Australia’s overly-generous student loans need urgent reform, a new report claims
Mar 31, 2016 | News | by The Learning Press staff
Australia’s overly-generous student loan system needs urgent change to protect university jobs and research, a new report has found.
A study by independent think-tank The Grattan Institute says the cost of the internationally-acclaimed Higher Education Loan Program - which covers university and vocational education loans - will blow out unless new controls are imposed.
Lead author Andrew Norton, a coalition advisor on higher education, argues the HELP scheme has too high a threshold for loan repayments and needs reforming before it puts universities at risk of cuts to vital services.
He believes graduates should start repaying their debts when their income hits $42,000 a year - significantly below the current level of $54,126.
Mr Norton says reducing the threshold would cut HELP’s interest costs and reduce its rapidly growing debt bill, while maintaining the fairness and effectiveness of the scheme.
Under the suggested reforms, repayment thresholds would be adjusted so high-income graduates paid back their loans sooner, while initial repayments for the rest would be lowered from four to three per cent of income.
Describing the HELP system as “a vital program”, he said: “Today, too many borrowers either do not repay what they owe, or take too long to clear their debts.
“Without change, HELP’s costs will escalate, putting teaching and research at risk of cuts.”
The report has been welcomed by federal education minister Simon Birmingham, who has often outlined the government’s need to curb rising costs in the higher education sector.
Lowering repayment thresholds and recouping debts from deceased estates are among ideas being touted as possible inclusions in the Senator’s soon-to-be-announced tertiary education policy.
Since 1989, nearly four million Australians have taken out HELP loans and the system has given students access to tertiary education without the financial disincentive of upfront fees.
But the lifting of a cap on university places by the Gillard Government in 2013, and the ensuing rapid growth in student numbers, is putting increasing financial strain on the higher education budget.
Mr Norton says the threshold change would see an extra 200,000 students repay their debts - growing repayment funds by an initial $500 million a year, with that figure expected to rise over time.
“With this reform, subsidies built into HELP loans would be more targeted toward people in real financial hardship,” he said.
The National Tertiary Education Union argues that lowering debt repayment thresholds will hurt those students struggling to find full-time work post-study.
“The reality for Australian university graduates is that while they have advantages over those without degrees in terms of satisfying careers and lifetime income, many initially join the 40 per cent of people across the labour force working in precarious jobs,” said national president Jeannie Rea.
“Part-time positions, casualisation and the uncertainty of continuous fixed term contracts are rampant in professional employment and explain the lower and inconsistent income of many new graduates.
“Mr Norton’s proposal to lower the initial repayment threshold targets these graduates to help the government with cost savings.
“The intention of the income contingent HELP loan scheme is for graduates to repay when their financial position is better established, and then further contribute over their working life paying income taxes.
“The best way to improve the financial viability of the HELP scheme is to lower the average level of student debt by lowering university fees.”
The report acknowledges the growing proportion of graduates working part-time post-study, but argues most part-time jobs pay annual salaries lower than the threshold figure.
It says vocational education students gaining HELP loans are less likely than university graduates to earn the repayment threshold of $54,126 - underlining the need for a lower figure.
Current estimates show student debt ballooning to $63 billion by 2019, up from $30 billion in 2015, with a fifth of all loans not expected to be repaid.
In England the student loan repayment threshold is around $32,000, while in New Zealand it is just under $20,000.
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