Administration fees imposed by StudyLink and Inland Revenue

Clause 181

Submissions

(Phillip Baynes, Charlotte Harpin, Auckland University Students’ Association, New Zealand University Students Association, National Council of Women of New Zealand)

Five submitters raised concerns over the introduction of the $40 annual Inland Revenue administration fee payable by borrowers with a consolidated loan balance of $20 or more.

Two submitters stated that the underlying rationale for the fee is the belief that the student is the primary beneficiary of the loan, which ignores the significant public good that arises out of investing in tertiary education.

As the bill introduces measures to reduce the costs of administration, one submitter found it difficult to understand how the increased administration fee could be justified. Students would also be expecting fees to subsequently reduce.

The affordability of the fee was also a concern. The National Council of Women of New Zealand believed the fee could have a detrimental impact on low to middle income borrowers. Also, the imposition of the fee will extend the time needed to repay loans which is at odds with the aims of the bill to improve the rate and timeliness of repayments.

Three submitters commented that the imposition of the administration fee is inconsistent with New Zealand’s commitment to the United Nations Convention on Economic, Social and Cultural Rights, which mandates a commitment to the progressive realisation of free access to tertiary education. They also said the loan contract is an agreement between the borrower and the Government and variations to the contract requires agreement of both parties. There is no provision in the contract to impose an annual administration fee and the use of executive powers to vary the contract to impose the fee is an abuse of parliamentary sovereignty. The submitters believe introduction of the fee constitutes a breech of section 21 of the New Zealand Bill of Rights Act 1990 as the imposition is effectively seizing the property of citizens.

Comment

The new Inland Revenue student loan annual account fee is designed to recover more of the costs of administering student loan accounts. Unlike commercial/banking practice, the Student Loan Scheme does not have mechanisms like interest to help cover operating costs.

The Government will continue to subsidise the annual Inland Revenue administration costs of those who are still studying and who have been charged a loan establishment fee in the same tax year. Should the administration costs change significantly, there will be a mechanism through the bill to make a regulation change to the annual Inland Revenue fee.

In 2010–11, the Crown’s cost of new lending through the Student Loan Scheme is 45.3 cents for every dollar lent. What is sometimes overlooked is that the Crown meets the largest share of the costs of tertiary education through its funding of providers, through student allowances and through the subsidy involved in interest-free loans. The splitting of costs between the Government and the student (or his/her family) recognises that there is a social/public benefit from tertiary education but that individuals who have tertiary qualifications also receive a substantial benefit in terms of higher earnings and non-financial outcomes such as lifestyle.

The $40 fee is not expected to raise affordability issues. By comparison, the average amount of a student loan taken out in 2009 was $6,991 ($40 represents 0.6 percent of this amount). While the fee may extend repayment times by a small amount for some borrowers (by an estimated two months), it could also encourage other borrowers to repay their loans sooner, thereby reducing the costs of the loan scheme to the Crown.

New Zealand’s commitment to the United Nations Convention on Economic, Social and Cultural Rights requires the Government to move progressively (as economic resources permit) towards providing free and unrestricted access to tertiary education. The introduction of an administration fee does not explicitly bar students from enrolling in tertiary education nor is it likely that such a small administration fee would deter students, especially when loans are interest-free. Furthermore, there is no evidence to suggest that student loans generally pose a barrier to tertiary study. OECD analysis shows that countries that allow providers to charge fees and enable students to borrow fees with government-subsidised loans tend to have good performance on measures of access to tertiary education.

The Ministry of Education is of the view that the introduction of a $40 administration fee does not constitute a breach of section 21 of the New Zealand Bill of Rights Act as raised by the submitters. That section upholds the right to be free from unreasonable search or seizure. The fee does not amount to “unreasonable seizure”. The Ministry of Justice has vetted the bill for any Bill of Rights implications and did not raise any concerns.

In Budget 2010, the Government decided that the new Inland Revenue administration fee would apply to borrowers with new or existing loan contracts. This is to recover some of the annual costs of borrowers who currently hold a loan with Inland Revenue. For this reason, the bill contains provisions to remove student loans from the ambit of the Credit Contracts and Consumer Finance Act for both new and existing student loan borrowers. The retrospective nature of the changes also reflects the fact that the nature and form of student loans does not fit well with the Credit Contracts and Consumer Finance Act, and that they will have their own, transparent protection under the new Student Loan Scheme Act.

To ensure that adequate consumer protections are maintained for borrowers, the bill:

• specifies the amount of the Ministry of Social Development student loan establishment fee and the annual Inland Revenue administration fee (with any future changes to these amounts being made by regulations made under the new Student Loan Scheme Act; and
• includes an obligation for the Ministry of Social Development and Inland Revenue to make appropriate disclosures to borrowers.

Recommendation

That the submissions be declined.