The big question then is, will this actually make things worse? What it really comes down to is how strongly students have responded to the existing bad incentives to borrow. I know I borrowed the maximum I could as most economics students would so I couldn’t borrow anymore. If the majority of students think like I do then they can’t borrow anymore so this policy will be better than the status quo as debt will be paid off quicker. If students didn’t respond to the introduction of interest free student loans as strongly as I did, then it is possible that the benefit of increased repayment will be offset by the increased incentive to borrow. Then again, people who didn’t respond strongly to interest free loans being introduced probably won’t respond to this either….. (I’ve always found it interesting that arts and social sciences students claim not to be motivated by by money yet they are the ones who spend so much time protesting University fees, go figure).
What most people seem to forget is that the whole point of the student loan scheme was to help the poor become rich via education.
So to argue that helping to pay off loans favours the rich is stupid – that’s the whole point of the loan is that people are rich after taking it out. If they are not, then they have bigger issues than a piddly interest free loan.
Fact is that Labour in one stroke of the pen changed billions of assets into billions in liabilities (which is what interest free loans are to those who lend). John Key’s policy is all about making that liability smaller, and that’s a good thing.
Interestingly, it also takes education one step closer to being free. But in that respect, there’s an elephant in the room – the lack of inflation adjustment on student allowances. If National re-adjusted the allowance figures for inflation back to 1999, thousands of students would immediately benefit, and it would show up Labour.