Student debt incurred under the the Higher Education Loan Program represents a large and growing problem for the federal government and for taxpayers. Of the estimated $30 billion on the Commonwealth's student loan book last financial year, some 20 per cent or $6 billion, is regarded as a "doubtful debt" and unlikely to be repaid.
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Estimates are that student debt will more than double to $63 billion by 2019, and it's against this background that the Grattan Institute has proposed tightening the terms and conditions on debt repayment. Under the plan, graduates would start repaying their debts when their incomes reached $42,000 a year (the current level at which repayment is triggered is $54,186), and high-income graduates would be required to pay back their loans sooner than is currently the case. The changes would affect an extra 200,000 former students. According to the institute, however, they would reduce the annual taxpayer bill for HELP loans (now approaching $8 billion), as well as helping to ensure that a university education (and vocational training) remains within reach of all eligible Australians.
For a government as anxious to identify budget savings as this one, the Grattan Institute proposal would seem to be heaven-sent. That the institute is a genuinely non-partisan think tank probably adds to the idea's appeal. Even Professor Bruce Chapman, the architect of the Higher Education Contribution loans system (which evolved to become HELP) believes lowering income threshold makes sense, especially since the inclusion of vocational students in the program.
Nonetheless, there have been no shortage of critics. The Greens have characterised it as a "cash grab from a desperate government" – in spite of any clear commitment to implementation – and the National Union of Students is arguing that requiring graduates to start repayments before they reached average graduate wages will exacerbate student inequality.
The argument that debt-burdened students are being forced to put off marriage, child-bearing and home-buying has some foundation. But a comparison of debts acquired by graduates elsewhere in the world (particularly in the US) suggest Australian students are not badly off. In New Zealand, the repayment threshold is much lower than Australia's. And an early version of Britain's student loan scheme required fixed-rate repayments over five years in 60 equal monthly instalments repayable once their gross income exceeded the threshold of 85 per cent of national average earning.
HELP loans represent outstanding value, and not just because they're interest-free and offer discounts for up-front payment. They've expanded access to tertiary education and enabled people to undertake the type of advanced learning that adds significantly to their earning capacity. That general good is reflected in the way the budget papers consider HELP debts as a government asset, not an expense.
However, many graduates, particularly those who work part-time, are either not repaying their debts or taking too long to discharge them, undermining the value and integrity of HELP. If this is to be reversed, the Grattan Institute's proposal requires careful consideration.
