The Prime Minister doesn't think putting interest back on student loans would be a good idea, despite it being a recommendation in a Productivity Commission report into the tertiary sector.
The report, New Models of Tertiary Education, also suggests getting rid of University Entrance (UE) and making tertiary institutions pay rates, among its more than 30 ideas.
It's the result of the independent Crown entity's year-long inquiry into the sector.
Labour made student loans interest-free in 2006, but John Key doesn't think there's support for reversing the policy.
"I don't think there's any appetite to put interest back on student loans. The reality is that it would have an enormous impact on the payback time for students.
"We want young people to go to our polytechs, our universities, our wanangas. We want them to get a world-class education, we need them to have that to participate in a modern economy at a level we need. I think it would just discourage a lot of people."
He says as people with a tertiary education typically earn more, they pay more taxes over time.
"I think it's appropriate to have zero percent loans."
He says commission's job is to look at the economics of student loans, but the politics of the issues is "pretty awful".
In its draft report, released on Thursday, the commission says the tertiary education system is not well-placed to respond to uncertain future trends and the demands of more diverse learners.
It says the system does a good job of supporting and protecting providers that are considered important, but it is not student-centred.
The draft report contains more than 30 recommendations, which it says can go only so far in addressing major structural deficiencies.
One recommendation is doing away with UE, which was deemed to perform no useful function, and letting universities set their own criteria.
"This in itself will have little effect on actual requirements for entry to university, given that universities already set the bar higher or lower for particular courses as they see fit," the draft report said.
It also said tertiary institutions should contribute directly to their local communities by paying rates.
It said this would remove a distortion that led to inefficient use of assets and land.
Another proposal is reforming the student loan scheme so it is income contingent.
The report said this would ensure people were not excluded from tertiary education purely because they could not borrow against future earnings to fund their education.
Future borrowers should be charged interest at a rate that covered the Government's cost in running the scheme.
Labour's education spokesperson Chris Hipkins says the report has some "useful analysis of current problems, but privatisation and deregulation aren't the right answers".
"Deregulation certainly resulted in more innovation in the building sector, and years later we are still mopping up the leaky buildings fiasco that followed," he says.
"We simply can't afford to repeat those mistakes in education. Peoples' livelihoods and futures are at stake.
"The report places far too much emphasis on the private and personal value of education, and not enough emphasis on the value higher levels of education provide to society and the economy."
The New Zealand Tertiary Education Union (TEU) has echoed a similar sentiment, saying proposed solutions are more competition or a "different form or government regulation".
TEU national president Sandra Grey says it was a missed opportunity to "reject policies that create problems".
Earlier this year, she said the Commission should focus on making the tertiary education system more fair and equitable, rather than innovative and productive.
She says more resources are given to those who spend more time in education, especially at higher levels. The report noted those people also have the largest private reward from their education.
Ms Grey says that finding could support a change to more equitable public funding, allowing students to study debt-free.
"Instead, it proposes a voucher system for students, a model which has been proven to be ineffective, especially for those who may already struggle to pay for tertiary education."
The commission is seeking submissions on the draft report by November 21.
It is due to present its final report to the Government by the end of February.
Newshub. / NZN