HELP for the future: fairer repayment of student debt

by Andrew Norton

28.03.2016 report

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Reducing the thresholds at which former students repay their debt to the Higher Education Loan Program would increase repayments by an initial $500 million a year and more over time. Without change, HELP costs will soar, putting teaching and research at risk of cuts.

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. Interest subsidies on outstanding debt add $200 million a year to HELP’s costs, but would be five times higher if interest rates return to previous levels.

Reducing the initial repayment threshold to $42,000 next year from its current level of $54,126 would cut interest costs and HELP’s rapidly expanding doubtful debt bill while maintaining the fairness and effectiveness of the program.

Since 1989 nearly four million Australians have taken out HELP loans, greatly expanding access to tertiary education. It is a vital program, but today too many borrowers either do not repay what they owe, or take too long to clear their debts. Without change, HELP’s costs will escalate, putting teaching and research at risk of cuts.

A major cause of HELP’s problems is that a growing proportion of all graduates work part-time, but most part-time jobs earn less than the current threshold. In addition, vocational education diploma students now get HELP, and are less likely than higher education graduates to earn the repayment threshold of $54,126 or more.

International experience suggests that even with a lower threshold, students are still attracted to tertiary education. The English student loan repayment threshold is set at a level similar to $42,000, while in New Zealand the threshold is much lower.

The reform would affect more women than men, due to high rates of part-time work. Yet half of the debtors who would be affected live with a partner, and the combined disposable income of 70 per cent of these couples exceeds $80,000 a year.

With this reform, the subsidies built into HELP loans would be more targeted toward people facing real financial hardship. In tough times, it’s a reform Australia can’t afford to ignore.

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