Student loans have changed the lives of a generation of Kiwis who started study between 1992 and 2017, before the first year of study became fees-free again last year. They have been dubbed Generation Debt due to the amount of money many of them have ended up repaying. In part two of a three-part series, education reporter Simon Collins asks: Was it worth it?
Damion Mitchell is a 39-year-old father of two who is still paying off a good chunk of his $100,000 student loan – but he says he wouldn’t change a thing.
The software engineer from Tauranga and Hamilton started borrowing when he was 16 to do short courses in business, then computing, then chef work and hospitality, accumulating debts of more than $10,000. He then started working in minimum-wage hospitality jobs, unsure of what he wanted to do.
He was typical of many young people in the 1990s/2000s who took advantage of the loans to try out different things. Some didn’t care about the cost, others were happy to take a gamble that the growing debt would pay off when their qualification landed them a well-paid job.
The question now for those still repaying the debt is whether it was worth it.
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At 27, Mitchell went back to hit the books again, this time to do an information technology (IT) degree at Waikato Institute of Technology (Wintec). That’s when his loan peaked, but the degree also enabled him to get much better-paid work and he is now on an “above-average” income as an IT consultant.
Two years ago he started borrowing again to do an online Master of Business Administration (MBA) at Otago University. He is still doing it even though he has taken a work contract in Melbourne this year, and his student loan is still about $30,000.
“I’ve had student loan debt my whole life,” he says.
But, unlike many others, the debt hasn’t stopped him from having children or buying a home and, despite ending up overseas, he has no regrets about taking on a student loan.
“When I was back in New Zealand, you don’t notice it. It’s well worth it,” he says.
“It’s definitely less money that’s coming in, but we never went without.”
Mitchell is one of 708,518 New Zealanders who are still repaying student loans.
Student fees and loans were introduced 30 years ago on the basis that most graduates gained financially from their education by getting higher-paying jobs, so they should pay for a share of it.
Taxpayers fund 81 per cent of tertiary education costs, while students pickup the rest.
On average, the investment has paid off for both graduates and our economy.
Over a 40-year career, the OECD says the average tertiary-educated Kiwi male ends up nearly $380,000 better off over his lifetime than someone who only had a school-level qualification.
The returns on study are less for women because on average they earn less and have more time out of paid work, but their average net lifetime gain is still a tidy $318,300.
The government also profits out of the money it spends on tertiary education, making a net lifetime gain of $140,400 from male graduates, and $65,200 from women, through the tax that they pay on their higher incomes.
However, there are some graduates who have taken on so much debt (the highest loan amounts sit above $400,000) that they have been declared bankrupt or live overseas, afraid to come home where they can be arrested at the airport for overdue payments.
Some people say they have delayed having children or been unable to afford a home till much later in life and question whether it was really worth borrowing the money in the first place.
Others say the debt was difficult but their study resulted in a decent job and better income than if they had not taken a student loan.
Researchers say there is some evidence that the loan scheme has driven borrowers to seek higher-paying jobs so they can repay their debts faster.
And that may be exactly what it was designed to do.
Hiking fees from negligible levels before 1990 to an average of $6900 a year today was intended to make students weigh the costs of study against the likely benefits, reducing the amount of taxpayer spending being “wasted” on study that didn’t lead to high-paying jobs.
The loan scheme, introduced in 1992, intensified the financial calculations. Students then had to weigh up not just the cost of their study, but also the future interest costs of borrowing to pay their fees, against their likely future earnings.
That interest cost was removed in 2006 for people who stayed in New Zealand, but still applies for NZ graduates who go overseas for at least six months.
Exactly as intended, the combination of fees and loans may have driven more students to study subjects that are likely to earn them higher future incomes, to take high-paying rather than “lifestyle” jobs, and, since 2006, to stay in New Zealand.
‘It’s well worth it’
Dunedin nurse Julia Smith borrowed just over $30,000 to do a nursing degree – a move she feels was well worth it.
As a caregiver before doing the degree, she earned just $8-$10 an hour.
“When I graduated my hourly rate as a new graduate nurse was $17-$19. It has since grown to well over $30 an hour. The financial investment in furthering my career was well worth it,” she says.
“If I went back I would absolutely get another student loan and do the same. Except skip less classes, and not have to repeat that bioscience paper!
“My husband took time out of IT to be a dad. Then retrained. Still paying off his student loan. Not really worried by it. We have a mortgage, and do pretty well financially on one income.”
The downside: lost potential
While there have been plenty of positives from the student loan scheme, some lower-income New Zealanders have been shut out of higher education because they couldn’t afford it, reducing their future earnings and weakening the economy. High-income households still capture most of the benefits of tertiary study.
There are also other downsides for those who did take out loans – students having to move away from loved ones to land a job in the field they studied.
Economist Isabelle Sin has analysed all fulltime domestic students who completed bachelor’s degrees aged under 30 between 2005 and 2013 and found that those with bigger student loans were much more likely to have a high-paying job. They were also more likely to move to another region in New Zealand to take a job.
“You have this debt hanging over your head, so you are more likely to get a job that is high-paying,” she says.
This has obvious benefits for the economy. But she also notes potential negative consequences of moving away from family and friends.
“Those graduating with large loans are less likely to go back to where their parents are, so they are giving up somewhere they’d like to live,” she says.
High fees and loans also scare some people off acquiring knowledge and skills that could benefit the economy.
A 42-year-old Auckland mother, who asked not to be named, says she did one year of study in graphic design but did not go on to do a degree because of the cost.
“As the youngest of four, my parents could not afford to pay for further education so I took a student loan,” she says.
“After one year I owed $8000, which was not huge in today’s terms, however I wanted to do a degree which was a further three years and I was sensible enough to realise I wanted to earn money and the debt horrified me.
“So I managed to get a job in a screen printing and copy centre with promises from my employer to on-the-job train me to work in the printing side. This did not eventuate.
“So years later, paying the minimum amount, I ended up in banking and had the opportunity to work double shifts at a contact centre and basically worked my butt off, and paid it including all the interest off.
“Do I regret not doing the degree, because I didn’t get the student loan? Yes.
“If student loans had been interest-free would I have continued? Possibly.”
A Wellington woman says she “was a straight-A student and was encouraged to do honours by my faculty, but left to work instead because by the end of three years studying and working with no family support I literally didn’t have shoes that didn’t leak or clothes without holes in them”.
“My friends who did go on to do extensive post-grad are on much higher salaries or more ostensibly ‘senior’ roles, which happened much sooner in their careers,” she says.
“But there are too many variables around children, political choices and accidents of timing to untease that. Anecdotally, I can only know what was going on for me personally at that time.”
• Monday : How student loans defined a generation .
• Today : Was the debt worth it?
• Tomorrow : Will today’s students be any better off?