How the system works, what are the costs and who benefits?
Student allowances are payments made to students to help them to meet the cost of living while undertaking tertiary study, and is aimed at students from lower income backgrounds, if the student in question is aged 24 or under (ie. the same age group as those which the government is targeting to increase enrollment and completion rates in tertiary education).
In order to be considered for a student allowance in New Zealand, you must be a New Zealand citizen or permanent resident, studying full time in an approved course, and be aged 16 or over.[1] If between the ages of 16 and 24, the student allowance will be based upon the individual’s parents’ income, whether you live at home, and the individual student’s income.[2] The extent to which the parents’ income is taken into account is determined upon whether or not they live together or are separated, and whether or not they support other dependent students aged 16 – 23 years.[3] Essentially, in order to qualify for a student allowance, as at April 2010, the parents’ combined annual income had to be less than $79,956.76 if the student was living within the parental home, and $86,685.30 if the student was living away from the parental home.[4] Coupled with this, the student in question’s income “in any one week can be up to $195.78 before tax (from 1 April 2010) before your Student Allowance payments are affected.”[5]
In the 2008/2009 financial year, the government spent a total of $385 million on student allowances.[6] In the 2009 calendar year, the scheme cost the government $516 million, and aided 82,600 students, and averaged at an annual cost of $6,200 per student.[7] Of these 82,600 students, 45,200 were 16 – 24 year olds, and therefore received the allowance based on their parents income, and received an average of $5,500 per student.[8]
Efficiency considerations
While the scheme is efficient in that it does encourage access to tertiary education through breaking barriers concerned with cost of tertiary education, there are some efficiency considerations concerned to the provision of student allowances which need to be addressed.
Due to the fact that once the student earns over $195.78, the student allowance payment is abated at one dollar per dollar earned acts as a disincentive for the student to partake in paid work, in order to receive ‘free’ money. As well as this, it may encourage the student to find work which can be paid under-the-table, so as to have access to more money on a weekly basis. Rather than ensuring that the allowance helps those who do not have access to enough income to support themselves while studying, it rather recommends that the student limits their hours of paid work in order to receive the same amount of money as someone who may have to work to receive it.
Being that the student allowance is based on the income of the parents for under 25 year olds, efficiency is also compromised as it allows for some students whose parents are self employed to receive the benefit, through the parents ability to ‘hide’ their actual income; which does tend to occur.[9] The result of this is that a proportion of the students receiving the allowance on the premise that they are from a lower income background, are actually made better off than many of those who, not only do not receive a student allowance, but whose parents earn slightly over the threshold.
Coupled with this, the policy doesn’t take into account the students who are forced to live away from home in order to attend university. While the policy has slightly different qualification rates dependent upon whether or not the student is living within the parental home, it does not take into account the choice which was made here. Some students have the option to live at home, but living away from home may enable them to receive a student allowance due to the higher income threshold, or alternatively, enable them to receive more money because of this. The fact that the policy could encourage individuals to change their circumstances so as to reap the benefits, is another efficiency consideration.
As such, the policy is not considered to achieve technical efficiency, in that a different allocation of the resources available, could see a greater out put than that which is currently being seen, due to the fact that the policy, in some cases, is not impacting upon the correct groups.
Equity considerations
Equity, with regard to the policy, must be considered both horizontally and vertically; ie. people on the same income are receiving the same benefits, and those on different incomes are receiving different benefits.
In terms of vertical equity, the policy is based primarily on the parents income, and as such, is partially equitable in this sense, as the more the parents earn, the less the student receives. However, as mentioned above, if the parent chooses to hide their income (if they are self-employed) regardless of what they actually earn the student in question may receive a full allowance. As well as this, regardless of what the student earns in paid work per week, so long as it is below the threshold, they may get the same allowance entitlement as someone who does not work at all per week; therefore, in this sense, vertical equity is not satisfied.
With regard to horizontal equity, specifically considering the amount of money the student in question earns (works for) per week, a student who limits their income to $190 may receive (in pocket per week) $190 from paid work, plus $160 from their student allowance, plus the student allowance accommodation supplement of approximately $40 (approximately $50 if living in Auckland), which would see the student with $390 – $400 dollars per week (depending on where in the country they live, as the accommodation benefit varies). A student who does not qualify for the student allowance, and also worked to receive $190 per week, would presumably get $155 from the student loan scheme (the maximum amount available for weekly living costs, and must be paid back) would have a total of $345 per week. As such, someone receiving a full student allowance receives more cash in hand per week than a student working the same number of hours, and does not have to pay any of it back.
Conclusions of overseas research on student allowance equivalent schemes
Australia, like New Zealand, has an allowance system for tertiary students, which is determined by a parental means test, and has a cap on the income which the student can earn per week.[10] Long[11] investigated as to whether such a system can make a difference to an individual’s decision to enroll in tertiary education, and concluded that while the answer is yes, particularly for low income families, the effect is not large;
“a review of the Youth Allowance reforms [found that] … it is difficult to conclude that the changes in income support contributed to the increase in participation”[12]
Australia once attempted to abolish university fees, and found that it “did little to alter the socioeconomic composition of the higher education student population,”[13] which is what they sought to achieve. Based on this, it could therefore be assumed that financial barriers are not the only aspect hindering certain students from partaking in higher education.
The result of the investigations undertaken in Australia appear somewhat inconclusive, however the evidence would suggest that the impact of their allowance system may have a minor impact on rates of students partaking in tertiary study; particularly for those in lower socio economic groups.
Finnie, who studied tertiary student financial aid in Canada, also notes that the down side of grants and allowances is that the individual that receives them is not necessarily needy in the long term, due to the fact that the education which they receive from tertiary study usually results in them gaining successful careers, resulting in “above average earnings,” which they can then use to pay off their loans.[14]
[1] Studylink, “Student Allowances,” Ministry of Social Development, http://www.studylink.govt.nz/financing-study/student-allowance/index.html (accessed 30/08/2010):1.
[2] Ibid., 1.
[3] Studylink, “How Much You Could Get,” Ministry of Social Development, http://www.studylink.govt.nz/financing-study/student-allowance/how-much-could-you-get.html (accessed 30/08/2010):1.
[4] Ibid., 1.
[5] Ibid., 1.
[6] Ministry of Education, “Student Loan Scheme Annual Report,” Ministry of Education, http://www.educationcounts.govt.nz/publications/series/student_loan_scheme_annual_reports (accessed 30/08/2010):10.
[7] Central Forecasting and Modeling Unit, “Changes in Student Allowances in 2009,” Ministry of Education, http://www.educationcounts.govt.nz/publications/tertiary_education/77541 (accessed 04/08/2010):1.
[8] Ibid., 1.
[9] Holm, M, “Farming the Student Handouts,” New Zealand Herald, http://www.nzherald.co.nz/money-matters/news/article.cfm?c_id=469&objectid=10443210 (accessed 14/09/2010):1.
[10] M Long, “Government Financial Assistance for Australian University Students,” Journal of Higher Education Policy and Management 24,2 (2002):138.
[11] Ibid, 142.
[12] Ibid., 142.
[13] Ibid., 131.
[14] R Finnie, “Student Loans, Student Financial Aid and Post-Secondary Education in Canada,” Journal of Higher Education Policy and Management 24,2 (2002):166.