Daily Archives: November 20, 2013

Will the new Student Start-up Loan save money?

Today the Liberals introduced legislation for Labor’s conversion of the Student Start-up Scholarship into a new income-contingent loan, the Student Start-up Loan.

Overall, its design is closely linked to the Higher Education Loan Program (HELP). However, people who take out SSLs will not have to start repaying until after they have repaid their HELP debt. Potentially, that is not for a very long time.

Experience with the former Student Financial Supplement Scheme, under which students could trade in $1 of income support for a $2 loan, suggest that there is significant adverse selection with income support loans.

From figures given during discussion of closing the SFSS down in 2003, I estimate that about $2.7 billion was lent between 1993 and 2003. The Department’s annual report for 2012-13 says that $1.8 billion is still owed, of which they class 63% as doubtful debt. Doubtful debt for HELP is estimated at 23%.

Presumably this is from a mix of people taking out loans they never expected to repay and income support entitlement being a proxy for other characteristics that put people at above-average risk of being bad debtors.

In this case, the Commonwealth can’t be financially worse off. This is a loan replacing a grant, so long as repayments exceed administration costs they will come out ahead.
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