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Sell-off of HECS debt not to be squandered

Australian Technology Network   |    26 February 2014

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Securitisation is likely to become Australia’s education-financial buzz word of 2014 – namely the debt securitisation of our national HECS debt: the student loan portfolio, writes Vicki Thomson of the Australian Technology Network.

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In Britain, the Cameron government has moved down this route, starting with the sell-off of the older student HECS debtdebt portfolio worth £900 million ($1.7 billion) for a mere £160m late last year.

There are numerous unmistakable signals a significant proportion of the newer debt is likely to follow, and sooner rather than later, with Britain’s minister for universities David Willetts praised for the sell-off’s revenue projections, which are meant to subsidise an expansion in undergraduate student numbers.

For Australia there is potentially $26bn in HECS debt on the table, albeit at a significantly reduced market value, and the government has received advice from several areas that selling off this debt (or some of it) makes total sense given the global economic environment. The merits of this are yet to be debated fully.

Certainly there is growing demand in capital markets for investment grade product; and this large HECS debt most certainly is that.

Plus education minister Christopher Pyne has already alluded publicly to the fact securitisation is front of mind for him, even if it is not government policy.

He has cited the British experience, saying: “We should investigate whether that is a sensible move for us to do so.”

And in the context of the anticipated report from the Commission of Audit, there is much speculation as to its inclusion.

The chief dilemma for this government is not the lack of political will but the scarcity of funding to pay for infrastructure – be it ports, roads or research facilities – as credit rating agencies are hyper-vigilant to downgrade a nation’s creditworthiness at any display of Keynesian empathy. So for a new government saddled with significant debt, which at the same time has committed to delivering a 21st-century Australia from a backbone of new infrastructure, it is easy to understand the political and Treasury enthusiasm for such an approach.

The views of the university sector to potentially freeing up such a large amount of capital through a sell-off of student debt to the private sector are yet to be fully tested. However, it is what follows on from that first decision that will create the controversy. Namely: what should the funds be used for?

The sector feels strongly it should share in the fruits of such a sell-off. It would be nice to think all the money raised could be directed to universities since there is little chance of increased funding in the May budget. Instead we are in a political fight to even keep what we already have.

Realistically demanding it all for the sector isn’t going to work. The sector’s main aim should be to ensure the funds don’t get lost in that bottomless pit called general revenue; the myriad government outgoings for little identifiable purpose. That is a waste.

What the sector must fight for is absolute government transparency, which we agree to adhere to also. A fair percentage of any funds coming from securitisation of student debt would be used to support the world-class education and research identified by the Coalition as an economic pillar in the lead-up to last year’s federal election. Specifically, a proportion could be used to fund a comprehensive, system-wide paid internship program targeted at small and medium enterprises.

A further proportion could be targeted at infrastructure to support the training focus of universities or regions; clearly identifiable as solid outcomes from securitisation.

The government must then use its percentage for tangible results: identifiable transport infrastructure or Closing the Gap projects.

Turning securitisation into a positive financial reality from worthy outcomes for the country and universities will take patience and negotiation. As with all policies such as this, the devil will be in the detail.

However, nothing could be worse than to see it squandered.

This article first appeared in The Australian.

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