Universal student allowance
So the Labour government is looking at putting in a universal student allowance.
This was obviously coming for a while now. I have no doubt that many people will see this as a political football – with parties just looking at getting through popularist policies that get them votes, but … I agree with it.
Why do students have to borrow to live, when the rest of society gets some security net? It never made sense to me.
I would prefer if this policy was implemented with other policies focused at integrating education, employment, and welfare policy (see here) and I would also prefer it if the government was clear about what sort of cuts to other services they will provide to fund the student allowance (as in the long-run it will be more expensive) – but I’m not diametrically opposed to the idea.
Fundamentally, as long as we see the unemployment benefit as a security net for members of society, it should be available for everyone (who is not employed) – and that is what this policy does.
Now, tell me why you disagree 😉
Update: Kiwiblog (*), the Inquiring Mind, No right turn, and the Standard discuss the issue.
Because their borrowing to live is an investment into their future earnings – just like a mortgage on a house? Students are far better off (assuming they graduate and actually end up working) with lower taxes over their lifetime than 3 years of free booze.
And coming from someone who had a student allwoance, due to some creative er.. “accounting” … It all gets spent on piss and partying anyway.
Why should a poor family in South Auckland pay for the booze expenses of some rich kid from Remuera? Labour is turning into the party of privelidge it seems.
“Because their borrowing to live is an investment into their future earnings – just like a mortgage on a house?”
“Why should a poor family in South Auckland pay for the booze expenses of some rich kid from Remuera?”
Since the payment for the student allowance comes from tax money, I don’t think that poor families will be paying it – as they tend to receive net positive transfers from government.
I agree that the student is “investing in human capital” 100%. In this case shouldn’t this be captured by the student loan they pay on their course fees, not on their income for living?
Ultimately, I am trying to understand why we are willing to pay someone to do nothing all day but we are unwilling to provide the same “citizen wage” to someone who is studying.
If it truly is the case that we expect students to have higher future incomes (a point which I agree with you one MikeE), then we can either get this back by taxing incomes (which we do) or by having a universal loan scheme – either way, I think all students should be treated equally.
“Ultimately, I am trying to understand why we are willing to pay someone to do nothing all day but we are unwilling to provide the same “citizen wage” to someone who is studying.”
I’m not willing to pay someone to do nothing all day:)
“I’m not willing to pay someone to do nothing all day:)”
Ahhh, there in lies one of the important considerations.
Do we as a society believe that everyone deserves a certain minimum living standard, independent of what they do – or do we believe that a security net should only be there to capture those that are truly unfortunate – not the lazy.
Even if we did believe in the second type there is a trade-off – if we want to punish the lazy, more unfortunate people will fall through – where do we draw the line.
It might be the wild untamed communist under my beard, but isn’t part of modern society the willingness to give everyone, no matter how lazy, so minimum means of survival. Isn’t that part of what we as a society wish to purchase with our greater level of technology which has given us all greater wealth?
Totally disagree. There is no way Labour can afford this policy. It’ll be a cold day in Hell when it will cost $250 million – when Treasury figures estimate 700 million. And we’ve got nothing in the accounts, so where will this come from?
Borrowing is part of being a student. MikeE is right – why should the taxpayer fund a choice to go to university, when this USA (universial student allowance) is enough to fund entire degrees? Furthermore, that money could go far better places.
There is no evidence to show that student debt has anything to do with productivity.
This is an election bribe and no doubt will ease Labour back into office. Brr, its about to get cold in Wellington/Hell.
I am a recent graduate, and still a graduate student myself (I have a massive student loan, and probably an even larger one if I pursue a phd) but I can see the huge number of problems this would cause.
The reason there shouldn’t be a student allowance is that students will be earning more when they graduate, and will therefore be able to pay off their student debt. They are borrowing to invest and the return on that investment is their future income. The costs to study are not just fees but also the cost of living. The student themselves should do the cost benefit analysis and then make the decision about whether this is worth it.
Another reason is that education should be a commitment (and investment), not a lifestyle. The problem with a universal student allowance is that it creates the wrong incentives. A person who has finished high school, (or any unemployed person) but can’t find a job or doesn’t want a job knows they will be supported if they enrol in education. Yet they may not want to be there. The success of education requires a desire to actually be educated. If one does not pay for that then they do not treat it with its real value. Therefore those who enrol to get a student allowance would not necessarily even attend classes, yet live for free off the tax payer. Further the student may enroll in invaluable qualifications, because it gets them the allowance, yet creates no economic value for New Zealand. Creating a universal student allowance will mean some legitimite students are excluded from tertiary education (because university instutions limit student numbers). It creates extra costs, which are wasted, because many of those who enroll are not committed to their education.
A better system would be that the Student allowance is in the form of a scholarship. Then it could be targeted to specific types of students i.e. at specific jobs that these students would be doing such as Engineers, lawyers or other specific occupations. There would be specific levels of achievement targets for students. Students would also be bonded to the country for a specific period of time following completion. This would mean the allowance was not simply a lifestyle choice, but a commitment by the student to create economic value for the country and hence a return on the taxpayers investment
– I would even suggest that this went one step further, that students pay international level fees, but the government would use existing tertiary education funding to offer fee scholarships similar to above. We would end up with the best and the brightest, creating real value for NZ. We would have a higher quality education system, and more students staying in New Zealand.
“Totally disagree.”
Very good 🙂
“There is no way Labour can afford this policy”
How many students do not get a loan or allowance at the moment? If we set the allowance at a rate below the loan then the expenditure in the short-term will be about the same – there is a long-term funding issue which they will have to face by cutting spending/rising taxes, but it doesn’t really influence the short term budget.
“Borrowing is part of being a student. MikeE is right – why should the taxpayer fund a choice to go to university, when this USA (universial student allowance) is enough to fund entire degrees?”
First, students should still have to pay course fees – infact they should have to pay a lot more of their courses (potentially setting it up such that the amount the government pays actually depends on the social benefit)
We have to ask – will our capital markets provide funds for university in a way that we believe is socially optimal.
Now I actually also agree with the universal student loan idea as well – in order to pick one or the other I would have to look at the whole makeup of welfare/education/employment policies and see what fits best.
However, I think part of the goal is to make tertiary education accessible and the liability associated with it fair – in an intra-student sense either scheme does this.
“There is no evidence to show that student debt has anything to do with productivity.”
And this shouldn’t have anything directly to do with the choice of policies – productivity is not an externality.
“This is an election bribe”
Yes
Minimum level for the unfortuante (and I use this term very broadly) yes, for the lazy no. Unfortuantely this isn’t easy to implement.
Presumeably any externality is accounted for by the negative real interest rate you pay on your loan. If a negative real interest rates doesn’t cover the exrternality genreated, then maybe we should use a universal student allowance for this purpose.
If it’s not because of the externality, and students get a benefit in the form of higher future income, I’m not sure I have a problem with students needing to borrow.
It’s interesting that this policy has been floating around for years form the likes of the Alliance, Progressive and the Greens (I think?) yet labour has never tried to implement. Most definitely an election bribe.
“The student themselves should do the cost benefit analysis and then make the decision about whether this is worth it”
Definitely – 100% agree.
However, there are other margins here. The education system is one part of the eduction/welfare/employment system, and as a result we want to make sure that incentives are aligned between these three areas.
If you are on welfare you get a benefit, if you are employed you get WFF or the upcoming tax credit, if you are in education you may now get an allowance. You pay for these later on with higher taxes (if you stay in the country of course :P).
The reason I suggested approval for a student allowance scheme stemmed from the welfare to tertiary education leg – do we really want to dis-incentive people by saying to them that if they want to upskill they need to give up there benefit?
If we then say we will target people on benefits differently we get to the issue of whether this is fair – why give this person an allowance when everyone else will have to borrow (if they can borrow).
I do ALSO support the idea of a universal student loan – where everyone that wants to go HAS to borrow. The scheme I’d pick would depend on the overall type of tax system, welfare system, and labour market that we have. In the current situation, if WFF stays and we get a tax rebate and unemployment benefits stay around I think we need a universal student allowance to keep these different options in their relative position.
“A person who has finished high school, (or any unemployed person) but can’t find a job or doesn’t want a job knows they will be supported if they enrol in education. Yet they may not want to be there.”
Making them pay the full course cost would probably mess this up for them – as that is like 15-20k a year minimum.
Also, if that is how they feel, why not just get the dole? We already give them that option, why is it worse if they do this by going to university?
“I would even suggest that this went one step further, that students pay international level fees, but the government would use existing tertiary education funding to offer fee scholarships similar to above. We would end up with the best and the brightest, creating real value for NZ. We would have a higher quality education system, and more students staying in New Zealand.”
I’ve got no problem with that at all – as the scholarship is a choice (and so the bonding is a choice).
However, the reason I’ve come in behind the allowance (instead of the loan) for living costs stems from the way our country already treats those on welfare and in employment – if we do it for everyone else in society why not people who are students?
Part of this policy must be the result of “fairness” as well as efficiency – why do we think it is fair to give everyone an allowance expect students?
Yes students will have a higher lifetime income, but so will many other people who are given allowances. If we are want a society with these allowances then I don’t see why we wouldn’t want a society with a universal student loan.
Of course, if we then move back to the point of what we want for society, could it be that some people don’t want these things? If this is the case, why are they happening – that is what confuses me.
“Minimum level for the unfortuante (and I use this term very broadly) yes, for the lazy no.”
Really, I’m disappointed 😉
“If a negative real interest rates doesn’t cover the exrternality genreated, then maybe we should use a universal student allowance for this purpose”
I think the negative interest rate is more unfair than a universal student loan – it is a terrible thing.
“If it’s not because of the externality, and students get a benefit in the form of higher future income, I’m not sure I have a problem with students needing to borrow.”
Neither – although students should be treated equally (at least, inter-discipline), surely.
Disapointed because you wanted me to say there shouldn’t be a minimum for anyone? 🙂
By lazy I mean someone who could achieve that minimum level of income if they wanted too (i.e voluntarily unemployed). If you don’t need the support why should you get it?
I guess at the moment student allowances are currently a form of redistribution.
Ultimately, I’m just pissed they didn’t have a universal student allowance when I was at uni!
“If you don’t need the support why should you get it?”
How can labour be voluntary if people cannot say NO to work and still live. If labour is not voluntary – then how can we say that the reservation level an employee with take is voluntary. If the reservation level does not resemble something is voluntary then how can we truly call the trade between the capitalist and the worker voluntary 😉
Have you not read Marx 😛
“Ultimately, I’m just pissed they didn’t have a universal student allowance when I was at uni!”
When I was at uni I wanted a universal student loan – as I was on the student loan given that I couldn’t get income detail off my parents (damn it!).
Now I have mellowed, and moved more towards the position that I want a greater integration between the benefit/education/employment systems.
“Have you not read Marx :P”
I don’t buy into that communist tripe:P
That’s like saying a cave man should be able to sit on his ass in his cave while all his friends go hunting, and have to hunt extra for him since he’s lazy. If he was unable to hunt that’s a different story, if he just couldn’t be bothered why should the rest of the tribe have to pick up the slack?
“Neither – although students should be treated equally (at least, inter-discipline), surely.”
I think ultimately if we have it it should be non discriminatroy, I’m jsut not sure we should actually have it
“That’s like saying a cave man should be able to sit on his ass in his cave while all his friends go hunting, and have to hunt extra for him since he’s lazy. If he was unable to hunt that’s a different story, if he just couldn’t be bothered why should the rest of the tribe have to pick up the slack?”
Because as we value the idea that we are in a society where all individuals can survive.
Also we could pull out the externality argument – if we did not, as a society, purchase this “all people can ‘live’ without working” thing, the people who don’t want to work (because they get a whole lot of disutility from working obviously) would run around and rob us.
Now, even if we don’t have this externality argument, if we really want to say that we have an environment where the labour-capital relationship is alway voluntary, then we HAVE to have a society that provide everyone some, subsistence level of income. Then the person has a choice between subsistence, and working.
“I think ultimately if we have it it should be non discriminatroy, I’m jsut not sure we should actually have it”
Fair enough.
However, we have to look at it in the same relationship as employment and benefit policy.
If we are willing to pay people to do nothing, and we are willing to pay people while they work, why are we unwilling to pay people who study? It seems like a disconnect to me – given that all three bits are fundamentally part of the labour market.
Now, if we don’t want to give people working for familes, and we view the benefit as only a security net, then we should also have a universal student loan instead of an allowance. I agree with that.
However, I am just trying to figure out what societies underlying preferences are, given that it has revealed some information by doing things like working for families and giving long-term benefits to people who don’t want to work (although it can be a bit inconsistent in this case).
Ultimately, I’m just asking for policies to be consistent with some fundamental “social contract” that treats individuals in the “same way” (in some broad sense) regardless of them being an employee, unemployed, or in training.
“However, the reason I’ve come in behind the allowance (instead of the loan) for living costs stems from the way our country already treats those on welfare and in employment – if we do it for everyone else in society why not people who are students?”
So what you are saying is that you approve of this policy because, at the very least, Labour is being consistent in their nanny-statism?
Really, I’m disappointed 😉
One difference between the dole and the student allowance? Being unemployed can happen to anybody. Study is voluntary.
Another difference? The expected level of free-loading from students is much much much higher than the expected level of free-loading from the rest of society.
“So what you are saying is that you approve of this policy because, at the very least, Labour is being consistent in their nanny-statism?”
Most definitely 😛
“One difference between the dole and the student allowance? Being unemployed can happen to anybody. Study is voluntary.”
The comparison I’m after is voluntary unemployment – people who just don’t want to work. We implicitly still pay them to live, even though it is their choice to spend all their time consuming leisure.
“The expected level of free-loading from students is much much much higher than the expected level of free-loading from the rest of society.”
Huh, how? And even if students do “free load more” is that because of the failure of other institutions or because we are compensating students in other ways – if either is the case we should just change the institutions/stop compensating students in those ways 😉
Fundamentally, I am presuming that New Zealand is a society that does want to set itself up as a “nanny-state” given the things people fundamentally value.
I’m assuming this as we are willing to pay people for not working, pay them a transfer for working and having a family, and even the “centre-right” party wants to pay people for working who don’t have children. As a result, it seems our society has a revealed preference for doing this.
As a result, it seems inconsistent that we don’t do the same thing for students – in fact, not doing it for students acts as a dis-incentive for people to get education. If we are willing to tax and transfer to everyone else I do not think students should be left out. Once we transfer to these groups equally, then the decision about whether to be out of work, in work, or in training will be made on the basis of fundamentals – which is the best way for things to be.
Ultimately, I think that our benefit, welfare, and education systems need to be mutually consistent – as they are all part of the labour market.
People who are unemployed should be able to just walk into the education system and upskill – now, does this imply that we should have a universal student allowance, or that people who are unemployed should have to borrow the benefit (excluding those who are unable to work). Either way, I think they should be treated consistently.
“As a result, it seems our society has a revealed preference for doing this.”
tsk tsk, you know what I am going to say right? Damn it I will say it anyway.
It doesnt so much show our preferences as it does the politicians’.
Labour to Students: Stop Mooching of Mum and Dad and Start Mooching of Big Brother!
“It doesnt so much show our preferences as it does the politicians”
Why do we keep voting for them then if it doesn’t represent our preferences. Remove ACT and you still have 97.5% of people voting for parties that have put down policies associated with state dependency – that is one hell of a revealed preference 😉
“Why do we keep voting for them then if it doesn’t represent our preferences.”
You mean the preference between a giant douche and a turd sandwich?
People feel strongly about things that affect them directly. When things dont affect us, we feel less strong about them.
Politicians promise the world on things that affect certain groups of individuals. And they can get away with it because those benefits will be felt strongly by those people, but the costs will be felt lightly by everyone else.
The people recieving the bribe really appreciate it, but the people ultimately paying for the bribe rarely even notice it. It is the perfect bribe. The
“The people recieving the bribe really appreciate it, but the people ultimately paying for the bribe rarely even notice it.”
That sounds utility maximising to me – as the increase in pleasure is great but the increase in pain is small 😉
For me, the issue is not whether the Universal Student Allowance is a good or a bad thing per se — and in fact I have two sons (this year in what used to be 5th and 6th forms respectively) who are coming close to the point of benefiting from the proposed largesse, at least in the last year or two of their tertiary adventures.
Even so, the question is “can the country afford it, given the ten year, $30 billion deficit the Labour-led government has dumped in our laps?”
And — even though it’ll cost me — I vote NO.
Matt, you keep saying that we pay benefits to the voluntarily unemployed, but the welfare system is designed so that we don’t do this (whether it succeeds or not is another matter). I think the revealed preference is quite clearly that we only intend to help people who are either incapable of helping themselves or are making a genuine effort to find work but are temporarily unable to.
As I’ve said to you before, welfare systems are analogous to an insurance system. You can get insurance against involuntary unemployment or sickness, you can’t get insurance against the possibility you decide to go to university (although thesis extension insurance might be popular 😉 ).
Taxpayers fund nearly 75% of tertiary education, that’s a lot more money for a student that a beneficiary.
Increasing funds for universities to improve the standard of education and bonding so graduates work in areas of shortage would be far better use of the money than a universal allowance for people who may or may not graduate.
Most people are students for three or four years and tax payers for the rest of their lives. Better a loan which you have some control over how much you incur and even more control over how much and how fast you repay, than higher taxes for ever.
“That sounds utility maximising to me – as the increase in pleasure is great but the increase in pain is small.”
In the short term, yes. But if the system was expanded, if it was given more time to run, the outcome is almost always bad. Inefficient allocation of resources, or something silly like that.
Probably some of that asymmetric information bollocks, too.
Quotes: 3) guess who
“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”
“Even so, the question is “can the country afford it, given the ten year, $30 billion deficit the Labour-led government has dumped in our laps?””
Yes that is an important question – which is why I have stated that the government should be clear about how it is funding the scheme. However, if it funds the scheme by cutting some other pointless spending (say health) how would we view it?
“Matt, you keep saying that we pay benefits to the voluntarily unemployed, but the welfare system is designed so that we don’t do this (whether it succeeds or not is another matter)”
That is the kicker isn’t it. Is the welfare system truly implicitly designed such that it only supports those that are looking for work.
Even abstracting from that further we can ask – as a society do we want everyone to be on a minimum income or not. The signal from current welfare policy is fuzzy – but if we can make a value judgment and answer that question we can state what we think is going on.
More to come
“Taxpayers fund nearly 75% of tertiary education, that’s a lot more money for a student that a beneficiary.”
Indeed – students should have to pay the full funding cost of their tertiary education (independent of externalities of course). However – once they are doing this do we think it is fair for them to pay to live? If we don’t then we should have a universal student allowance, and then work towards increasing course fees.
The course fees and living cost components fundamentally cover different bits (although I agree with some commentators that for the individual, these should cumulatively equate to the “cost” of this investment). If we believe everyone deserve a minimum income (an assumption I am making explicitly, that people could more than justifiably disagree with) then it seems apt to give a universal student allowance.
“Quotes: 3) guess who”
Frederic Bastiat, go google. It sounded a bit like Veblen 🙂
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
Indeed, the “dynamic” impact of a policy is something a good economist will look at. But it is also something a bad economist will hide behind in order to push there own agenda 🙂
There is definitely a cost to universal student allowances. The money has to come from tax (or lower spending elsewhere), it incentivises education in the short-term, reducing the supply of labour, and the benefit – higher education levels – may not even increase production very much.
My justification does not stem from efficiency per-see, but from what I am presuming is a revealed preference that we as a society want everyone on a minimum income.
This is the KEY assumption – and as CPW pointed out it does not necessarily hold. However, if this is something that you believe, it follows that a universal student allowance makes sense. If this is a value judgment you do not hold – then they don’t make as much sense.
The goal of all this is to make that assumption transparent – so that each side can see where the other is coming from.
i am converted, a universal student allowance is a good idea, but only if its funded from reduced tertiary funding so that students pay $20k+ per year in fees (the investment in their education) and recieve a minimum living income for their allowance.
I am sold on the idea of increasing fees to full cost and providing an equivalent of the unemployment benefit to students. Make it so.
As someone who went through the system with fees, means tested allowances – which I didn’t qualify for, from a small NZ town (so had to move away to uni), and middle income parents who said “we cant afford it – you can pay for it yourself”, I consequently had to get a loan.
I was grateful for the opportunity to study. Without the loan it would never have happened. So I had debt? So what? I knew it was an investment. And I paid near market rate in interest on it while I studied. So? Thats the cost of money. Nice little lesson there early on. I worked my summer hols to pay for my fees which inched from $3000 to $5500 by the time I finished – still pretty cheap really (figures not adjusted for inflation).
I stayed at uni 6 years all up – thanks to the Asian Economic Crisis removing demand for my degree, and retrained as something more practical than Science -i.e. in Engineering. In all my debt reached the mid 60k range. With a moderately well paying job (starting on $38k in 2001) and no financial commitments (wives, kids, houses) I paid it back in 4 years.
I am now overseas, have completed a UK MSc degree, and am looking at the changes to make education a free ride back home. I look at the wage disparity between NZ and Aus, NZ and UK, NZ and Canada, NZ and US, and I’m thinking… why should I go back? Whats the incentive? And I know, I’m not the only one.
Bribes to unproductive sectors of NZ cost. In the long run NZ will be the poorer for it. Those few who can avoid the poverty trap of living in NZ will do so.
Hi Steve and Kimble,
Ultimately it is not about strictly being sold on an idea – I can understand why people may never agree with any of this sort of thing. It is ultimately about making the value judgments we make when supporting/attacking policies transparent. I am glad that we are doing this 🙂
Hi mavxp
“Bribes to unproductive sectors of NZ cost. In the long run NZ will be the poorer for it. Those few who can avoid the poverty trap of living in NZ will do so.”
Remember, production is not the only thing we value. Government is a institution which hopefully represents the preferences of its constituents. If this is the case then the redistribution of resources in an “unproductive” way is of social benefit.
As a result, the question is – what trade-off are we willing to make in society between what we perceive is “fair” and what gives us the greatest level of material wealth.
Also note that with what I constitute as fairness in this post, students would pay all of their fees – as compared to the current situation where they only pay a third. This provides a separation between the “private investment” and the social belief that everyone deserves some “minimum income” as a member of the New Zealand “community”.
Even with redistribution in NZ, I think calling the place a poverty trap is a little excessive 🙂
How many students are going to get this allowance in full? Not many. Here’s an example. A student lives on the allowance and works part time. On today’s costs they cant earn more than $370 a week and get the allowance. If they earn about $260 a week the allowance is just $60.00.
If their weekly expenses are more than $310 and they have earnings of $200 a week they wont be getting student allowance abatement of $105 odd even if they qualify as it wont pay the bills – they`ll be getting a loan of $150 a week.
And students in that situation support this policy?
Now we need a commitment to index the student allowance or just have it at the same level as the benefit, the really shameful thing is that it has been declining in real terms for years.
So has the level of tertiary funding – in fact it has been declining ( more than 200m a year in real terms
Hi Dave and Ebolacola,
Yes the student allowance gets abated – but it does so in the same way as the unemployment benefit. As a result, if we think the abatement rate is too high (eg is disincentivises work) that is a problem in both schemes.
If the problem is that the allowance is “too low” then that is a problem with both as well, as the student allowance sits at about the unemployment benefit level.
These discussions are surrounding the “level” of any such allowance – or minimum citizen income – that should be received by people. This is a value judgment that has to be made, but not one that I have an opinion on.
I agree that it is near impossible to live anywhere near, say Wellington, on $150 a week. However, if this is the minimum income that society wants everyone to be on, then when someone makes the DECISION to be a student they know they will have to borrow or scrounge up money in some other way to make do.
I worked long hours at the Warehouse, and for a while I worked two jobs to get income together to do it – ohh well, I made that choice because I valued the investment in my human capital.
So I have the impression that you both agree that people deserve some minimum income – but the level of income you support may be different to what other people are after. These varying assumptions are important to lay down.