The Australian | 19 December 2013
Selling off student debt would be “pointless” at best and costly at worst, modelling for peak body Universities Australia has found.
The report by consultants ACIL Allen says privatising the HECS debt is a “marginal proposition” that could cost the government $6.5 billion while putting educational policy evelopment on ice.
Selling HECS debt is, from a public policy perspective, neutral at best and a bad idea at worst. Any apparent improvement in the government’s budget position … would be entirely illusionary.
The government’s national commission of audit is considering the sale of HECS revenue streams to private investors in the form of bonds or securities. Britain has already privatised small tranches of student debt and plans to sell off the remainder to finance an expansion in university places.
The report found that universities and students would not be affected if the government sold off the debt but guaranteed investors fixed repayment streams, effectively covering the cost of loan defaults.
The government could obtain about $19bn this way, the report found.
“But it would be a fairly pointless transaction, as it would be no better or worse off financially,” it said.
The advantages for investors were also unclear, given that government bonds with similar conditions were already plentiful.
The alternative – to pass on the repayment risk – would attract “a highly discounted upfront payment” as investors guarded against loss. Modelling suggested this could be as low as $12.8bn for an asset worth $19.3bn.
Such an arrangement would also hamstring educational policy, the report found, with investors lobbying the government to charge interest, lower the repayment threshold or increase the repayment rate.
See
Privatisation of HECS debt
Is securitisation an ugly word?
