There is a definite trend here. Calling interest free loans "middle class welfare" makes it easier to sell the removal of this benefit, because how can the left wing effectively oppose this since doing so makes them look like they favour the middle classes over the poor?
We expect that interest free loans will come to an end. The issue is when, and this is something that will be affected by how much this becomes an election issue, and who wins next year.
We deal with a very large number of tragic cases of overseas based borrowers who are financially ruined by student loan interest and penalties. Most New Zealand based borrowers are unaware of the impact this can have, having not personally experienced the destructive power of compounding student loan interest. Our opinion is that the media items are a warning and that you should take steps to minimise your risk. These steps could include:
- Not studying courses that will not generate good future income (unless you feel really passionate about a subject and are willing to pay the cost for this).
- Ensuring that the course, and where you plan to study, are of good enough quality. It needs to be value for money.
- Finishing your course in the shortest possible time. If you drop out, you will have the debt but no qualification.
- Understanding the loan contract, that it can change at any time without your input, and the power of compounding interest and what this can do to the debt. If you don't understand, get help before you commit to a debt.
- Looking at other options to fund your study: working before studying, going to an institution with low or no fees (some South Island institutions offer good deals, or perhaps you are eligible to study overseas in a country where tuition is free), and scholarships.
- If your student loan debt has errors, or you are unhappy with your educational purchase, you should deal with this at the time, as delay affects people's rights.
- Keep copies of everything.
- When you graduate, make it a top priority to pay the debt off ASAP and pay more than the minimum. Debt is like cancer. It can grow and take over your life. It's much better to kill it before it metastasises out of control.
- If you are in an unfortunate situation where bankruptcy may be the only option, it is better to face facts and get on with it rather than delaying. Delaying could mean that the government changes the law and student loan debts are no longer covered. Delaying also means that you may have built up more assets that could be lost by becoming bankrupt, and that you will have fewer earning years ahead of you, when you come out of bankruptcy, to get back on your feet.