Universal Student Allowances: A Better Solution

Students’ Associations, like my own ASA and the NZUSA, are continually pushing for a “universal student allowance”. This is quite clearly an unworkable solution – not even the Labour Party is in favour of it – and nor is it a desirable one.

[Note that throughout this document, student refers to tertiary students. Secondary, primary, and pre-primary students have other support mechanisms.]

Problems with a universal student allowance

The main problem is that it blindly encourages anyone to become a tertiary student, without any consideration of whether they should be, and whether they need help. It doesn’t even penalise for poor performance (unless you fail half your papers, you still get the allowance in the following year).

  • It is unclear, from the promotional material that is used, whether a universal student allowance would still be income tested (and just have students at the top end receive a small amount) or not. If it was not to be, then that would mean that people who could easily afford to study without any assistance would be given assistance anyway. I can’t see how anyone would think that this would be a good idea.
  • A universal student allowance does little to address the problem with the loan scheme (unless the allowance was high enough to not need a loan at all – which would mean about $4,000,000,000 per year rather than the $413,000,000 that it is at the moment).
  • A universal student allowance has no reward for success, either in earlier education, or in tertiary studies. Someone scraping through with C’s gets the same allowance as the straight A student.
  • A universal student allowance does not encourage students to attach value to their education. If students pay for education themselves, then they clearly see that it is valuable, and should not be wasted.
  • Any allowance system is going to be abused, no matter how well it is policed. I’m sure everyone knows students that got an allowance because their parents hid their true income (farmers, business people), or through some other loop-hole – I certainly do. Given that you have to pay a loan back, there isn’t much point in abusing it.
  • Unless the amount given is equal (see above), the system will be unfair somehow. For example, at the moment, the system hurts those that have parents with high incomes, but are not willing to support their children’s tertiary education. The system hurts married couples where the spouse’s income is higher than the threshold, but not high enough to fully support tertiary education for the other partner.
  • Any allowance system will have problems with abatement levels, which are already a problem in New Zealand. I have been in the ludicrous position where I had to ask for lower pay, which meant that I could keep my allowance, or I would have less money in the hand each week. Students are discouraged from working, which is not a good situation, and the system makes it difficult to supplement an allowance income (which is not enough to live off).

A Better Solution
While I firmly believe that a universal student allowance is not the right answer, I do not believe that the current system works well. It is increasingly clear that something needs to be done to fix the system – but it is not clear what that should be. Here is my proposed solution; I believe that not only is it more equitable than both the current system and a universal student allowance, but it is also more practical (which means more likely to gain support from both Labour and National, which is required in order to make a lasting change), and more likely to have a positive long-term effect on the New Zealand tertiary education system.

There are 4 parts to this solution:

  • In my opinion, the current level of fees is about right. I would stick with the system where fees are fixed at their current levels, annually adjusted for inflation. I would ensure that there was a simple method where institutions could apply to make a larger-than-inflation increase in a paper’s fee, supplying an appropriate rationale.
  • Allowances. Simple, just get rid of them all. (I suppose you could almost call this a universal student allowance, just one where everyone gets $0.00 per week). This meshes quite well with the NZUSA calls for everyone to be treated equally.
  • Loans. Loans and scholarships (see below) form the backbone of the proposed new system, so need to be well designed, so there are several changes to the nice-idea-but-poorly-implemented existing system (outlined below).
  • Scholarships. My knowledge here is a little out-of-date, but I don’t believe that things have changed all that much since I was a Secondary School student. (See below)

Loans

  • Interest. There’s nothing wrong with getting people to pay for their education, but making money out of them is rather over the top. Fix interest at inflation, and continue to write off interest while studying.
  • Accessibility. It’s a loan, not a grant, and you can’t get out of it (by declaring bankcruptcy, for example), so there’s no reason to deny people one. Anyone (who is a New Zealand citizen / permanent resident) should be able to get a loan. This means, in particular, that the existing level of study requirements (just dropped to 25%) should be removed – so that someone doing a single paper can get a loan, which is not the case now. (There should be limits here – certainly they should be eligible for their fees, but course-related costs and living costs should be proportional to the percentage of a full-time course studied).
  • Amount available. Maybe once upon a time the amounts were sufficient, but has anyone looked at how much it costs to rent a flat in Auckland these days? Or how much textbooks cost? $1000 is a pittance. Every institution should provide StudyLink with a list of approved costs for each paper (not hard to do – the course co-ordinators already do a lot of this). These can be claimed without any additional approval required (computers would do all the complicated work, of course). A small additional amount (say $500, inflation adjusted) would be available for miscellaneous expenses like computer equipment, paper, pens, travel, and so on. For any other expenses, (like conference travel for post-graduate students), the student would have to provide a letter, confirming that the cost is course-related, from their institution. The living costs portion of the loan should simply be bumped up (say $250/week in Auckland), and be bi-annually inflation adjusted. Living costs should also be available year-round, if the student provides evidence that they are enrolled for study in the following year. Sure, all of this means more money given out, but it’s a loan, not free money! Even if people spend it frivolously, it’s their own money that they are wasting, and they’ll have to pay it back at some point.
  • This doesn’t make much of a change, but let’s get rid of that stupid $50 administration fee.
  • Writing it off. The aim should be to write off a quarter to a third of the total loan amount incurred each year. This allows the government to do the targeting sort of work that it loves to do (and, in some cases, needs to do). For example, you could have $500 wiped off your loan for every year in which you spend at least 300 days in New Zealand. You could have $500 wiped off your loan for every year in which you work in rural New Zealand. You could have $10 wiped off your loan for every hour of work you do for a registered charity (although this would need extremely careful monitoring). You could have $500 wiped off your loan for each year that you serve on a Board of Trustees for a New Zealand school. The list is as long as the list of work that needs doing, but doesn’t have people to do it.
  • Paying it back. In the end, most students should still have to pay a portion of their loan back – as they reap the benefits from it. The repayment rate should be adjusted, however, so that the total payments to the government out of income aren’t too extreme (lower tax rates would also solve this problem). Since there’s only way way (death) to get out of paying it back, there really isn’t any hurry – for the student, or for the government (and the idea is that the education is serving them for life, after all).

Scholarships

  • Whatever the final assessment is at high school, this should have decent scholarships attached to it (The $400 or whatever that I got from an A bursary is not “decent”). For each subject in which a student receives an A grade (I’m not sure if A grades exist under NCEA, but there must be some equivilent) they should get 1/6th of the average fees for a year’s study. A B grade would be 1/12th, and a C grade nothing; scholarship grades (back when I was a student a single Scholarship grade meant no money at all) would be 1/3rd. This would mean that a straight A student would have more-or-less all their fees paid, a straight B student about half, and a student that gained scholarship marks would also have money to go towards living costs.
  • This money should be available for the full length of an undergraduate degree (say 3 years) – in my day you got 2 years, or, if your birthday just happened to be at the right time of year, 3 years. The allowance system says that we’re independant at 25, but the bursary system says that we’re independant at 20? Pretty odd, alright.
  • The amount of money shouldn’t stay tied to the grades you get in secondary school – it should automatically adjust to your tertiary grades. So a straight A student at high school that drops to straight B’s at uni/tech would only get ~ half their fees paid in year two, the straight B student that gets all A’s at uni/tech gets all their year two fees paid, and so on.
  • The idea here is that those people that are going to do well in their study (regardless of what subjects, their ethnicity, their gender, their socio-economic status, and so on) are helped more than those that perhaps should be considering another area (everyone is good at something, but not everyone is right for tertiary education).
  • This does make it easier for people straight from school than for “mature” students, but I don’t believe that that is a problem. For a start, that’s the way the current situation is. Secondly, we really want to encourage people to complete tertiary education while young (and then carry on with other, unsupported financially, learning later in life). If it really was an issue, then there could be special “mature” scholarship exams.
  • I gather from the Budget that Bursaries have been replaced with “NCEA awards”, but I presume most of this still applies. Certainly if there is only $1,200,000 to be given out, that won’t go very far.

Costs

So what would this cost? (Existing figures are sourced from Treasury, other figures are extrapolated as outlined.)

  • Allowances cost about $413,000,000 at the moment. This would no longer be the case.
  • $1,200,000 is due to be paid out in NCEA awards (bursaries). This would increase a lot – with about 150,000 students, perhaps 100,000 of these are from high school. Assuming that around 5% get A’s, 30% B’s, and 5% scholarships, and an average year’s course costs about $4,000, this means a total cost of $120,000,000.
  • Student Loans current earn the government something like $504,000,000 per year in interest. This would become around $100,000,000.
  • The student loan administration fee earns the government about $8,600,000 per year. This would no longer be the case.
  • About $275,000,000 would be written off loans each year (about $1,100,000,000 is given out in loans at the moment).

Total increase in spending: $415,000,000. This isn’t that much money in government terms, and about the same as a universal student allowance ($413,000,000 for around half of all students, so, even if it wasn’t an equal amount for each student – $4,000,000,000 – all students would cost around an additional $413,000,000 – plus the increase in student numbers because of the ‘free money’ drawcard.)

The majority of the change comes from the student loan interest lost – without this, the increase is only $10,000,000 (well within the error margin of these calculations). Note that this effects all students, not just current ones, and that a universal student allowance wouldn’t do a great deal to change this problem.

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One response to this post.

  1. […] some time ago, I wrote a post rebutting the popular idea of a universal (tertiary) student allowance, suggesting a better alternative.  Since the NZ Labour Party has resurrected this terrible idea as […]

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