Uni students and grads must pay their fair share

by Andrew Norton

Published by Sydney Morning Herald, Wednesday 10 May

As Education Minister Senator Simon Birmingham announced his higher education reforms in the lead-up to the budget, the first of many expected student protests was happening outside the venue. The protesters were unhappy about being charged more to go to university.

Students understandably do not want to pay more than they already do. But, for the majority of students and graduates, the long-term impact of what the government proposes would be small. Those most affected are graduates not repaying their HELP debts.

Student contributions for 2017 range from $6349 a year to $10,596 a year, depending on the course. Increases would be phased in between 2018 and 2021, with a total 7.5 per cent increase by 2021. University grants would be decreased by a corresponding amount.

The big policy announcement drew attention to the new student contributions, but on an annual basis the increases would be similar to those that occurred, without protest, between 2012 and 2014. At the time, the formula used for annually adjusting student contributions was linked to wage growth. In a little-noticed change last year, the wage link was removed and student contributions are now adjusted with inflation only. This will limit future above-inflation increases in student charges.

On the government’s figures, total course costs would increase by amounts ranging from $700 for an arts degree to $3900 for a medical degree. With most students borrowing under the HELP loan scheme, a useful way of thinking about debt is how long it would take to repay it. Analysis by the Grattan Institute and NATSEM at the University of Canberra concludes that for most graduates the new student contributions would add less than a year to repayment times.

Repayment times would be a little faster than now if proposed changes to HELP repayment rules are approved by the Senate. Most graduates would pay an additional 0.5 per cent of their income each year until the debt is fully repaid. For example, a graduate earning $70,000 a year would repay about $7 a week more than they do now, as their repayment rate moved from 4.5 per cent to 5 per cent of their income.

The biggest changes to HELP affect lower-income graduates. Under the government’s proposal, every HELP debtor earning $42,000 or more would start repaying. This first repayment threshold is about $55,000 now, but under already passed legislation will be $52,000 for the 2018-19 financial year. At $42,000, HELP debtors would repay 1 per cent of income, or about $8 a week.

Last year, a Grattan Institute report recommended this $42,000 threshold. Unlike the student contribution changes, which are minor changes to existing rates, this proposed threshold is a substantive policy shift. Many people believe student debt should only be repaid if the student has received a financial benefit, and on that basis $42,000 is too low.

A high initial repayment threshold has its origins in the late 1980s, when the Hawke government introduced HECS after a period of free higher education. To make HECS more politically feasible, they set the threshold just below average weekly earnings at the time. Graduates had to earn roughly as much as the average worker before they repaid their student debt. HELP repayment thresholds still increase each year in line with average weekly earnings.

A high initial threshold is not costless. It means most graduates who work part-time, as a growing share do, make no repayments. When part-time work is long-term, as it often is for family second income earners, HELP debt goes unpaid. This is one cause of the $14 billion dollars in HELP debt not expected to be repaid.

Many HELP debtors who would be affected by a $42,000 threshold are not poor despite their modest personal income. Around half live with a partner, with a majority in these households on an after-tax household income exceeding $80,000 a year. They are relatively affluent and do not need a subsidy from the HELP scheme.

Other affected debtors are not affluent, but nor are they among Australia’s poor. The current threshold is generous compared to other forms of government income protection, such as the minimum wage or eligibility for a low income health care card. A $42,000 threshold protects graduates from serious financial hardship, but does not guarantee them a financial benefit before repaying.

Although students will protest, neither they nor graduates should be exempt from a shared responsibility for improving public finances. Today’s costs of funding universities and HELP should not be transferred to future taxpayers.