The Government is being urged by the Productivity Commission to abolish University Entrance and instead consider setting up a 45-thousand dollar account for every teenager to spend on tertiary education.

Students should return to paying interest on their loans in an attempt to make tertiary education more accessible for all, a report to the Government suggests.

The Productivity Commission, an independent Crown entity, is recommending interest be charged on new student loans, as part of a proposed overhaul of the tertiary education sector.

However, the Government, Labour and the Greens have all said they are not keen to act on the recommendation.

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The commission is also suggesting the Government increase the income threshold for repayments, and is seeking feedback on an idea to give all New Zealanders a $45,000 "budget" to spend on tertiary study once they turn 16.

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Scrapping University Entrance and allowing tertiary institutions to set their own entry criteria has also been put on the table.

FAIRFAX NZ Productivity Commision chairman Murray Sherwin says the current tertiary system does a great job for students, but it's obvious some are missing out.

The recommendations are included in a draft report as the commission undertakes a year-long investigation into universities, requested by Finance Minister Bill English and Tertiary Education, Skills and Employment Minister Steven Joyce.

It was prompted by concerns around universities' "inertia" in responding to the needs of future students.

Not charging interest on student loans was costing the country about $300 million a year, commission chairman Murray Sherwin said.

MYTCHALL BRANSGROVE/FAIRFAX NZ Tertiary Education, Skills and Employment Minister Steven Joyce said the Government was happy with the existing student loan scheme.

"It's a big lump of money, and it's not, by our reckoning, the most efficient way to spend it to get value for kids in a post-secondary, post-compulsory system."

Interest on future loans could be charged at a rate that covered the cost of running the loan scheme.

STUDENT EDUCATION ACCOUNT

FAIRFAX NZ Labour education spokesman Chris Hipkins said loading more costs on to students "will only serve to deepen inequality, not lessen it".

The commission was also looking for feedback on the concept of a student education account. A share of the roughly $2.8 billion spent on tertiary education in a year would be given to all 16-year-olds, to be spent only on approved education courses.

Students would then be driving demand, and providers would have to be responsive to their needs, Sherwin said.

"It's really out there as a conceptual flyer to say if you really wanted to shift the system, how would you do it?

ANDY JACKSON/ FAIRFAX NZ Greens tertiary education spokesman Gareth Hughes said the party was "absolutely opposed" to adding interest to student loans.

"If you really wanted to make a difference you need to shift the funding mechanism, this is the sort of thing that might do the trick."

Joyce said he expected the commission would do more analysis before finalising its recommendations.

The Government was "happy with things the way they are", and was "not keen" on bringing in the student education account because "we would affectively be swapping a reasonably complex system for another one".

Universities New Zealand chief executive Chris Whelan said the organisation was still coming to grips with the 400-page report, but he believed it still had a long way to go before it was useful.

The council was looking forward to working with the Government and the commission to figure out which recommendations might work.

STRONG OPPOSITION

Both Labour and the Greens dismissed the idea of adding interest to new student loans.

Labour education spokesman Chris Hipkins said loading more of the cost of tertiary education on to students "will only serve to deepen inequality, not lessen it".

"The commission too closely associates the value of learning with monetary measures, and in doing so overlooks the wider public good."

The "bums-on-seats" demand-driven model of student funding had not done a very good job of matching people with skill needs, and taking that approach even further was no more likely to fix that problem.

Greens tertiary education spokesman Gareth Hughes said the party was "absolutely opposed" to adding interest to student loans. With overall student loan debt ballooning to about $15 billion, the Government needed to make things easier for students to pay back debt, not harder.

THE REPORT RECOMMENDS:

* Abolishing University Entrance, leaving all universities free to set their own entry requirements.

* Reforming the Ministry of Education's approach to school-based career education, so students, from an early age, develop the skills and knowledge to make effective decisions about their study options and career pathways.

* A new quality control regime for tertiary education that encourages innovation, takes a risk-based approach, and enforces minimum standards of quality.

* Students should be able to mix and match courses from different providers.

* Every student should receive an invoice from their provider for government-subsidised education. This should explicitly show the full price of education, and the Government's contribution alongside the fee payable.