THE PRESS SATURDAY, JUNE 3, 1989. The student loan scheme

Press, 3 June 1989, Page 22

THE PRESS SATURDAY, JUNE 3, 1989. The student loan scheme

The Government is running into serious trouble with its loans scheme for tertiary study. Much of the trouble should have been foreseen by the Government and it was foreseen by a number of groups. The trading banks are approaching the subject warily and it would seem that the approach taken so far by the Government is not from the perspective of sound banking. Since there is a reasonable chance that, if the Government insists on pressing ahead with the scheme, it will be acting as a banker itself, it must be hoped that it learns some banking principles from the wariness of the trading banks. The trading banks are taking the view that they need guarantees for the loans and they expect that the Government would supply the guarantee and pay some of the interest. They want to know the terms of the guarantee the Government will offer. The banks would also want to apply, their discretion about to whom they would lend money for education fees. At the same time they are aware that the provision of the loan will be the only way in which many people will be able to attend university or another tertiary institution and they do not want to have a role in deciding who should be anabled to study. The banks must also have an idea of when loans would be repaid. In these times of uncertain employment graduates with tertiary qualifications often do not find work immediately.

Last year’s report of the ViceChancellors’ Committee noted that 9.8 per cent of graduates were seeking employment — one way of saying that they were unemployed. These figures excluded those who planned to travel overseas. Among those seeking employment 18 per cent were trained to be dentists, 11 per cent were in engineering, and 13 per cent were architects. This demonstrates that those unemployed were not all arts graduates, who are often considered to be more unlikely to get a job soon after graduation. Will the Government pay the interest during that period of unemployment? If the Government has to pay vast amounts of interest to the banks, its hopes of having greater funds for tertiary training might not work out as planned. Nothing can be assured about the involvement of the trading banks in the scheme. Although a bank might be reluctant to forgo the customer loyalty that might go with the provision of a loan, the amount of money tied up in the loans will be very large indeed and, as in all banking, the risks will be weighed against the possible advantages. Administratively the whole thing will be a nightmare. What happens when someone who has completed tertiary qualifications, at least for a period, and wants to travel out of the country? This is a typical pattern of behaviour of many who have been students. For the last three years 10 per cent of

university graduates alone have travelled overseas. Will the debt have to be discharged first? The idea of checking on people’s student loan indebtedness before they leave the country has repugnant aspects as well as practical problems. The Government has been arguing that the increased fees made available through the student loans will fund universities better. If the banks were willing to provide and administer the loans, there would certainly be more money around, though by the time the scheme has been worked out, the Government guarantees given, the period of unemployment, or travel, taken into account and some provision made for those the banks might consider not to be good risks as borrowers, the increased amount of money might not be worth the trouble. If the Government ends up as banker for the students because the trading banks will not: become involved, the scheme might as well be dropped. Even the Government will see the force of this when its main purpose is to reduce its outlays. Arguments are raised to justify the loans scheme on the ground that students should contribute to their own education. Students already contribute quite substantially through present fees, through paying rent or board, through the cost of textbooks and food. Until recent years, it has been possible for students to obtain holiday jobs to pay for their education. This is no longer easy and in many instances it is impossible. The increased fees and the loans scheme will be additional to the amounts already being paid. Many students are already in debt. Besides the difficulty in obtaining work, some students are required to complete practical work during their holidays and this prevents them from taking work which would earn more money.

The Government has made much of the argument of “middle-class capture,” the notion that it is the sons and daughters of the rich who go to university. Although a proportion of those attending university now have one or more parent with a university background, this does not mean that the family is rich. The motivation provided by parents to their sons and daughters is also a relevant consideration. The Government should ask itself whether those who are disadvantaged are likely to be persuaded of the value of university or other tertiary education when the result is going to be a debt of several thousand dollars, to be repaid from the time when a salary of $19,000 a year is attained. Those who have the ability and the desire to go to university should have the opportunity, and pass the appropriate academic tests. The student loans scheme is not a sound way of encouraging the disadvantaged and will place a discouraging burden on all tertiary students.