Set to explode in absence of change
7 April 2016
As the Turnbull government ponders a higher education policy to take to the 2016 election, it’s been given food for thought by a research report revealing explosive growth of 560% in FEE-HELP debt over the next decade – on current policy settings. Obviously this portends a change to current policy settings.
HELP loan -annual cost on an underlying cash basis
The independent Parliamentary Budget Office (PBO) report finds that the loans scheme will cost the budget $11.1 billion by 2025-26, up from $1.7 billion currently. This amount covers the scheme’s concessional interest rates and the increasing proportion of loans that will never be repaid. It projects the total nominal value of student loans program (the cumulative value of the portfolio) will grow from around $60 billion now to $185 billion by 2026.
The amount never to be repaid on loans issued is predicted to exceed $4 billion — up from $1.9 billion expected from loans issued last financial year.
The public debt interest payments associated with financing the FEE-HELP portfolio as a proportion of the Australian Government’s total public debt interest payments is projected to rise from 15.4% in 2016 to 46.3% in 2026.
The PBO attributes the uncapping of university places over the period 2010- 2012 and the expansion of loans to vocational students as driving growth in FEE-HELP debt since 2010.
Student numbers (equivalent full-time student load)
But according to the report, implementation of the Coalition’s stalled program to cut university funding and deregulate fees would fuel explosive growth in debt over the next decade:
The size of the HELP loan portfolio is projected to grow rapidly through to 2025-26, driven mainly by projected increases in student fees from 2017 due to the announced higher education reforms. The reforms recognised that the lower direct subsidies from the government would mean that student contributions would rise. Under the reform package, higher student contributions could be expected to see an expansion in the HELP loan portfolio in the form of larger HELP loans.
Extension of FEE-HELP to sub-degree HE programs and to non-university higher education providers would further drive growth in student debt.
Education minister Simon Birmingham says more details of the Government’s higher education policy will be unveiled before the election, as he recommits to de-regulating the sector.
Birmingham confirmed the Federal Government remained committed to finding savings, particularly in light of the PBO report.
Birmingham told the ABC’s 7.30 program talks are continuing with the university sector about the best way to manage the issue, and promised more details before voters go to the polls.
We’ll have more to say ahead of the election about higher education policy and we’ll make sure that Australians understand what we’re doing, the reasons why we’re doing it.
Our universities do need to be able to differentiate between each other, to innovate on the world stage, and that of course does require a certain degree of latitude for them in terms of how they structure their course and how they finance their courses to some extent.
The architect of the higher-education loan scheme, professor Bruce Chapman, said the rise in its cost directly reflected the expansion in student places, as well as the inclusion of the vocational education and training sector.
He warned against “hysterical” debate about the size of the debt and the level of doubtful debts, saying the real issue was the flow of payments. Professor Chapman said it was always expected that 15-20 per cent of loans would not be repaid, as it was aimed at people who achieved higher earnings as a result of their education. However, he said there was a case for lowering the threshold at which students started repaying loans by about $10,000.
He pointed out the PBO’s analysis assumed that the government’s 2014-15 budget reforms, which has been blocked by the Senate, would be fully implemented, which is highly unlikely.
The Grattan Institute’s Andrew Norton also proposes that the repayment threshold be cut to $42,000. He says 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.
While he acknowledges such a cut would affect more women than men, due to high rates of part-time work, he says half of the debtors who would be affected live with a partner, and the combined disposable income of 70% of these couples exceeds $80,000 a year.
Universities Australia chief executive Belinda Robinson says universities are open to changes for university loans, but only if the HECS-HELP scheme remains fundamentally intact, “to ensure that those with the ability to study at university are not impeded and not deterred from doing so”:
It’s really important to understand the value of the student loan scheme that we have in Australia.
It has been an absolutely central feature of the success of higher education policy in Australia for many, many years.
She says making the scheme sustainable can be achieved by:
- Cleaning up the well-documented problems in the VET-FEE HELP scheme;
- Dropping the proposed 20% cut to university funding as “a false economy”; and
- Exploring HELP debt recovery options that do not undermine the fundamental policy intent or objectives of the scheme (as discussed in thepolicy statement Keep It Clever).