Labour has already announced plans to widen student allowance eligibility in 2009, by raising to $50,000 the parental income threshold where allowance payments begin to reduce, and lowering the age of financial independence from twenty-five to twenty-four.
We will continue to extend eligibility in 2010 and 2011 and abolish the parental income test altogether in 2012.
Labour will increase student allowance eligibility as follows:
* From 1 January 2009, the parental income threshold will increase from its 2008 level (approximately $45,743) to approximately $50,318 (already announced);
* From 1 January 2010, the threshold will increase to $70,000
* From 1 January 2011, the threshold will increase again to $100,000
* From 1 January 2012, the parental income test will be abolished altogether.
Who Will Benefit?
It is estimated that more than 50,000 students aged from eighteen to twenty-three will receive increased support through student allowances by 2012. Most of these students would receive no allowance under the current rules, and need to borrow, receive help from their parents or work part-time, to make ends meet.
About 10,000 of these students would receive a partial allowance under current rules but will get an increase to a full allowance as the parental income threshold increases.
Nearly 20,000 students are likely to be better off by 2010 and nearly 30,000 by 2011.
Students aged 16 and 17 who have met the qualifying requirements for an allowance, e.g. by completing Year 13 at secondary school, will also stand to benefit. There will be no change to allowances for students aged twenty-four and over.
How Much Will It Cost?
It is estimated that abolishing the parental income test in this way will cost approximately $210 million per annum at full implementation in 2012/2013
How the Policy Works
Student allowances assist with living costs for tertiary students (and for secondary students aged 18 and over). Students under the age of 25 are currently regarded as financially dependent on their parents (in most cases), and their eligibility for an allowance is dependent in part on their parents income. Once the parents’ combined income reaches a certain threshold, the students’ allowance is reduced by twenty-five cents for every extra dollar of parental income, until the allowance is reduced to zero.
The parental income test will be abolished, but other existing restrictions on student allowance will still apply. These include the student’s own earnings and their partner’s, where relevant; the student must be enrolled full-time; they must have passed over half of their courses in the previous period of study; and they may not receive allowance for more than 200 weeks (with the exception of certain designated ‘long courses’).
Reasons for the Changes
At present students are the only group in society expected to borrow for living costs.
National created this situation in the 1990s and did so in a way that was very expensive to change. Labour has already tackled the most unfair features of the Student Loan Scheme itself, and brought fee rises under control. We have also made progressive moves to widen Allowance eligibility. This initiative follows on from that.
Abolishing the parental income test will end a long-standing disparity between the treatment of young people who are studying and those who are unemployed.
Currently, a young person who was unemployed and chose to return to study to enhance their job prospects might go from receiving a modest weekly income from the government to having to borrow, or seek help from their parents, to obtain a similar weekly amount (as well as borrowing for fees and course cost).
Abolishing the parental income test will significantly reduce post-study debt burdens.
Despite National’s argument that parents could and should be expected to financially support their ‘dependent’ student offspring, experience has shown that in most cases students have relied on borrowing instead. As a result, students who do not qualify for an allowance leave study with substantially higher debts on average than those who do.
While students currently receiving allowances may come from more modest income backgrounds than their colleagues, their future earnings are generally similar to students without allowances taking the same programme of study. Parental income testing tends to lead to students from middle-income households having larger post-study debts even though this does not reflect higher post-study incomes with which to repay their debts