Daily Archives: October 17, 2013

Should the HELP debt be sold?

The government is now hosing down yesterday’s speculation that the accumulated student HELP debt will be sold.

There are good financial reasons for not selling, as Matt Cowgill explained yesterday. Investors would only buy the HELP debt if they could get it for less than they thought it was worth, in which case the government should not sell unless it is desperate for cash. But for now at least financial markets are willing to lend to them at low interest rates.

I believe that there are also good political reasons not to sell now. HELP’s costs are very high, mostly at the moment due to a prediction that 19% of new loans will not be repaid (at p.93 of the portfolio budget papers). Due to the low interest rates government is paying at the moment that is not currently a big expense. But with total debt likely to be over $30 billion now, even small increases in government bond rates can translate into major additional outlays.

These costs need to be brought down. But rule changes to benefit investment banks will not be an easy political sell. It’s hard enough to sell public interest rule changes that help bring total government spending back down towards total government income.