Doubtful debt: the rising cost of student loans

by Andrew Norton

06.04.2014 report

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The Commonwealth Government could save more than $800 million a year by 2017 if it recovers outstanding student loans from deceased estates and people living overseas.

Total doubtful debt – loans that are not expected to be repaid – is likely to be as high as $13 billion by 2017. The Higher Education Loan Program (HELP) lends students more than $6 billion a year to finance their education, as much as the Government spends on funding higher education tuition.

For 25 years student loan programs have been a great success, financing the education of millions of students. But as student numbers increase and new loan schemes are established, HELP is getting expensive. A few targeted reforms could radically improve HELP’s finances and free up money for teaching and research, without creating hardship for students, graduates or their families.

While graduates of performing arts and visual arts and crafts are the least likely to repay their student loan in full, graduates of commerce, education, nursing, science and humanities contribute most to doubtful debt, once their larger numbers are taken into account.

The Government should stop writing off HELP debt in deceased estates – the biggest cause of doubtful debt – when estates are worth more than $100,000. And graduates living overseas should repay a flat annual amount until their HELP debt is cleared.

HELP’s repayment system was never designed for lending on the scale we see today. With modest reforms, we can achieve the goals of HELP at a much lower cost.

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