health. In Education at a Glance 2005, the OECD reported that there are three key routes through which higher levels of education can affect people’s health.13 Firstly, those with higher levels of education generally have lower levels of unemployment and therefore avoid some of the physical and mental health issues associated with this state. In addition, the higher incomes associated with higher levels of education can result in better access to health care and avoid stresses involved with financial insecurity.
Secondly, individuals with higher levels of education can make better-informed decisions about their health care. In addition, the OECD mentions that research has found positive associations between higher levels of education and health behaviours such as lower smoking participation and lower incidences of excessive alcohol consumption.
Finally, the level of education can impact on the way in which people deal with the situations faced as part of daily living. Higher education can improve problem-solving skills and self-esteem, which can help people respond to situations of adversity.
However, the OECD acknowledges that the relationship between education levels and health is a complex one, and a positive relationship between higher education and better health does not hold across all countries.
University of Otago researchers have also found that those with tertiary qualifications have improved mortality.14
In a review of a number of New Zealand and overseas studies of the relationship between health and education level, a Treasury study15 concluded that they suggest that higher-level education leads to better mental and physical health outcomes.
Changes in borrower behaviour
One important way of looking at the impact of the loan scheme is to look at how changes in the scheme affect the behaviour of borrowers – their borrowing patterns and their repayment behaviour.
A useful way of looking at borrowing behaviour is by considering uptake rates – the proportion of people eligible to take out a loan who actually do so. The uptake rate across the loan scheme as a whole rose from 56 percent in 2006 to 66 percent in 2007. However, much of that change related to changes in the eligibility rules for loans. As a result of decisions made in Budget 2007, students enrolled in qualifications that do not get government funding lost the right to borrow using the loan scheme. This reduced the number of students eligible for loans – especially the number of part-time students. This meant that the proportion of part-time students receiving loans increased sharply, from 19 percent to 35 percent between 2006 and 2007.
Because part-time students have a lower incidence of borrowing than full-time students and because most of the changes in loan eligibility over the years have affected part-timers, rather than full-time students, it is more useful to focus on how full-time students use the loan scheme.
As shown in Figure 8, the estimated uptake rate among full-time students rose to 82 percent in 2001 but ranged between 72 percent and 76 percent between 2003 and 2005. In 2006, it rose to 80 percent, but then fell to 77 percent in 2007.
Figure 8: Student loan uptake rates for full-time students
The increase in uptake rates among full-time students between 1999 and 2001 occurred at the same time as the introduction in 2000 of the ‘no interest while studying’ policy. Following an increase in borrowing at that time, uptake settled at between 70 and 75 percent between 2003 and 2005. The interest-free student loans policy took effect in April 2006. This too has been associated with an increase in uptake, although, following the increase in borrowing in 2006, there was a decrease in uptake again in 2007.
By 1997, almost half of those who left study in 1992 had repaid in full, while 80 percent had repaid in full by 2006. However, this cohort had very low borrowings as fees were still relatively low and they had borrowed for only one year.
Figure 9: Percentage of borrowers fully repaid by 31 March in each year – those who left study in 1992, 1994, 1997, 1999, 2001 and 2003.
Leavers in 1997, and later, repaid their loans more slowly, reflecting the fact that most of the people in those groups would have used the loan scheme throughout their studies. Of those who left study in 1997, about 50 percent had repaid by 31 March 2007 – nine years after leaving study. Nearly a third of those who left in 2001 had repaid by 31 March 2007.
Those who left study after 2000 appear to be repaying slightly more quickly than the cohorts of the late 1990s. This trend is likely to be a consequence of:
- fee stabilisation policies that have operated since 2001 (see chapter 1.2)
- more generous repayment provisions – 50 percent of compulsory repayment obligation, less inflation, credited to principal – introduced in 2000 16
- no interest while studying for full-time students and for part-time students on low incomes – introduced in 2000 24
- high employment in the last five or six years.
The introduction of the interest-free student loans policy in 2006 and the changes made to the rules governing repayment by borrowers overseas have led to two changes in repayment behaviour. Firstly, it is less likely that people get into ‘negative repayment’ – a situation where the loan balance increases once borrowing has finished. In the past, those who took time out from the workforce would often see their nominal loan balance increase as base interest was added to their account, while their repayments had stopped. Secondly, there has been a fall-off in voluntary additional repayments since the introduction of interest-free loans. It is too early to detect the effects of these changes in Figure 9, however.
Looking to the future, the forecast median repayment time for those who remain in New Zealand is four years. There is more information on forecasts in chapter 5.
The Organisation for Economic Co-operation and Development provides information on repayment rates in student loan schemes in some of its member countries. They report17 that in 2004/05 the expected repayment time for a New Zealand bachelors graduate was significantly lower than the comparable figures for Norway, Denmark, Sweden, the Netherlands or the United States.
Some surveys18 have reported students as suggesting that their student loans may encourage them to go overseas after their studies and deter them from returning or that their loans may discourage home ownership or cause people to delay having children. As well, some people have said that many people – especially women – may never repay their loans.
This section explores the evidence for signs of these unintended outcomes.
Impact on home ownership, having children and mental health
A study19 on household wealth in New Zealand explored the statistical relationships between the presence and size of student loans and home ownership. It conducted a similar analysis of the relationship between loans and having children.
This study reached the following conclusions:
- The presence and size of a student loan does not appear to affect the probability of a couple having a mortgage.
- Non-partnered individuals with loans are statistically less likely to have a mortgage than non-partnered individuals without student loans.
- The size of a student loan has a modest yet statistically significant effect on the probability of a non-partnered individual having a mortgage.
- The presence of a student loan has no effect on mortgage size, but the loan’s size does have a (weak) effect on the size of a mortgage.
- Neither the presence nor the size of a student loan appears to reduce the number of children a couple has.
- Non-partnered individuals with a student loan are (slightly) more likely to have more children than non-partnered individuals without loans.
A recent Australian study, published in the Journal of Population Research, looked at whether Australia’s Higher Education Contribution Scheme or HECS – which has many similarities with student loans in New Zealand – has affected the birth rate in that country. The research compared university-educated women with and without HECS debts yet similar in other significant ways. It found that falling fertility rates are not related to HECS.
A Ministry of Education statistical analysis20 of the relationship between student loans and going overseas concluded that those who have larger loans are more likely to go overseas. But while the effect is statistically significant, it is very slight.
A recent statistical study by researchers from the Universities of Canterbury and Otago, using a longitudinal dataset, found that the presence of a student loan ‘had little observable effect’ on the subjects’ mental health or residence in New Zealand.21
Impact on repayments
The loan scheme has a repayment threshold, so there is no repayment obligation for those whose income falls below the threshold, and the unpaid portion is written off on death. The loan scheme allows for the fact that some people may not be able to repay their loans, such as people who suffer illness or disability that reduces or removes their work opportunities.
It is evident from Figure 9 that, as time goes on, the number repaying in full increases each year, but at a decreasing rate.
There are some borrowers who never succeed in repaying their loan completely and some who make no progress towards repayment over an extended period.
Figure 10 shows that the probability of repaying a loan depends on whether the borrower has completed a qualification, but gender has little effect. While the differences between the repayment of loans by men and women are very slight, it is notable that women appear to repay a little more quickly in the first few years after leaving study but that men tend to catch up over time. For both men and women who left study at the end of 1999, the median repayment time appears to be around eight years.
Figure 10: Percentage of borrowers who left study in 1998 and 2001 who had completely repaid their loans by 31 March 2006 – by gender and completion status.
It is perhaps surprising that women repay their loans as quickly as men, given that most studies on earnings in the labour market show that women tend to earn less than men with similar qualifications.22 While there is no immediately obvious explanation for that trend, it is likely that there are two factors that influence this. The first is that women tend to borrow slightly less than men and hence have less to repay than men.23 The second is that women may be more debt-averse and hence strive to repay more quickly.
Information from the integrated dataset on student loans and allowances indicates that a proportion of borrowers are unlikely to repay their loans in full. As shown in Figure 11a, around 15 percent of the 1992 leavers had repaid nothing of their loans 14 years after leaving study.
Figure 11a: Proportions of borrowers who left study in 1992 who had repaid all, some or none of their student loans by 31 March 2006
Figure 11a shows that the number of people who complete repayment increases every year – even among the 1992 leavers who had been out of study for 14 years. However, the number who made progress towards repaying their loans remained steady between 2004 and 2006. This implies that there is a proportion of borrowers – 15 percent in the case of the 1992 leavers – who are not in the New Zealand labour market and who may not be able to repay. Likewise, looking at Figure 11b, it is possible to see a similar trend emerging for the 1997 leavers – there was only a small reduction in the numbers who have made no progress to repayment between 2005 and 2006.
Figure 11b: Proportions of borrowers who left study in 1997 who had repaid all, some or none of their student loans by 31 March 2006
Because the Student Loan Scheme is a targeted scheme with income-contingent repayments, it was understood that there would be some people who might not be able to repay because of illness or disability. However, it is desirable that most borrowers are able to repay their loans within a reasonable timeframe. The interest-free student loans policy, the stronger incentives to return to New Zealand in the new rules on borrowers overseas, and improved approaches to collection by Inland Revenue are all expected to make some progress towards reducing the numbers who never repay.
An analysis of those borrowers who last studied in 1997 showed that those who had made no progress at all in reducing the size of their loans in the nine years to 31 March 2007:
- are more likely to have left study without completing a qualification – 38 percent had made no progress, compared with 21 percent of those who had completed their qualifications
- are more likely to have taken lower-level qualifications – 33 percent of those who studied below degree level had made no progress, compared with 25 percent who studied at bachelors level or higher
- are equally likely to be male and female – 31 percent of men had made no progress, compared with 30 percent of women
- are more likely to be Māori or Pasifika than of any other ethnic group – 42 percent of all Māori borrowers and 46 percent of Pasifika borrowers had made no progress, compared with 23 percent for those of European ethnicity.
The analysis of the longer-term outcomes of a policy such as the loan scheme is complex and it takes many years for trends to emerge. Without sophisticated statistical modelling, it is hard to draw clear causal associations. As the loan scheme matures and new data is added to the integrated dataset on student loans and allowances and as new research opportunities are explored, the agencies will be able to strengthen their analysis and expect to be able to report on the analysis in future reports.
- The Tertiary Education Commission (TEC) is responsible for approving programmes/qualifications for student loan purposes.
- Domestic students are New Zealand citizens, New Zealand permanent residents, or Australian citizens, who are treated as New Zealand citizens for the purpose of funding.
- Usher, A. (2006) Grants for students – what they do, why they work, Educational Policy Institute, www.educationalpolicy.org.
- Chapman, B. and Ryan, C. (2005) The access implications of income-contingent charges for higher education: lessons from Australia, Oxford, Economics of Education Review, Vol 24.
- TNS Conversa (2007) 2007 Student Income and Expenditure Survey – report of findings, Auckland: TNS Conversa.
- NatWest Student Living Index 2008.
- US Bureau of Labor Statistics.
- Ministry of Education (2007) Profile & Trends 2006 New Zealand’s Tertiary Education Sector, chapter 5, p 40.
- Human capital is a way of thinking about the skills people possess. Earnings are one way of measuring differences in human capital between different groups.
- Hyatt, J. & Smyth, R. (2006) How do graduates’ incomes change over time? Wellington: Ministry of Education.
- Nair, B. (forthcoming) Labour market outcomes of student support recipients, Wellington: Ministry of Education.
- The EFU is defined in the study as a person who is financially independent, or a group of people who usually reside together and are financially interdependent.
- See Organisation for Economic Co-operation and Development (2005) Education at a Glance: OECD Indicators 2005, Paris: OECD, pp 151-153.
- Atkinson, J. (2005) New Zealand Census-Mortality Study Web Table, Department of Public Health, Wellington School of Medicine and Health Sciences, University of Otago. www.otago.ac.nz/NZCMSWebTable.
- Johnston, G. (2004) Healthy, Wealthy and Wise? A Review of the Wider Benefits of Education, New Zealand Treasury Working Paper 04/04, Wellington: The Treasury.
- These policies meant that most students paid no interest or less than the full interest charged while studying.
- Organisation for Economic Co-operation and Development (2008) Education at a glance: OECD indicators 2008, Paris: OECD. Refer to Table B5.1e.
- O’Connell, K. (2005) Doctors and debt – the effect of student debt on New Zealand doctors, Wellington: New Zealand Union of Students’ Associations, New Zealand Medical Students’ Association and New Zealand Medical Association.
- Scobie, G., Gibson, J. & Le, T. (2005) Household wealth in New Zealand, Wellington: Institute of Policy Studies, Victoria University of Wellington.
- Smart, W. (2006) Do student loans drive people overseas – what is the evidence? Ministry of Education, Wellington.
- Kemp, S., Horward, J. & Fergusson, D. (2006) Student loan debt in a New Zealand cohort study, New Zealand Journal of Educational Studies 2006; 41(2): 273-291, Wellington: New Zealand Council for Educational Research and New Zealand Association for Research in Education. This paper reports on a statistical analysis of the student loan characteristics of people in the Christchurch Health and Development Survey dataset. This is a longitudinal dataset with extensive family and academic information on people born in Christchurch in 1977. The study related the subjects’ loan characteristics to their family and demographic characteristics.
- See, for example, Maani, S. & Maloney, T. (2004) Returns to post-school qualifications: New evidence based on the HLFS Income Supplement (1997-2002), Wellington: Department of Labour. Statistics New Zealand’s releases of data from the integrated dataset also show that the advantage enjoyed by men in earnings tends to increase over time. See www.stats.govt.nz. However, there is evidence that higher qualifications tend to reduce the disadvantage that women experience, meaning that the return to women from higher qualifications is greater.
- Note, however, that in the 1997 leaving cohort, whose data is represented in the graph, women left study with a higher median loan balance – refer to Figure 23 later in this report. The higher leaving balance of women in some years may reflect the fact that women have achieved more in tertiary education and hence tend to enter the labour market with better qualifications on average.
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