Fourth Report of the Tertiary Education Advisory Commission - full report 29/58

Shaping the Funding Framework
Fourth Report
of the Tertiary Education Advisory Commission

Chapter 9: Student Financial Support (Cont...)

9.2 Student Allowances

The primary way in which New Zealand's student support system attempts to
improve equity in the tertiary education system is through the Student
Allowances Scheme. Student allowances are available to students from
lower-income backgrounds and to students who receive certain forms of income
support from the Ministry of Social Development. Although New Zealand's level of
student support in this area is high compared to most other countries,¹⁷¹ there is a significant level of dissatisfaction
with the current operation of the scheme. For example, there is a common
perception that the age at which parental income is not a consideration in
allowance eligibility is too high and that the income threshold after which
payments abate or cease is too low.

Modifying the Student Allowance Scheme in order to enhance access could be
achieved by increasing the income threshold at which allowance abatement begins,
or by altering the circumstances under which students are considered
'independent'. Doing so would probably decrease student debt, by reducing the
need for students to access the Student Loan Scheme. It would, however,
significantly increase government expenditure (the specific level of increase
would depend, of course, on the extent of the proposed changes). Under the
current regime, approximately 34 percent of students receive an allowance at a
total cost of approximately $400 million per year.¹⁷² In short, increasing eligibility to any
meaningful extent would result in commensurately higher costs for the
government.

The Commission does believe, however, that questions exist about the
effectiveness and efficiency of student allowances in achieving equity aims. In
particular, it notes that allowances diffuse the total quantum available for
such support over a long period of time. Equity issues may be better addressed
by concentrating these resources (for example, through targeted reductions in
first-year fees) rather than supporting students throughout the tertiary
education system.

In this respect, the Commission is particularly interested in the concept of
mentoring schemes, in which tertiary students receive support in return for
mentoring secondary-school students from disadvantaged backgrounds. Such
programmes, of which the Israeli Perach scheme is a successful
international example, address equity issues not only in the tertiary education
system but also in compulsory education, with mentored students demonstrating
significantly improved levels of educational attainment and social
capital.¹⁷³ Support for mentoring
schemes, such as those currently being planned by some providers, may well be
effective in addressing the Commission's stated desire to improve linkages
between the compulsory and postcompulsory education systems and to build bridges
into tertiary education.

Given both its own concerns and the existence of significant public
dissatisfaction with student allowances, the Commission believes that the
Student Allowances Scheme is in need of further review to determine whether or
not it represents the most effective way of addressing equity issues. The
Commission therefore recommends that the government should re-examine the
Student Allowances Scheme with this question in mind, when it considers its
response to the Education and Science Select Committee review on Student Loans
and Allowances.

Recommendation 39

The Commission recommends that the government, in determining its response to
the Education and Science Select Committee review on Student Loans and
Allowances, re-examine the current system of student allowances to ensure that
the system represents the most effective use of resources. This may involve
redirecting money to provide additional support for other means of achieving
equity objectives, such as mentoring schemes.

The Commission firmly believes, however, that any changes to the Student
Allowances Scheme must be made with consideration for the needs of students and
that any consequent savings to the government should remain within the tertiary
education system.

The Student Allowances Scheme is intended to improve equity, and this
intention must guide any re-allocation of resources within the scheme. Again, as
with student loans, any changes to student allowances would be of particular
relevance for Maori and Pacific students. A higher than average proportion of
students from these groups receive allowances - and so, consequently, any change
to the resourcing or allocation of student allowances would have a significant
impact on them.

In Chapter 7, the Commission suggested that domestic students that do not
pass the entry test for government subsidies in expensive courses (for example,
medicine) should be permitted to enrol as full-fee-paying students. The
Commission has considered whether or not full-fee-paying domestic students174
should be granted access to student loans and allowances. An argument can be
made that these students should receive full access, if it is accepted that all
students are entitled to equivalent levels of public support for undertaking
tertiary education.

The Commission, however, believes that allowing these students access to
student financial support would not be consistent with its desire to see the
government's investment in tertiary education allocated in an efficient and
strategic manner. If domestic students must pay full fees in situations where
restrictions have been placed on entry to, or provision of, a course for fiscal
or resource-use reasons, then allowing students access to loans and allowances
would undermine this position. Consequently, the Commission recommends that
these students should not be entitled to student loans and allowances.

Recommendation 40

The Commission recommends that where a student enrols in a course or
programme which does not pass the desirability test or where a student enrols in
a capped course but does not pass the entry test for government funding for that
course, student loans and allowances should not be available.

9.3 Targeting Specific Students

A further vehicle for supporting specific students and disciplines in New
Zealand's student support system is scholarships, which are offered by both
public and private bodies. These encourage students to study in specific areas,
or support learning of specific groups of students. In the latter case,
scholarships also have an equity-increasing objective (as do student
allowances). Scholarships also support students who are not generally included
under the equity banner (most notably high achievers).

The Commission recognises that there is a significant and complex debate over
the appropriate role and actual effectiveness of scholarships. On one hand,
there is some international evidence to demonstrate that scholarships can
enhance completion rates and lower completion times.¹⁷⁵ Furthermore, they clearly do make education more
affordable and thus reduce the cost of education for some students.

Merit-based scholarships in particular are also effective signalling
mechanisms, given that they reward achievement and recognise excellence. While
it is difficult to measure accurately any gains within the tertiary education
system from this, it seems reasonable to assume that high-achieving students who
feel that their contributions are adequately recognised and appreciated may be
less likely to leave New Zealand as soon as their education is complete.
Similarly, providing scholarships may encourage top students to remain in New
Zealand rather than study in other countries where similar support is available.

Scholarships also, however, possess significant drawbacks. In particular,
such schemes often entail high administration costs if they are to be
effectively and tightly targeted. Furthermore, and perhaps most importantly,
scholarships generally have a high dead-weight cost as funds flow to students
who would have entered tertiary education whether or not such support was
available.

The Commission is aware of these issues, but it nevertheless believes there
is scope for the government to encourage private investment in scholarships and
related initiatives. As one study has pointed out, the contribution of the
private sector to scholarships in New Zealand is minimal compared to that of the
government.¹⁷⁶ Encouraging the private
sector to invest in scholarships, fellowships and similar schemes would both
increase the overall level of resources available for supporting students, and
promote the development of links between the tertiary education system and other
stakeholders (including business and community groups).

In addition, the Commission believes that the government should investigate
the extension of scholarships to reward excellence and promote equity in the
tertiary education system. In investigating this, special attention should be
given to reviewing and implementing such schemes at the post-graduate level.
Improvements to the existing arrangements for post-graduate scholarships and
post-doctoral fellowships could play a major role in enhancing New Zealand's
ability to retain top students and in building the research capability and
capacity of Maori and Pacific peoples. Furthermore, consideration should be
given to the implementation of initiatives specifically for top international
students to undertake post-graduate study in New Zealand. This would encourage
the development of academic networks between New Zealand and other countries,
while highquality international students would also bring a fresh approach and
perspective that could benefit both staff and other students.

The Commission has also been made aware of certain complaints about the
operation of the Top Achiever Doctoral Scholarships. In particular, one
submission to the Commission raised issues regarding the desirability of bonding
recipients to New Zealand after completing their degree, and opposed the
availability of such scholarships for study overseas:

Virtually all students who want to pursue post-graduate study
overseas find financial support from outside New Zealand. Awarding Top Achiever
Scholarships for international study thus effectively subsidizes [sic] overseas
institutions.¹⁷⁷

The Commission feels that these complaints are worth exploring, and believes
that any future review of the Top Achievers Doctoral Scholarships take account
of such issues. In this respect, the Commission is aware that a recent
evaluation of the Bright Futures package has noted the need for further review
and possible changes to this initiative.

Recommendation 41

The Commission notes the complexity of issues regarding scholarships and
recommends that the government explore methods of promoting private investment
in scholarships and related issues.

The Commission further recommends an investigation of the extension of the
use of scholarship schemes to achieve both excellence and equity
objectives.

Finally, the Commission has given some consideration to the issue of bonding.
Bonding refers to schemes where students are provided with financial support in
return for agreeing to undertake some activity for a certain period. In New
Zealand, this most commonly involves working for a particular company or
organisation for a fixed period, in return for which a student receives help
with loan repayments or a full or partial contribution toward student fees from
their employer.

The Commission believes that this is a valuable way of providing student
support, given that it both benefits the recipient and allows the employer to
ensure that it receives an appropriate return on its investment. It considers,
however, that individual firms and organisations are best placed to judge the
usefulness of such schemes in their particular context. Furthermore, the
Commission does not believe that funds from Vote Education should be used to
fund bonding schemes in non-education-related areas. Implementing a bonding
scheme for young doctors, for example, should be funded through the health
sector.

Recommendation 42

The Commission recommends that any bonding arrangements be left to the
discretion of individual firms and organisations.

Minority View

In making these recommendations, the Commission is conscious that the issue
of student support is a highly complex area, and is concerned that it may not
have been able to fully consider all relevant issues. Because of this, one
Commissioner believes that the Commission should not make any detailed
recommendations on student support. Given the level of public concern about the
Student Loan Scheme and the Student Allowances Scheme, this Commissioner
recommends that the government have the following key aims for student support:

• the stabilisation and reduction of student fees;
• the elimination of loan debt; and
• an explicit commitment to retaining student allowances for at least some
  groups of students.

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Footnote(s):

171

See discussion in Chapter 3.

172

Ministry of Education (2001f), p. 2.

173

Carmeli (1999).

174

It is also possible that some learners would wish to enrol in a course that
has failed the desirability test. These learners would also be full-feepaying
domestic learners. Similar arguments apply.

175

Menzies and Barwick (2000).

176

Ibid.

177

Wilson et al. (2000), p. 26.