Why Interest Will Return To Student Loans

I think interest will return to student loans sooner than anyone with a student loan wants to acknowledge.

Let’s recall the two opposing forces in New Zealand politics:

  • baby boomers who have frittered away their life earnings and expect state handouts until death
  • younger generations who have been exposed to a user pays society from birth and expect nothing but a bill

Acknowledging these two opposing forces, let’s think about how democracy works for these two teams:

  • baby boomers turn out to vote in high numbers because they have to
  • younger generations turn out to vote in low numbers because they don’t care about a system that doesn’t care about them

What this means is that, over time, the baby boomers will keep voting themselves privileges at the expense of younger generations.

John Key has cynically acknowledge this. Even though he claims interest on student loans being reinstated would be political suicide, he has taken the drastic step of saying he would resign as Prime Minister rather than tinker with National Superannuation.

NZ Super is the “third rail” of New Zealand politics. It can never be touched because the people who vote would go mad.

Interest on student loans, however, is a second-order issue. It affects the grandkids who can’t be bothered to call their grandparents anyway.

Far less likely to get massive political opposition aside from platitudes spouted by the spineless opposition benches.

Interest will return to student loans. And it sure won’t be pretty.

My generation is the cattle that baby boomers will keep milking until they are all dead. Then, there won’t be anything left for my generation because we will have become Greece.

All Graduates Believe They Are Above Average

The release of the Education Counts “young graduate” earnings data is interesting because it makes one major assumption – that 18 year old high school leavers know what they are doing.

The most important consideration for most high school leavers is what university their friends are going to.

The secondary consideration is what sort of lifestyle they’ll enjoy at university.

The arrogance of youth means that hardly anyone sits down and looks carefully at graduate earnings.

For poor people, that is anyone who doesn’t receive enough family support to live on, i.e. at least 90% of the student population, the only thing that matters is the graduate earnings.

All of the tripe about how university makes you a better citizen and the like misses the point – no one would go to university if they could earn the modest premium above the median income without a degree.

Our current national predicament with education – where we pay for an entry ticket to a labour market that trends towards casual contracts and poor opportunities for advancement – is partly the fault of the “equal opportunity” crowd.

They think that everyone deserves a chance at university education, that we can all be astronauts.

Degree completion data clearly shows that to be false. Most people would be better off doing a trade. The reality is my valuable skills in web development and deploying custom software were completely self taught and if full-time would earn more than any graduate opportunity available.

If a high school leaver looks at the data and sees that the median salary for a graduate is $39,700 if they’re lucky enough not to be on a benefit or returning to study, their gut reaction is likely to be: “I’ll earn way more than that”.

Thus, they borrow heavily, in anticipation of the salary that might never come. They engage in consumption smoothing ignorant of the fact that if the median graduate income is $39,700 – 50% of graduates earn less than that!

I think the most disturbing thing about university in New Zealand is how so many people completing arts degrees don’t realise how low their expected earnings are, and then moan about it.

No one will give you a job because you spent 3 years reading about stuff you could download for free from Project Gutenberg or torrent sites.

If you look at the most successful people in “the arts” and examine their backgrounds, you will notice something.

Their parents or grandparents substantially subsidised their education and twenties until they got a decent paying job.

If that’s not going to happen for you, it is financial insanity to go and get an arts degree. Call me “elitist” but “hobby degrees” should be left to the children of wealthy people.

All graduates believe they are above average. I am no exception.

But I realised a few years ago that the only person I could count on to put food on the table was me.

And that’s why I’ve been slowly building up my valuable skills. That’s why I want to be self-employed and not on some graduate scheme where I have to “pay my dues” in order to earn a pathetic income by global standards 5 years after graduation.

$39,700 is not a very high income. But what is so tragic is that it is significantly higher than the national median income which is around $28,000!

So in exchange for:

  • 4 years of course fees and living expenses
  • 4 years of minimal labour market experience
  • 4 years of relative poverty

You are not likely to earn even double the median income. New Zealand, of course, has one of the lowest bachelor’s degree wage premiums in the OECD due to almost everyone going to university after high school if they don’t pursue a trade or technical job.

I used to think that there was some sort of discrimination in play against young graduates. But the low incomes on offer after graduation are simply another symptom of our screwed up economy.

I’d advise graduates to start learning something valuable and figuring out how to productise it or freelance for a decent sum. Don’t fall for the American nonsense of “paying your dues” through an unpaid internship.