policy & reform
Recovery beyond a doubt
The mountain of HELP debt unlikely to be paid continues to grow; as funding becomes tighter, analysts look at ways for the government to get more back. By Fran Molloy
Outstanding university student loans under the government’ s Higher Education Loan Program( HELP) are estimated to total nearly $ 40 billion by 2017, with about 20 per cent of new HELP loans unlikely ever to be repaid – called doubtful debt.
Meanwhile, the proportion of Australians enrolling in undergraduate degrees is higher than ever, and growing. And as HELP-funded tertiary student places grow, that 20 per cent figure is predicted to translate to a crippling $ 13 billion by 2017.
The new federal Budget includes several changes that may affect the situation. First, the government will slash course subsidies by 20 per cent and students are expected to bear the burden of the additional costs. And for students, some of whom will have to borrow more money, HELP debt repayments will kick in at a lower income threshold, with higher interest rates.
For the past 30 years, government-funded loans have allowed students to defer university fees post-graduation until their gross annual income hits a certain level, which will now be $ 50,638 in 2016 – 17. Also, the interest rate on HELP debt will rise from 2 per cent to a maximum of 6 per cent to“ reflect the cost of government borrowings”. The minimum repayment will now be 2 per cent, instead of 4 per cent.
“ HELP’ s repayment system was never designed for lending on the scale we see today,” says economist Andrew Norton, the program director of higher education at the Grattan Institute, a Melbourne-based public-policy think tank.
Norton is co-author of a Grattan Institute report titled Doubtful Debt: The rising cost of student loans, issued in April, which has identified a range of opportunities to recoup a proportion of the doubtful debt on Commonwealth-funded student loans.
Repayments of HELP loans totalled about $ 3.7 billion in 2012, making up about 15 per cent of universities’ revenue – so despite a proportion of doubtful debt, the scheme now plays a significant role in university funding.
Professor Bruce Chapman, an economist at ANU who was a key architect of the original HECS scheme, had concerns about potential changes to the scheme from the Kemp-Norton Review prior to the Budget. For example, he was concerned that earlier repayments would eliminate some of the protection that the original system provided students. However, after seeing the final Budget, Chapman was more optimistic.
“ There’ s a great relief that the HECS system stays,” Chapman says.“ A very poor outcome would’ ve been radically decreasing the first income threshold. [ That didn’ t happen.] So that’ s good.
“ Setting the repayment threshold so low also doesn’ t recoup all that much money; at best, it gets the debt repaid a bit faster.
“ I think the interest rate regime has got some unfortunate consequences for people who don’ t graduate because they will still have debts but they won’ t have high incomes … I would’ ve preferred if we had adopted [ the English regime ], where the real rate of interest is charged but only when people are earning over the threshold, so they don’ t accumulate very large amounts of nominal debt.”
A 2013 Universities Australia report notes that graduating fulltime students in 2012 had an estimated debt of $ 37,217, up from $ 28,861 in 2006.
“ I don’ t think [ the Budget changes undermine HELP ] but they certainly change radically the circumstances of the people who pay.”
WHAT OTHER COUNTRIES DO New Zealand provides income-contingent tertiary student loans, with no interest, to graduates who remain in New Zealand. Outstanding student loan debt was NZ $ 13 billion in 2012.
Unlike Australia, New Zealand requires debtors who move overseas to continue their loan repayments – but overseas-based borrowers are responsible for more than 80 per cent of student debt in default, and the government recently announced that the
10 | campusreview. com. au