Why we always need a “why”

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.

  • “we would likely be causing harm on New Zealander’s who have moved overseas – is that something we want to do?”

    Yes, they’re traitors. See Russell Coutts as evidence of this widely held opinion.

  • Talosaga

    “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.”

    I’m not sure what you mean by this. If we increased the interest rate on student loans it wouldn’t be a win-win either. (ex-)Students would be worse off. Or are you simply stating that there is no win-win situation here?

    I don’t see anything wrong with appealing to the moral side of people. When the first best economic solution is not available, (for political reasons or whatever) using guilt and ethics can be a good way of preventing free-riding and other harmful activities. And the two solutions aren’t mutually exclusive. You can appeal to the moral and self-interested side of a person at the same time. However, saying that it would be in the interest of the student to pay back their loan early is misleading.

    “Yes, they’re traitors. See Russell Coutts as evidence of this widely held opinion.”

    Well they have received a large subsidy from New Zealand taxpayers (via the government), and because they’re overseas the spillover benefits from their education are not received by New Zealanders. They’re not traitors, but I think it’s fair to say they owe NZ taxpayers something.

  • @Talosaga

    “I’m not sure what you mean by this. If we increased the interest rate on student loans it wouldn’t be a win-win either. (ex-)Students would be worse off. Or are you simply stating that there is no win-win situation here?”

    Yar, there is no win-win. I was just suggesting a way we could look at the trade-offs, and then suggesting a policy choice. We could leave interest rates unchanged if we want, but in that case it suggests that their isn’t any issue here – so it is weird to have a newspaper article on it.

    I agree I have no problem with the talking, I wasn’t very comfortable about it being suggested as a “win-win” though – it just didn’t make any sense.

    “Well they have received a large subsidy from New Zealand taxpayers”

    A subsidy society was willing to provide for some reason. Don’t ask me why.

    “They’re not traitors, but I think it’s fair to say they owe NZ taxpayers something.”

    Such as a loan at 6-7% interest 😉

  • It’s also weird to look at the change in student fees in Britain and notice the lack of support for the jobless outside of education. Surely so many underserving people in full time education would open up more job opportunites? Clearly not.

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  • Miguel Sanchez

    I find THIS write-up strange. Surely you’re aware of the reason that Kiwis overseas don’t pay back their loans – because they don’t have to. NZ doesn’t have a mechanism for docking the pay of people who work in other jurisdictions. We have a system that allows someone to get a tertiary education for free – but ONLY if they leave the country and never come back. The way to change this is to make student loans on a commercial basis – i.e. charging interest, a set repayment schedule, and a black mark on your credit record if you default – but even then I think we’ve missed the boat on those who are already overseas.

  • @Miguel Sanchez

    “I find THIS write-up strange”

    That is pretty standard for anything I write though – usually I find them strange when I come back to them as well 😉

    “The way to change this is to make student loans on a commercial basis – i.e. charging interest, a set repayment schedule, and a black mark on your credit record if you default – but even then I think we’ve missed the boat on those who are already overseas.”

    The thing is I agree with you 100%. However, I think this is sort of the point – I found it strange that we were trying to guilt them, instead of trying to see what the problem was and then come up with a solution that is consistent with that explanation.