Banks remain cautious on student loans

Press, 23 February 1989, Page 7

Banks remain cautious on student loans

PA Wellington Banks remain cautious on whether they will run the student loans scheme announced by the Government on Monday.

The Government has said that from next year tertiary students will have to take out loans to cover 20 per cent of the average course costs, which they will pay back once they are in the workforce. The Associate Minister of Education, Mr Goff, said the scheme could either be run solely by the Government or students themselves could get loans from private sector financial institutions.

He would prefer using the private sector and acknowledged some kind of Government guarantee would be needed.

Banks appear to have had limited contact with the Government over the proposition and none was prepared to be committed to the scheme.

However, they all emphasised interest in the student market and willingness to explore the options.

The National Bank business development manager, Mr Chris Thompson, said the proposal that had been discussed with the

bank was not a sound business proposition as it stood.

One of the key elements was the issue of providing loans for all students instead of reserving the right to turn down some as it did with other customers.

■Whether this was acceptable was likely to depend on the degree of Government guarantee that was associated with the scheme. The bank also had to look at the issue of bad debt arising from the scheme.

It was premature to comment on any possible deal because it was still unclear whether the Government wanted to involve the financial institutions, Mr Thompson said.

The Bank of New Zealand had held discussions with Treasury on the proposal before Christmas and early this year, said the chief manager (marketing), Mr Jim Poulter. Various options had been put forward and the bank was expecting Treasury to come back

with a firm proposal in the next few days. The ANZ had been approached by the Government, but had not been given a concrete proposal, said the marketing and public relations manager, Mr John Gardner. Meanwhile, students are warning banks they could be taking on a risky proposition if they agree to run the loans scheme. A University Students Association booklet said if the banks had to follow up defaulters before the Government was prepared to honour the debt, then banks would expect to apply the normal criteria for lending. “This would shift responsibility for equity of access from the Government to the banks. “If the Government requested the banks to lend to all those who meet the entry criteria for a tertiary institute, then that diminished the banks’ responsibilities towards defaults and increased the costs of the scheme to the Government.”