I’m gonna make the wild assumption that goonix opposed the introduction of kiwibank and either denied or endorsed the “supernormal profits” you refer to…

I think they should bring back the interest (though with my loan it would hurt me substantially). if they really want to help students, put the money thats being spent on zero interest at the moment back into education. with the cost of the policy, (aprox 48% of the value of a loan to when it is paid off), it would reduce fees substantially. (though to be fair on people with existing loans, pay off a portion of the fees part of their loan… or maybe i’m just biased since i have a massive loan myself)

But why should the rate of interest be determined solely by the cost of provision, and not due to the opportunity cost associated with investment?

Is the banking sector really an Oligopoly – I thought that the introduction of Kiwibank had cut back the level of supernormal profits.

Even if there is, the trade-off is between a cost from market power and the benefit of having some actual market pricing regards the return on investment for different types of capital (human capital vs physical capital namely). If we are concerned about the impact on the accumulation of human capital we could make the same argument for the entire banking system – and I just don’t find that convincing tbh.

I don’t think there would be any competition from the private sector

At the fundamental level, sure, the same service is being provided. However, I would contend there is certainly room for innovation in terms of competition. Consider mortgage packages that offer free legal fees for buying a property, for example. In the absence of a monopoly on mortgages I doubt we would see such offers. I’m not sure what student loan companies could offer in terms of innovative products but all I am saying is that there is certainly potential for some and I would not wish to preclude such offerings (and I think it would be interesting to see what the financial institutions could come up with!).