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Student Loan Debt: Is It Perceived As Normal?

Debt has long been part of adult life, but have student loans made us more comfortable carrying it?

1 November 2021

Over 900,000 New Zealanders have borrowed almost NZ$16 billion (not including interest) to study or supplement their lifestyles since the Student Loan Scheme began. Today, more than 90 per cent of students borrow money from the government to complete their education.

Studies have shown that students perceive their education as a worthwhile investment in their future – an investment that leaves them with an average debt of NZ$21,000.

Normalising debt

Dr Simon Kemp, a professor at the University of Canterbury’s psychology department, says a large body of evidence suggests the concept of student loans normalises the carrying of debt from a young age.

“What tends to happen is the more debt students have, and the longer they have it, the more comfortable they become with it,” Kemp says.

“When people are thinking about going to university, there’s often an emotional fear of debt, but also a belief and perception that it is useful when it’s used for study. It’s that fear of debt that decreases the further you get into debt at university.”

Since 2006, student loans have been interest-free to all borrowers living in New Zealand. Since then, Kemp says, people worried even less about borrowing.

Ashleigh Brown, who graduated in 2014, agrees.

“The interest-free aspect of student loans made me more comfortable with borrowing the maximum amount, and that’s something I wish I had considered more carefully,” she says.

“I wish now I had been smarter about drawing down only the funds I really needed, which would have left me with a much smaller loan.”

Borrowing against your future

The realities of having a student loan often don’t hit home until students are in the workforce.

“Before I started earning over the repayment threshold, I definitely took on more personal debt than I do now,” Brown says.

“Seeing repayments come out made me feel differently about how I spent and borrowed money.”

The implications of having a student loan, even if it’s interest-free, can be far reaching. Repayments mean less disposable income, which can have repercussions for the amount a bank will lend for a mortgage.

“But people don’t really think of student debt the way they think of mortgage debt,” Kemp says. “They might see there’s not a choice with taking on student debt, but they can choose whether to buy a house and take on a mortgage.

Brown sees both as investments that will pay off.

“I’m not concerned about the size of my student loan. I place a lot of value in having had the financial support to go through university and all the opportunities that education provided,” she says.

“While there is a level of discomfort for me around having more debt, like a mortgage, my student loan has let me see the value in being able to borrow money for investments in the future like education or a house.”

Kemp says evidence suggests that student debt, although complained about, actually doesn’t seem to do people very much harm.

“It doesn’t reduce their happiness much, and it doesn’t really make any great difference to their results,” he says. “But they definitely have a higher tolerance of debt, and that’s something they need to be conscious of.”

By Eleisha McNeill

First published 13 February 2018

JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only.

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