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Student Loan Scheme Amendment Bill No 2

Matters raised in submissions

BROADENING THE DEFINITION OF “INCOME”

Schedule 3, clause 9

Submission

(Whitireia Community Law Centre)

The submitter supports the changes to the definition of “income” for student loan purposes and is supportive of the main purpose of the bill to “improve the value of the student loan scheme and ensure that repayment obligations are determined on a fair and equitable basis for all borrowers regardless of the types of income they earn”.

Recommendation

That the submission be noted.

INFORMATION-SHARING

Clauses 34 and 43 to 47

Submissions

(Legislation Advisory Committee, Te Mana Akonga – National Māori Tertiary Students’ Associations, New Zealand Union of Students’ Association, Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association, Waiariki Institute of Technology Student Association)

Submitters have raised general concerns regarding the privacy of information shared between Inland Revenue and Customs.

Whitireia Community Law Centre compares the proposed information-match with examples of information-sharing for the enforcing of other types of “wrongdoing” such as recovering child support debt or Ministry of Justice fines enforcement. It states that the Government does not view education as an investment, but rather views these individuals as criminals by placing restrictions on their ability to freely leave and enter New Zealand. The submitter also comments that many individuals will automatically fall within the definition of “serious default” due to having a substantial student loan on completion of their education.

Te Mana Akonga, Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association and Waiariki Institute of Technology Student Association have asked the committee to consider an investigation that will better profile the composition of the 91,000 borrowers living or travelling overseas to ensure the targeting under the information-sharing provisions of the bill are as non-prejudicial and free from discrimination as possible.

Te Mana Akonga submits that an investigation would be prudent for the many Māori who now reside in Australia and the impact of proposed changes in the bill would have on them as well as the many people who left Canterbury for Australia as a result of the earthquakes.

Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association and Waiariki Institute of Technology Student Association have asked if the committee will be seeking a full briefing by officials and the Privacy Commissioner on the impact of any information-sharing proposed under the bill, and will information from that briefing be shared with all interested or affected parties.

The Legislation Advisory Committee submits it is undesirable for the information-sharing provisions in this bill to proceed before the Privacy (Information Sharing) Bill is enacted and implemented. It suggests that officials should be requested to explain why this bill should proceed before the Privacy (Information Sharing) Bill is enacted and implemented. The submitter also emphasises the desirability of consulting with the Privacy Commissioner over the implementation of the information-sharing provisions in the bill.

Comment

The proposed information-sharing is based on the existing child support alerts match used by Inland Revenue and the New Zealand Customs Service (Customs).

The proposed information-sharing will:

  • only affect borrowers in serious default of their repayment obligations. It will not affect borrowers who simply have a large student loan;
  • only be used to contact borrowers, not prevent borrowers from entering or leaving New Zealand; and
  • be used to obtain information that the affected borrowers agreed to provide when they took out a loan (that is, contact details).

Inland Revenue will send Customs the names, birthdates and IRD numbers of selected borrowers who are in serious default in relation to previously assessed repayment obligations. Customs will match this list against the names and birthdates of people upon their arrival and will transfer any contact details obtained for successful matches to Inland Revenue. The selection of cases is based on borrowers meeting the definition of serious default, no ethnic or demographic information is taken into account.

This information will be used by Inland Revenue to initiate contact with the borrower to discuss their situation and outstanding arrears. Inland Revenue will not be preventing borrowers from entering or leaving New Zealand.

The Privacy Commissioner has been consulted on the information-sharing provision. An Information Match Privacy Impact Assessment has been prepared by Inland Revenue in consultation with Customs and the Privacy Commissioner. The privacy assessment identifies the potential impacts on personal privacy and security of data and ways to mitigate those impacts without compromising the intent of the programme. The solution to implement the proposed changes builds on an existing data-match which has been operating effectively since 2007.

In relation to the Privacy (Information Sharing) Bill, the proposed information-sharing contained in the Student Loan Scheme Amendment Bill (No 2) simply extends the existing information-sharing between Inland Revenue and Customs to include student loan borrowers in serious default. At the time of writing this report, the Privacy (Information Sharing) Bill is awaiting its second reading after being introduced in August 2011.

Officials consider that extending the existing information-sharing to student loans should not be delayed due to the uncertainty of the timing of enactment of the Privacy (Information Sharing) Bill.

Recommendation

That the submissions be declined.

DEFINITION OF “SERIOUS DEFAULT”

Clauses 34 and 43 to 47

Submission

(Legislation Advisory Committee)

The definition of “serious default” for the purpose of information-sharing between Inland Revenue and the New Zealand Customs Service provides insufficient guidance. It would be desirable to have more detailed criteria in the legislation to provide more certain limits as to who may be caught by the definition.

Comment

Clause 44 inserts a definition of “serious default” in section 280G of the Customs and Excise Act 1996 for the purpose of information-sharing between Inland Revenue and the New Zealand Customs Service to locate borrowers who have a significant level of overdue student loan obligations when they enter or leave New Zealand. The definition of “serious default” specifies that it is the state of having an unpaid amount due and owing under the Student Loan Scheme Act 2011 and satisfying criteria established in a manner to be determined by the Commissioner.

The criteria determined for the definition of “serious default” will include:

  • the amount of default; and
  • the length of time in default.

The definition of “serious default” will be used as a mechanism to prioritise cases and manage the workload between Inland Revenue and the New Zealand Customs Service. In terms of scale, the average overseas-based borrower default amount is approximately $7,780, with over 14,000 borrowers having a default balance of over $10,000. Borrowers in default to any degree undermine the student loan scheme and place an additional burden on compliant borrowers.

However, making the definition publicly available would undermine the effectiveness of the information-sharing. If the criteria were publically available, borrowers may be able to circumvent the information-sharing process and avoid identification.

Recommendation

That the submission be declined.

STUDENT SUPPORT SYSTEM AND VALUATION OF THE STUDENT LOAN SCHEME

Submissions

(New Zealand Union of Students’ Associations, Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association, Waiariki Institute of Technology Student Association)

The submitters have called for an overall review of the student support system, including the adequacy of student support assistance, and the cumulative impact of Budget 2010, 2011 and 2012 changes on students and on the country.

The New Zealand Union of Students’ Association submitted that the Government overstated the cost of lending and that the “true” cost of lending is around about 8 cents in the dollar for the average graduate. It argues:

  • The Crown’s discount rate is too high and this overstates the cost (it suggested a discount rate of 3.5% is more appropriate for new lending).
  • The cost of lending, that is the initial fair value write-down, neglects the positive impact of the interest unwind (the partial reversal of the loss in value that occurs as repayments are received); that is, the Crown books the cost of the policy changes at its upfront value and does not account for the positive financial flow from the interest unwind.

This submitter also states it believes further changes in relation to the collection of student loans from overseas-based borrowers may keep people overseas because of what they see as a “pernicious loans scheme”.

Additionally, the submitter believes that policy formation for tertiary education is often hampered by the limitation of current data and that the bill cannot be viewed solely as a technical bill in isolation from the changes made over the preceding years.

Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association and Waiariki Institute of Technology Student Association have asked the committee “if it is a reasonable expectation for new graduates to have the opportunity to gain employment as part the social contract they enter into given the indebtedness that is created by the student loan scheme”.

Comment

The submissions refer to matters that are not part of the bill and are therefore outside the scope for consideration.

Recommendation

That the submissions be declined.

CONSIDERATION OF PREVIOUS STUDENT SUPPORT CHANGES

Submissions

(Te Mana Akonga – National Māori Tertiary Students’ Association, New Zealand Union of Students’ Association, New Zealand Medical Students’ Association, Whitireia Community Law Centre, Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association, Waiariki Institute of Technology Student Association)

The submitters have asked that the committee consider the cumulative and flow-on effects of successive changes to the student loan scheme and student support over the years, including but not limited to:

  • the withdrawal of eligibility of the student allowance from postgraduate students (except for those studying for Bachelor degrees with honours);
  • increasing the student loan repayment rate from 10% to 12%;
  • excluding from access to the student loan scheme those aged 55 year or more;
  • reducing the repayment holiday to one year and requiring overseas-based borrowers to apply for the repayment holiday;
  • freezing the student allowance parental income threshold without CPI adjustment until 31 March 2016; and
  • removing the payment incentive following the repeal of the excess repayment bonus.

The New Zealand Medical Students’ Association states the bill does not meet its stated objective “to improve the value of the student loan scheme” for New Zealand’s medical students and the New Zealand health system. It does not meet this objective for New Zealand’s medical students and the New Zealand health system because it does not address the inefficient and inequitable impact of the seven-year equivalent full-time student (EFTS) cap on access to the student loan scheme on medical graduate retention and vocational choice, and New Zealand.

The submitter has therefore asked that the committee consider introducing in this bill either an exemption or an extension to the cap for medical students.

Te Mana Akonga has asked that the committee consider in particular the effects of the changes on Māori. Te Mana Akonga also comments that the reduction of the repayment holiday would have a great effect on those who have moved overseas to find work as a result of the Canterbury earthquakes.

Whitireia Community Law Centre submits that the three-year repayment holiday should be reinstated as it would provide graduates with some “room to breathe, establish themselves in a career and firmly stand on their own feet”. The submitter also states that many individuals tend to leave New Zealand for their “OE” which is part of the New Zealand culture and are away for two to three years obtaining valuable skills and experience which will have a positive gain for New Zealand and imposing penalties while overseas will only deter individuals from returning.

Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association and Waiariki Institute of Technology Student Association have asked the committee if it will be forming a view on whether the recent reduction of the repayment holiday is “instilling greater fairness and accountability”. They also ask that, as a period free from repayments is an automatic feature of the equivalent student loan scheme in the United Kingdom, should the committee investigate treating all borrowers the same way.

Comment

The submissions refer to matters that are not part of the bill and are therefore outside the scope for consideration.

Recommendation

That the submissions be declined.

STUDENT LOAN REPAYMENTS AND SOCIAL ASSISTANCE

Submissions

(New Zealand Union of Students’ Associations, Massey University Extramural Students’ Society, Lincoln University Students’ Association, Student Association of Waikato Institute of Technology, Victoria University of Wellington Students’ Association, Waiariki Institute of Technology Student Association)

Student Loan repayments should be considered a reduction in income for calculating eligibility for social assistance (for example, Working for Families tax credits, income-tested benefits). In particular submitters ask if the committee will be addressing the situation of Working for Families tax credits being calculated based on income before student loan repayments are taken into account.

Submitters also ask the committee if it is correct to state that the student loan collection system “works as a tax”.

Comment

The submissions refer to matters that are not part of the bill and therefore are outside the scope for consideration.

Recommendation

That the submissions be declined.

LEGISLATIVE PROCESS AND COMMUNICATION OF CHANGES

Submission

(New Zealand Union of Students’ Associations)

Many student support changes receive insufficient public and Parliamentary scrutiny as they are authorised outside the legislative process (that is, through Budget or Cabinet decision, loan contracts, and regulations). Those types of changes should also go through the public oversight provided by the Select Committee.

The submitter also raises issues relating to time lags between Budget announcements and steps to respond to students’ questions. The submitter has raised those issues with StudyLink.

Comment

The submission refers to matters that are not part of the bill and therefore are outside the scope for consideration.

However, officials note that changes announced as part of Budget are communicated to students, borrowers and other stakeholders through a range of mechanism, such as:

  • information available on departments’ websites immediately following Budget announcements;
  • emails to affected students alerting them to the changes;
  • fact sheets detailing the changes sent to student associations and education providers; and
  • stakeholder meetings in main centres.

Recommendation

That the submission be declined.

REGULATORY IMPACT STATEMENT

Submissions

(Te Mana Akonga – National Māori Students’ Association, New Zealand Union of Students’ Associations)

The submitters comment on the Regulatory Impact Statement (RIS) on the bill. Te Mana Akonga submits that the RIS is devoid of any comments on the impact of the proposed changes on Māori and as Māori are not only stakeholders but also Treaty partners, the submitter believes this is an oversight of the RIS and would like more information on this.

The New Zealand Union of Students’ Associations comment that they found the RIS deficient, especially in terms of the analysis applied to affected borrowers, impacts on the investment in tertiary education as a whole, and the context of the Tertiary Education Strategy.

Comment

The information presented in the RIS is limited by the data collected by agencies. For example, Inland Revenue does not collect income data broken down by ethnicity or other demographic factors. However, the proposed changes are not thought to have a differential effect on ethnic or other demographic groups of borrowers.

Recommendation

That the submissions be noted.