Universal student allowance
Posted October 13, 2008
on: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.
41 Responses to "Universal student allowance"

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.


“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.


“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!


“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 Visible hand in economics has an interesting post on the student allowance issue; plus some very interesting discussion in the comments. Well worth a look. […]


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 😉 ).


“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.”


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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.


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


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October 13, 2008 at 2:29 pm
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.