11 April 2016
With debate growing over burgeoning FEE-HELP debt, education minister Simon Birmingham has asserted that Australia runs one of the most generous student loan schemes in the world. Overall, this is true, with three key features: the relatively high income threshold before repayments kick in; the zero real interest rate; and relatively low repayment rates. However, while the income threshold is much lower than in England and New Zealand, for example, FEE-HELP repayments are calculated on a debtor’s entire income, while in other countries repayments are based on income above the threshold. And New Zealand charges no interest at all for NZ domiciles. It’s also the case that, as generous as FEE-HELP may be, a number of OECD countries charge no fees at all, obviating the need for loans. This Fact Check is by Ittima Cherstidham of the Grattan Institute.
When asked for data to support the assertion about the generosity of the Australian schemee, a spokesperson for the Department of Education and Training said that
Compared to other student loan schemes, the income-contingent nature of both Higher Education Loan Programme (HELP) loans Trade Support Loans (TSL) protects low income earners from making loan repayments they may not be able to afford. Australia’s student loan schemes allow deferment of repayment obligations in cases of extreme financial hardship… During the life of the loan Australian students pay no real interest rate.
You can read the full response here.
Overall, it is true that many features of Australia’s loan schemes for tuition fees make it more generous than most other countries that charge for higher education. But from a student’s perspective, how generous Australia is depends on exactly which aspect of the loan scheme you’re looking at.
This FactCheck will examine how Australia compares to other countries when it comes to:
- the two key types of student loan schemes on offer here and overseas;
- how generous Australia’s scheme is compared to countries with similar schemes;
- how much you have to earn in different countries before loan repayments start;
- how much different governments internationally subsidise the cost of higher education;
- the interest rates charged on student loans;
- and finally whether there are any countries where students don’t need a loan to get a degree.
The two key types of student loans
Australia’s Higher Education Loan Programme (HELP) lends students the cost of their tertiary education fees, and requires repayment on an income-contingent basis.
For 2015-16, repayment starts when HELP debtors reach an annual income of A$54,126. At that point, debtors repay 4% of their income.
Many other OECD countries also offer public loans to students for higher education, usually a mortgage-style loan. Under mortgage-style loans, repayments are required regardless of income and do not vary with how much debtors earn.
Only a few countries offer national level income-contingent student loans, including Australia, England and New Zealand.
Unlike mortgage-style loans, income-contingent loans prevent students who are unable to repay going bankrupt or having their credit rating downgraded. That could be considered generous.
How does Australia compare to other countries with income-contingent student loans?
Three key aspects of HELP’s settings determine how generous it is among countries with income-contingent student loan schemes:
- the initial threshold for repayment
- how much needs to be repaid each year, and
- the interest rate on debt.
The HELP income threshold of around A$54,000 makes it the highest in the OECD. For graduates with a relatively low to average income (below A$54,000), the scheme is more generous than in other countries.
For people earning above the threshold, repayment systems are harder to compare. HELP has the lowest repayment rates, between 4% and 8% depending on income. This compares to 9% in England, 12% in New Zealand, and 10% to 20% on some limited US income-based loans. But HELP repayments are calculated on a debtor’s entire income, while in other countries repayments are based on income above the threshold.
If a HELP debtor earns just above the threshold, she or he would repay 4% of total income – A$2,100.
Compared to New Zealand, this is relatively generous. New Zealand loans require debtors to repay once their income is above around A$18,000 (NZ$19,000). Assuming an income of A$54,000, with a repayment rate at 12%, the compulsory repayment would be around A$4,400 a year – twice Australia’s compulsory repayment level.
In England, the threshold is around A$35,000 (£17,000) repaying at 9%. As in New Zealand, compulsory repayment is calculated based on income above the threshold. A debtor who earns A$54,000 would repay around A$1,700 under the English system.
Compulsory repayments by income and country
Interest rates on debt
The last test of generosity is the interest rate the government charges on student loans. Australia indexes HELP loans to the consumer price index, which means that loans keep their value in real terms. The government typically borrows at a higher rate, so taxpayers pay much of the interest on student debt – a point that was emphasised by the minister in the interview referred to at the beginning of this article.
While Australia’s system on interest is generous, New Zealand’s is more so: the NZ government charges no interest on student loans unless debtors live overseas for longer than six months.
In England, interest rates on student loans vary by income. If debtors earn below the income threshold, their debt would be indexed to the retail price index or RPI (a measure of inflation).
But on income above the threshold (or study full-time), the interest is up to RPI plus 3%. High-income debtors face higher interest rates making their student loans less generous than the Australian system. Both the US and the Netherlands charge the government’s cost of borrowing on their student loans.
Are there any countries where students don’t need a loan to get a degree?
Finally, it’s worth noting that several OECD countries, including Germany, Finland and Sweden, charge only nominal tuition fees or no fees at all.
Both Australia and New Zealand provide a direct government subsidy to most undergraduate students that reduces their fees and how much they have to borrow. But the New Zealand government subsidises a higher proportion of total course costs than in Australia on average.
In England, most teaching subsidies have been abolished and students pay the full cost of their degree.
Senator Birmingham is right: Australia does run one of the most generous student loan schemes in the world. It’s one of the few countries to offer income-contingent student loans – saving people on low incomes from paying off their students loans, as is more common in the US and other countries.
Is it the cheapest place in the world to get a degree? That’s a different question altogether. As noted above, several OECD countries, including Germany, Finland and Sweden, charge little or no tuition fees.
This is a sound review. The minister’s claim that Australia has one of the best student loan schemes in the world is defensible for tuition fees.
While the minister wasn’t talking about student living costs when he made his assertion, it’s worth noting that Australian government support for student living costs is not at all generous.
Both Aotearoa New Zealand and Britain have better student loan schemes for living expenses. The calculations are complicated, but arguably grants and loans for tuition and living are more generous for students from middle income families in most Canadian provinces.
Of course, students would ask why they need such a strong loan scheme for tuition fees in Australia, which are amongst the highest in the OECD. Loans are not needed in Germany and other countries which don’t charge tuition fees.
More detail on international comparisons can be found in this report. – Gavin Moodie