Loan scheme changes show university funding ‘is not a priority’

Australian universities will benefit only peripherally from Canberra’s lavish proposal to forgive A$16 billion (£8.1 billion) of graduate debt, as part of a wider overhaul of student loans.

The Labor government says legislation to authorise the one-off reduction to debt, which would cut 20 per cent from higher education and vocational students’ loan balances, will be the first bill it introduces if it wins next year’s federal election.

The government made the promise a day after announcing that it would adopt an Australian Universities Accord recommendation to change the Higher Education Loan Programme (Help), informally known as Hecs. Repayments will be based on “marginal rates” rather than graduates’ overall earnings, with debtors only repaying portions of their incomes above the repayment threshold.

The threshold will also be raised from the current A$54,435 to A$67,000 and maintained at around three-quarters of recent higher education graduates’ average full-time earnings. The bewildering array of 18 repayment rates will be replaced with just two – 15 per cent of earnings between A$67,000 and A$124,999, and 17 per cent above A$125,000.

The marginal system also requires legislation. It would remove perverse incentives from the current repayment arrangements, which discourage graduates from seeking extra work that could reduce their take-home pay by bumping them into higher repayment brackets.

“This is about putting money back into your pocket and putting intergenerational equity back into the system,” said prime minister Anthony Albanese.

The changes come on top of the government’s backdated pledge to change the indexation of student debt, costing treasury another A$3 billion. Education minister Jason Clare said the new proposals would give some relief to “a lot of young people”.

“They’re straight out of uni…on a low income. They’re paying the bills, trying to save for a mortgage, trying to start a family, and they already have to start paying off their Hecs bill,” Mr Clare told Sky News. “This…takes the pressure off.”

While the proposals would benefit graduates, they will not help universities navigate the budgetary pressures from the government’s international education crackdown. “A higher threshold might attract a handful of mature-age students, who would no longer have to start immediately repaying their Help debt,” said Australian National University analyst Andrew Norton. “Apart from that, there’s absolutely nothing in there for unis.”

Professor Norton said the debt relief measure would probably cost the government about A$12 billion, because the A$16 billion estimate included money that was “never expected to be repaid anyway. Nevertheless…that is a very serious amount of future revenue forgone.”

He said arguments to relieve student debt were assisted, within government circles, by the “dodgy” accounting of Help which meant major changes to repayment forecasts did not affect calculations of government surpluses or deficits.

Proposals to increase university funding, by comparison, directly affect the government’s bottom line. Professor Norton said the “genuinely new money” recently allocated to universities had been “pretty small”, with most reforms financed by “offsets” in the education budget.

Improving university funding “is not a priority for the government, despite all the big talk around the accord”, he said. About 3 million Help graduates will benefit from debt relief, he pointed out. “A very large number of voters…are affected by this. I can totally understand the politics.”

The opposition said the government was “picking winners” with a relief measure that offered no benefit to the 24 million people without student loans. “All 27 million Australians will pay the price,” said shadow treasurer Angus Taylor. “The coalition is deeply sceptical of this policy and will examine which components, if any, we can support.”

Western Sydney University vice-chancellor George Williams said the proposals did not address the “inflated” tuition fees at “the root of the debt spiral problem”. He said the A$50,000 price tag for undergraduate arts degrees was “actively discouraging” participation.

“The system for setting student fees in the first place is broken and deeply unfair,” Professor Williams said. “We need action on all fronts.”

Professor Norton predicted looming changes to fees, despite the government’s insistence that the proposed Australian Tertiary Education Commission will handle such matters.

“Why would they spend vast sums on these two measures and then leave that arts student contribution issue hanging? [It] has given them hundreds of negative media stories over the last couple of years.”

He said the increased threshold would slow down repayments and make it “even less likely” that arts graduates would fully discharge their loans. “It reduces the cost to government of fixing it, because more of the debt is basically bad debt anyway.”

john.ross@timeshighereducation.com