I found this write up strange. We are being told that student that are overseas should pay back their student loan more quickly to “help Canterbury”. We are told that it is a “win-win” because it gets money into the economy, it lowers the budget deficit, and it means the students don’t need to pay back the interest as quickly.
Typifying this is the quote “It’s in your own interest, but an opportunity to be seen as a hero.”
This is where doing things without a full model/conception in mind is problematic – there is no such thing as a free lunch.
The student isn’t paying back the interest, because they are making sacrifices now to pay back the debt. The government gets the cash now instead of later, so the cash balance improves but the set of non-cash assets declines – given that the interest exceeds inflation the real value of their asset position is likely to be lower.
What we SHOULD ask is: Why aren’t the students paying it back now? Is the policy that was introduced sensible?
Students overseas aren’t paying it all back now because the cost of doing so exceeds the benefit. If we were to start pushing them to pay it back, we would likely be causing harm on New Zealander’s who have moved overseas – is that something we want to do?
If we don’t think that it is “fair” that students are paying back their debt at the rate they are, and we think the rate of interest is favourable (it definitely is on students who have stayed in the country) then isn’t the solution to increase the interest rate – not to start dancing around and talking about the deficit and Christchurch to guilt people into it.
Now just talking at people doesn’t cost much – there isn’t a policy failure from doing that. But it doesn’t make it a “win-win” that we are missing out on – if students aren’t paying off their loans, they will have a reason. Trust me.