Is lowering the student loan repayment threshold fair for students?

A new report by Andrew Norton from the Grattan Institute has called on the government to lower the threshold at which university graduates repay their debt to the Higher Education Loan Program (HELP) from the current A$54,126 to $42,000.

According to the report, this would cut interest costs, as more money would be repaid faster, and generate an extra $500 million a year.

Norton said that too many borrowers either do not repay what they owe, or take too long to clear their debts:

“An estimated $1.6 billion lent to students in 2014-15 – a fifth of all lending under the program that year – will not be repaid.”

The total cost of providing the loans to students is a growing consideration for the viability of the system, as the government now lends $7.8 billion a year.

What the report recommends

The government sees the HELP debt as an asset (rightly, as most of it will be repaid), so it is preferable in many ways just to provide additional direct public subsidy to higher education.

But at some point the costs of doubtful debt, which is that money that the government expects will never be repaid, may be too large not to directly address.

The subsidy alone the government provides on currently outstanding debt is estimated to be $200 million a year.

The proposed threshold seeks to balance the need to keep the cost to the public down without undermining the purpose of the scheme, which is to allow access to higher education without cost as an overriding barrier, and without the repayment requirements causing widespread financial distress.

While there is a careful logic to these proscriptions, they do raise broader questions about the current scheme settings and the need to be careful not to undermine the purpose of HELP.

Paying back your student loan on a lower income

The report’s recommendation to lower the threshold for repayment is contentious for many people, because it raises questions around what we think is a fair way for students to repay the debt.

Lowering the threshold has the strong potential to be less fair on graduates on a lower income.

The report acknowledges that many people with debts are employed part-time in Australia and earn more than the lowered threshold. Rightly, there are concerns that part-time earners, especially if they have significant costs as a sole carer, may not be able to afford to pay back their loan.

This is a legitimate question, but it is worth remembering that the current $54,126 threshold was not set specifically to address such situations and so might be higher than is needed.

England’s and New Zealand’s thresholds are relatively lower, which has not so far been shown to be a deterrent to undertaking tertiary education.

A fair HELP scheme?

The report rightly asks what we can do to stop cost blow-outs which might heighten calls to cut the scheme.

It is very difficult to see how the scheme could be self-funding (where students pay for all the costs, including those of their peers who never repay) and not undermine its central goals of providing wide access to higher education.

This question is made all the more difficult because a great increase in the cost of HELP and doubtful debt has come following the VET troubles with dodgy providers preying on vulnerable potential students.

Does the problem lie then with HELP or with the regulation of VET?

With the demand-driven system and the expansion of VET FEE-HELP, there is clearly a need to review the HELP system.

The trick will be to ensure that any change does not undermine this great innovation for education, with a threshold amount that ensures HELP is both sustainable and fair.