15 This document has been released under the Official Information Act 1982 (the Act). Some information has been withheld under section

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1 15 This document has been released under the Official Information Act 1982 (the Act). Some information has been withheld under section March (2)(h) to maintain legal professional privilege. These sections are marked as 3 You have the right under sections 19 and 28(3) of the Act to ask an Ombudsman to review this decision. ED30/19/07/2 Tertiary Education Report: Restricting eligibility to student loans for older borrowers Executive summary This report provides you with advice on restricting eligibility to the Student Loan Scheme for older borrowers. The Student Loan Scheme is open to all New Zealanders enrolled full-time in quality-assured qualifications that are approved for loans, and to those enrolled part-time as long as their enrolment meets certain other conditions. The principle of open eligibility for loans has been regarded as one of the key features of the student support system. However, the cost to the Crown per student is significantly higher for older borrowers than for other groups, since older people are likely to repay under the income-contingent loan scheme at a slower rate and for a shorter time than other students. Many other countries currently restrict lending to older borrowers. For example, the United Kingdom Government does not lend to people aged over 60 for living costs and lending is income-contingent. In Sweden, lending is restricted to people below the age of 54. Restricting borrowing to older people may help prioritise funding for younger students (those aged 25 years and under) who are a priority group in the Tertiary Education Strategy. It may also improve value for money because the return to the country of the investment in a person s education is much less if the person has few years in the workforce or if they are not active in the workforce after completing tertiary education. However, limited savings would be generated by restricting access to those aged 55 and over. Borrowers in the 65-plus age-group comprise only 0.6% of all borrowers and borrowers in the 55-plus age-group comprise only 2.4% of all borrowers 1. Enrolments in these age groups have been decreasing since 2000 and borrowing by these age groups is predicted to decrease significantly as a result of the Budget 2010 changes. More significant savings would be generated by restricting borrowing to those aged 40 and above (12% of all borrowers). However, the economic benefit from tertiary study increases for younger age groups and younger borrowers are more likely to repay their loans at a faster rate. [3] We have considered five graduated options to restrict student loan borrowing to older age groups: 1 Based on 2009 borrowing.

2 Option Estimated borrowers affected Estimated reduced borrowing 2 1. Retain the status quo N/A N/A 2. Restrict eligibility to the student loan scheme for people aged 65 and over to fees only 3. Remove eligibility to the student loan scheme for people aged 65 and over 800 per annum Estimated that between $3.8 and $4.2 million per annum will be borrowed between per annum Estimated that between $7.6 and $7.9 million per annum will be borrowed between Restrict borrowing for people aged 55 and over to fees only - Ministry of Education preferred option 3,200 per annum Estimated that around $11.8 million per annum will be borrowed between Restrict borrowing for people aged 40 and over to fees only 17,000 per annum Estimated that approximately $41 million per annum will be borrowed between We seek an indication of which option(s), if any, Ministers wish to include in the Budget 2011 tertiary education package. Recommended actions We recommend that the Minister for Tertiary Education and the Minister of Revenue: a. note that the cost per student are significantly higher for older borrowers than for other borrowers, since older people are likely to repay under the income-contingent loan scheme at a slower rate than other students. b. note that restricting borrowing to older people may help prioritise funding for younger students (those aged 25 years and under) who are a priority group in the Tertiary Education Strategy. c. note that limited savings would be generated by restricting access to those aged 55 and over. More significant savings would be generated by restricting borrowing to those aged 40 and above, but the economic benefit from tertiary study increases for younger age groups and younger borrowers are more likely to repay their loans at a faster rate. d. [3] e. indicate which option(s), if any, you wish to include in the Budget 2011 tertiary education package. 1. Retain the status quo 2 The impact on the value of the loan cannot be calculated as forecasting by age and component is not conducted as standard. 2

3 2. Restrict eligibility to the student loan scheme for people aged 65 and over to fees only 3. Remove eligibility to the student loan scheme for people aged 65 and over 4. Restrict borrowing for people aged 55 and over to fees only - Ministry of Education preferred option 5. Restrict borrowing for people aged 40 and over to fees only Rob McIntosh Deputy Secretary Ministry of Education NOTED / APPROVED Hon Steven Joyce Minister for Tertiary Education / / Hon Peter Dunne Minister of Revenue / / 3

4 Tertiary Education Report: Restricting eligibility to student loans for older borrowers Purpose of report 1. This report provides advice on options to restrict eligibility to student loans for older borrowers. Background 2. The Student Loan Scheme is open to all New Zealanders enrolled full-time in qualityassured qualifications that are approved for loans, and to those enrolled part-time as long as their enrolment meets certain other conditions. 3. The principle of open eligibility for loans has been regarded as one of the key features of the student support system. Unlike many other OECD countries, eligibility for student loans is not income-contingent and has no age restrictions. 4. A number of changes have been introduced to restrict borrowing to older borrowers. In 2006, loans and allowances eligibility was removed for students in private training establishments that do not receive government funding. In 2009, eligibility to the living costs component of the loan was removed for those who receive social security benefits (including New Zealand Superannuation). 5. The number of borrowers in the 65-plus age-group has declined significantly as a result of these changes. These changes disproportionately affected new permanent residents, as the sharp increase in borrowing for the 65 plus age group in 2005 and 2006 was largely due to a number of new permanent residents who were not yet eligible for other forms of Government benefit. 6. Budget 2010 introduced a number of further changes to student support, aimed at containing the Government's tertiary education expenditure and improving value for money. Policy changes introduced that are expected to restrict eligibility to older borrowers include a two-year stand-down for new permanent residents, a performance element, and a seven EFTS lifetime limit. 7. These changes are expected to roughly halve student loan money drawn down by borrowers aged 65 and over and few people aged over 65 will be eligible for the living cost component of the loan. The number of borrowers aged is expected to reduce by 19%, and there is expected to be a 41% reduction in borrowers aged However, it is still too early to assess the impact of these changes. 8. Cabinet noted in June 2010 [CAB Min (10) 20/8 refers] that the Minister for Tertiary Education was developing a work programme on student support, including options for further changes to repayments and eligibility. 4

5 Number of enrolments Profile of older borrowers Tertiary study 9. In 2009, 28 percent of students were aged 40 years old and above. However, enrolments for this age group are declining. As Figure 1 shows, the number of borrowers in all age brackets from 40 and above has been declining since Figure 1: Enrolments for the 40-plus age group ,000 45,000 40,000 35,000 30,000 25,000 20,000 15, Median - all ages 10,000 5, Year of enrolment 10. The majority of students over 40 years studied for bachelors degrees, with Level 4 certificates being the second most popular level of study. The proportion of students aged 40 years and above studying at sub-degree level increases with age. 11. Three quarters (67%) of students aged over 40 years old studied part-time. 12. The majority of students aged over 40 years (18,597) studied society and culture courses, with management and commerce second most popular (9,383 students) and information technology third most popular. This pattern is replicated across all age groups, including the 65 plus age group. It is not possible to determine the percentage of courses studied within these fields for vocational versus non-vocational purposes. Borrowing 13. Students aged 40 years and over borrowed 8.9% of the 1.4 billion lent under the Student Loan Scheme in As Figure 2 shows, borrowing for living costs decreases for the age groups and then increases again for the 55 plus age groups. Borrowers aged 65 and over (1,122 borrowers in 2009) borrowed the highest proportion of both living costs and courserelated costs across all age groups. 5

6 Loan component borrowed (%) Figure 2: Borrowing by loan component and age group % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Fees Course-related costs Living costs Under More detail on the profile of older borrowers is provided at Appendix 1. The benefits of older people s participation in tertiary study Economic benefits 16. An important benefit of tertiary education is the ability of graduates to obtain employment, contribute to the economy and receive higher wages in return. 17. As at December 2010, people aged form 51 percent of the population that is in paid work. Four percent of the population in paid work are aged 65 and over 3. This constitutes 16 percent of all people aged over 65. Recent research by the Ministry of Social Development (to be released in late March 2011) shows that the number of over 65 year olds in paid employment could reach 26% by around 2030 and that by 2051 older people could represent 7-10% of the total workforce There is also evidence that there are public and private benefits from tertiary study by people aged for completion of higher level qualifications. A forthcoming report from the Department of Labour investigates the public and private benefits for adults aged years who completed a certificate or diploma at a tertiary education provider between 2003 and This report shows a trend towards a higher public rate of return for females aged that completed tertiary study compared to those who did not. However, this trend is not reflected in males aged The average income of borrowers aged 55 and over is consistently below the median for all borrowers. However, this does not take into account the fact that older people generally have a higher net wealth despite receipt of a low income. 3 Household Labour Force Survey December 2010 quarter 4 The Business of Ageing: Realising the Economic Potential of Older People in New Zealand , Ministry of Social Development, Wellington, Forthcoming. 6

7 Share of nominal debt (%) Average value of each dollar lent (z value) Social benefits 20. There is also a range of non-economic benefits associated with tertiary study. For example, higher levels of study are strongly associated with better health status and not being a smoker. Higher levels of study are moderately associated with greater levels of tolerance, and higher levels of volunteering and voting. 5 Problem definition 21. New Zealand's relatively open tertiary education system, and diverse range of flexible learning options have become an increasingly popular option for many older people, whether it be for vocational or non-vocational reasons. 22. Under the Tertiary Education Strategy , the Government aims to ensure that the tertiary system achieves the best return on the public s investment. One of the ways the Government aims to achieve this is by increasing the number of young people (aged under 25) achieving qualifications at levels four and above, particularly degrees. 23. Although there is evidence that, over the next 20 years, an increasing number of older people will remain in the workforce beyond 65, the return to the country of the investment in a person s education is much less if after tertiary education, the person has few years in the workforce or if they are not active in the workforce. 24. The costs to government of the Student Loan Scheme are also significantly higher for older borrowers than for other groups, since older people are likely to repay under the income-contingent loan scheme at a slower rate than other students. 25. As Figure 3 shows, the value of loans decreases significantly for the 55 plus age group upwards. However, around 90% of nominal debt is held by those aged under 40 years. Figure 3: Value of loans against nominal debt by age group 50% % 40% 35% 30% 25% 20% 15% 10% 5% Share of nominal debt Average value of each dollar lent (z value) 0% 0 under 20 yr Age of borrower 5 Statistics New Zealand General Social Survey

8 Options 26. We have considered five graduated options to restrict student loan borrowing to older age groups: Option 1. Retain the status quo Option 2. Restrict eligibility to the student loan scheme for people aged 65 and over to fees only Option 3. Remove eligibility to the student loan scheme for people aged 65 and over Option 4. Restrict borrowing for people aged 55 and over to fees only (Ministry of Education preferred option) Option 5. Restrict borrowing for people aged 40 and over to fees only 27. We seek an indication of which option(s), if any, Ministers wish to include in the Budget 2011 tertiary education package. 8

9 Table 1: Comparison of options Option 1 Retain the status quo Estimated number of borrowers affected 6 Estimated fiscal impact 7 Administrative impact N/A NIL N/A None [3] 2 Restrict eligibility for people aged 65 and over to fees only Approximately 800 a year Low Estimated that between $3.8 and $4.2 million per annum will be borrowed between Approximately $ ,000. These costs cannot be absorbed. [3] 3 Remove eligibility for people aged 65 and over Approximately 800 a year Medium Estimated that between $7.6 and $7.9 million per annum will be borrowed between Approximately $ ,000. These costs cannot be absorbed. [3] 4 Restrict borrowing for people aged 55 and over to fees only 5 Restrict borrowing for people aged 40 and over to fees only Approximately 3,200 a year Approximately 17,000 a year Medium Estimated that around $11.8 million per annum will be borrowed between High Estimated that approximately $41 million per annum will be borrowed between Approximately $ ,000. These costs cannot be absorbed. Approximately $ ,000. These costs cannot be absorbed. [3] [3] Option one status quo 28. Retaining the status quo recognises that tertiary education has other benefits for older people, e.g. it can equip them to undertake valuable voluntary work in the community and also to contribute towards the learning of others (in particular, parents assisting their children and grand-children). It also recognises that, with the aging of the baby boom generation, an increasing number of older people are likely to remain in the workforce after the age of This option is also equitable in terms of previous borrowing. There will be borrowers of all ages who misuse the loan scheme and have no intention of working, at least in the 6 Calculated by applying the estimated impact of the Budget 2010 changes to 2009 borrowing figures 7 The impact on the value of the loan cannot be calculated as forecasting by age and component is not conducted as standard. 9

10 medium term. Many of today s senior citizens completed their education at a time when very few young people went on to tertiary education and would have had little (if any) call on government funds for tertiary education. 30. However, older people are not a priority group in the Tertiary Education Strategy and the costs to government of the Student Loan Scheme are significantly higher for older borrowers than for other groups, since older people are likely to repay under the income-contingent loan scheme at a slower rate than other students. 31. Budget 2010 changes are expected to reduce borrowing older borrowers. The changes are expected to roughly halve student loan money drawn down by borrowers aged 65 and over. In addition, the number of borrowers aged is expected to reduce by 19%, and there is expected to be a 41% reduction in borrowers aged However, it is still too early to assess the impact of these changes. Option two - restrict eligibility to the student loan scheme for people aged 65 and over to fees only 32. This option proposes restricting eligibility to borrowers aged 65 and over to fees only. Applicants must be below 65 at the point of application in order to be eligible for courserelated costs and living costs. 33. This option reduces the risks around lower returns and non-repayment of student loans, while still providing opportunities (i.e through tuition subsidies and fee support) for older people to up-skill to improve their economic position. 34. However, this option will provide minimal savings. Budget 2010 introduced a two-year stand down for new permanent residents to access the Student Loan Scheme and there are now likely to be fewer borrowers aged over 65 that are eligible for living costs. In addition, savings from restricting access to course-related costs will be minimal. 35. Based on 2009 borrowing, if student loan support to those aged 65 and over was restricted to fees only, then the number of students affected (which includes those already in the system) would be approximately 800 a year. 36. Borrowers aged over 65 borrowed $3,640,940 for livings costs and course-related costs in Based on 2009 borrowing and incorporating the expected impact of the Budget 2010 changes, savings from reduced lending by removing eligibility to living costs and course-related costs to those aged 65 and over is estimated to be between $1-3 million per annum. 37. [3] Option three remove eligibility to the student loan scheme for people aged 65 and over 38. This option proposes that when students reach age 65 they would not be eligible for student loans. Applicants must be below 65 at the point of application in order to be eligible. They would still participate as domestic students (i.e. paying domestic fees) but without the ability to access the Student Loan Scheme to fund their study. 39. This option addresses the risks around lower returns and non-repayment of student loans, while still providing opportunities (i.e. through tuition subsidies) for older people to up-skill to improve their economic position. 10

11 40. If the age limit were set at 65 then the number of students affected (which includes those already in the system) would be approximately 800 a year. Borrowers aged over 65 borrowed $6.9 million across all three fee components in Based on 2009 borrowing, savings from reduced lending by removing eligibility to those aged 65 and over is estimated to be between $4-6 million per annum. 41. This would be a significant shift in student support policy. The principle of open eligibility for loans has been regarded as one of the key features of the student support system. 42. [3] Option four restrict borrowing for people aged 55 and over to fees only Ministry of Education preferred option 43. This option proposes restricting student loan eligibility to fees only for people aged 55 years and over. Applicants must be below 55 at the point of application in order to be eligible for course-related costs and living costs. 44. This option is based on the 15 percent drop in the value of loans for the 55 plus age group from the age group. 45. Based on 2009 borrowing, if student loan support to those aged 55 and over was restricted to fees only, then the number of students affected (which includes those already in the system) would be approximately 3,200 a year. 46. In 2009, borrowers aged over 55 borrowed $11.1 million for livings costs and courserelated costs and $14.6 million for fees. Based on 2009 borrowing, savings from reduced lending by removing eligibility to living costs and course-related costs to those aged 55 and over is estimated to be between $8-11 million per annum. 47. This change is likely to be viewed as discriminatory under BORA. However, as this option involves restricting lending for living costs and course-related costs only, it may be possible to justify this option under section 5 of BORA. The proportion of people aged 55 plus in paid work and the potential for this group to retrain and then contribute to the economy for a significant number of years means that it would be difficult to justify a complete removal of student loan eligibility under Section 5 of BORA. 48. The Ministry of Education supports this option due to the significant drop in value of loans held by borrowers in this age group and above. As this option proposes only restricting lending for living costs and course-related costs, the Government will still provide significant support (i.e through tuition subsidies and fee support) for people aged 55 and over to up-skill to improve their economic position. Option five restrict borrowing for people aged 40 and over to fees only 49. This option proposes restricting student loan eligibility to fees only for people aged 40 years and over. Applicants must be below 40 at the point of application in order to be eligible for course-related costs and living costs. 50. This option will generate the most significant savings. Based on 2009 borrowing, if student loan support to those aged 40 and over was restricted to fees only, then the 11

12 number of students affected (which includes those already in the system) would be approximately 17,000 a year. 51. In 2009, borrowers aged over 40 borrowed $38.8 million for livings costs and courserelated costs and $83.6 million for fees. Based on 2009 borrowing, savings from reduced lending by removing eligibility to living costs and course-related costs to those aged 40 and over is estimated to be approximately $40 million per annum. 52. [3] Other options considered 53. [2] 54. [3]. Fiscal implications 55. Forecasting by age group and component is not conducted as standard and this means we are not able to forecast the impact of these options on the value of the loan. 56. However, forecasting is conducted by component. By applying the 2009 proportions for each age group and loan component to the forecasts by component, we have developing estimates of borrowing. 57. Tables 2-4 below detail estimated borrowing for fees, course-related costs, and living costs for the 40 year plus age groups. The impact of Budget 2010 changes is expected to reduce the number of borrowers by 10-20% in each age group. Table 2: Estimated borrowing for fees 40 plus age groups Age group $36,533,446 $37,317,999 $37,979,500 $38,899,236 $39,521, $27,318,493 $27,905,156 $28,399,804 $29,087,552 $29,552, $15,779,289 $16,118,148 $16,403,859 $16,801,105 $17,069, $8,435,720 $8,616,877 $8,769,620 $8,981,991 $9,125, $4,635,622 $4,735,172 $4,819,107 $4,935,810 $5,014, $3,771,312 $3,852,301 $3,920,587 $4,015,530 $4,079,764 TOTAL $96,473,881 $98,545,653 $100,292,476 $102,721,224 $104,364,397 Table 3: Estimated borrowing for course-related costs 40 plus age groups Age group $5,563,040 $5,471,333 $5,413,990 $5,388,749 $5,373, $4,212,975 $4,143,523 $4,100,096 $4,080,981 $4,069, $2,580,327 $2,537,790 $2,511,192 $2,499,484 $2,492, $1,572,519 $1,546,596 $1,530,387 $1,523,252 $1,518, $999,410 $982,935 $972,633 $968,098 $965, $988,534 $972,238 $962,048 $957,563 $954,879 TOTAL $15,916,805 $15,654,415 $15,490,346 $15,418,127 $15,374,918 Table 4: Estimated borrowing for living costs 40 plus age groups

13 Age group $7,869,308 $7,848,789 $7,831,984 $7,868,057 $7,906, $5,836,333 $5,821,115 $5,808,651 $5,835,404 $5,863, $3,793,072 $3,783,182 $3,775,082 $3,792,469 $3,810, $2,983,481 $2,975,702 $2,969,331 $2,983,007 $2,997, $2,454,740 $2,448,340 $2,443,098 $2,454,350 $2,466, $2,883,810 $2,876,291 $2,870,133 $2,883,352 $2,897,293 TOTAL $25,820,745 $25,753,419 $25,698,279 $25,816,639 $25,941, More detailed costings will be provided if further advice is sought on the options. [3] 59. [3] 60. [3] 61. [3] 62. [3] Administrative implications 63. The one-off cost of changing systems and procedures associated with the policy changes is not like to vary significantly between the options as they all require a similar level of change. The estimated scale of the changes required would be approximately $ , These costs cannot be absorbed. 64. Officials will provide more detailed administrative costings for any option(s) that Ministers wish to receive further advice on as part of the Budget 2011 package. Transitioning 65. If any transitional provisions (e.g grand-parenting) are included in the final policy decisions, they will have implications for the delivery of the policy. Communications 66. A communications plan would be required for a policy change of this scale. We estimate that a minimum of $20,000 would be required to deliver the communications plan. 13

14 Appendix 1: Profile of older borrowers 67. As at 1 February 2011, 17% of borrowers are aged over 40 years old and owe 16% of the total loan balance. Two percent of borrowers are aged 65 and over and owe 1.75% of the total loan balance. Figure 1: Current borrowers by age 6% 2% 2% 4% 1% 2% Under 40yrs yrs old yrs old yrs old yrs old yrs old >65 yrs old 83% Source: Inland Revenue. Types of study 68. In 2009, 67% of students aged over 40 years old studied part-time. 39% studied parttime, part-year. As Figure 2 shows, the majority of students over 40 years studied for bachelors degrees, with Level 4 certificates being the second most popular level of study. 14

15 Percentage of students aged 40+ Figure 2: Level of study 40 plus age group , ,000 80,000 60,000 40,000 20, Bachelors Certificates 1-3 Certificates 4 Diplomas 5-7 Graduate certificates/diplomas Honours & postgrad. cert/dips. Masters Doctorates 69. The majority of students aged over 40 years (18,597) studied society and culture courses, with management and commerce second most popular (9,383 students). 70. Society and culture courses were the most popular for students in the and 66+ age groups, with management and commerce courses second most popular. A high proportion of student aged 66+ (10 percent of all students over 40) studied information technology in Figure 3: Field of study, 40-plus age group, % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Natural and Physical Sciences Information Technology Engineering and Related Technologies Architecture and Building Agriculture, Environmental and Related Studies Health Education Management and Commerce Society and Culture Creative Arts Food, Hospitality and Personal Services Field of study Mixed Field Programmes Borrowing and repayment trends 15

16 Made a repayment In terms of repayment trends, there is a slight drop-off in repayments for the 55 plus age groups. As Figure 4 shows, only 51.3% of those aged years have made repayments in the period There is a significant drop-off in repayments for the 60 plus age groups. Only 21.3% of borrowers aged over 65 years have made repayments during this period. Figure 4: Repayments by age group % 60% 50% 40% 30% 20% 10% 0% Under >65 16