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A new model to reduce student debt

The Student Loan Scheme has always been a hot topic, with political parties promising to liberalise or impose restrictions during their election campaign, depending on their ideologies.

Budget 2012 may announce a few changes to the Scheme. The payment threshold is likely to increase from 10% to 12%. This may be a solution to increase loan repayments and help reduce the student loans write-off from 45% to 40%.

But we must explore a more robust and durable solution to the ever mounting student debt.

During my recent visit to British Columbia (Canada), I took time to study how the Canadians manage their student loans (or Student Aid) and with a director on the board of the Private Training Institutions Agency (PCTIA), our equivalent of NZQA. “Defaults,’ he said in a nutshell.

In New Zealand, students can borrow to meet tuition fees, living cost and course related costs per year if they enrol for tertiary study at a University, Polytechnic and Private Training Establishments. They do not have to make repayments back until they begin to earn at least ($19084.00 per annum.

In British Columbia, students must commence your repayment of their student loans six months after completing their study.

This appears to be a good Scheme in terms of reducing the debt for students; however, we may use this as a basis to create our own student loan repayment system. While retaining the Interest Free status for student loans for student remaining in New Zealand, the model of student commencing a minimum repayment of, say 4-6% of their debt 180 days after the completion of each year of study will help them amortise their student loans debt faster.

This will encourage students to seek part time work opportunities and this will further support the economy, as they will be paying taxes as well.

By the time students completes their final study year, they would be well adjusted to making student loan repayments and reducing a decent amount of their debt.

If they default on their minimum payment, post six months study, should penalties of interest be imposed and should future student loans eligibility be re-evaluated?

Tertiary education is a vital part of New Zealand’s long-term future.

Feroz Ali is the founder and Managing Director of New Zealand Career College, with two campuses in Manukau and once each in Auckland City, Waitakere, North Shore and Christchurch. New Zealand Career College is the Sponsor of the ‘Business Excellence in Export to India’ category of Indian Newslink Indian Business Awards for the second successive year in 2012.

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