Student debt growing rapidly as compliance declines

16 April  2015

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As student debt balloons, reform of the FEE-HELP system (HECS) is now a pressing budget issue with the nation’s second biggest financial asset, after the Future Fund, being eroded as one in five debtors renege on their loans. That figure is expected to rise to 25% by 2017. The government will have more than $70 billion in unpaid university student loans on its books in another two years, double the figure owed in 2013-14.

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HECS Debt

Source: The Australian

 

According to researchers Richard Highfield and Neil Warren, the loans system is being compromised by successive governments’ commitment to increasing participation in tertiary education while not paying adequate attention to repayment compliance, especially among lower income vocational students who are unlikely to meet the income repayment threshold for years, if ever.

The rapid expansion of HELP debt has also been driven by extension of the scheme to vocational students, a move which has been marred by mass-scale rorting by dodgy colleges.

It would grow even more rapidly under a deregulated university fee regime.

Highfield and  Warren say about 2.1 million people currently have a HECS debt. But many of them are avoiding their repayment obligations by either going overseas, non-lodgement of tax returns or by exploiting tax deductions for gifts or self-education expenses to keep their incomes below the repayment threshold.

They say a handful of simple measures would recoup billions easily from the FEE-HELP, without political fallout, such as:

  • reducing the repayment threshold to around $40,000 and reducing the initial repayments to 2% would result in an additional $869 million being collected by government each year (graduates currently start repaying their debt at 4% of their salary when it hits $53,345)
  • collecting from graduates who go overseas, as occurs under the UK and NZ systems.
See:
Does the Australian Higher Education Loan Program (HELP) undermine personal income tax integrity?
Runaway loans: students set to owe $70bn
HECS reform even more pressing
Would restoring or increasing discounts for up-front student contribution payments improve HELP’s finances?
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