Should HELP repayments be based on family income?

The Fairfax papers this morning have stories on a ‘push’ to repay HELP debtor from family income, in which I am quoted extensively. This idea is considered in our latest Grattan report on lowering the HELP threshold for individual debtors, but we did not propose it.

The appeal in the idea is that our analysis suggests that many HELP debtors who are not currently repaying, and likely a much larger proportion of debtors at risk of never repaying, live in reasonably affluent households. The reason they are not earning more than the $54,000 threshold is that they don’t need to, because another family member makes enough money that the household can maintain reasonable living standards without two full-time earners. It’s a little hard to read, but the slide below from the report shows the disposable (ie after tax and with non-taxable benefits) income of the households affected by our proposed $42,000 threshold. That’s not the whole situation – it excludes households where all HELP debtors earn less than $42,000, or over $54,000. But it illustrates how personal HELP debtor income is not a good guide to overall personal living standards.

family income

While repaying HELP from family income would make a big difference, it was not recommended for a range of reasons:

* How would we determine whether a couple was a couple for HELP repayment purposes? There are some clear potential markers, such as marriage or kids. But only about half the 20-something graduates who were living together as a couple in the 2011 census were legally married. What if you were legally married but had split?

* It would make life more difficult for employers, who currently deduct most HELP repayments. Now they can use their own payroll; in future they would have to know spouse or partner income as well. More people would make incorrect repayments during the year, and could be hit with major additional repayments at tax return time.

* Who would be legally liable to pay? Presumably it would have to be the debtor, with an assumption that partners would often choose to cover it. But that could mean people getting bills that exceed their income. If the principal income earner refused to pay, it would mean that HELP caused default, which it is not supposed to do. If the principal income earner was forced to pay, it would be an unusual case of someone becoming liable for debts they never took out.

While I would not say we should never, ever, consider a different basis for calculating repayment income, for this report I thought there were too many practical and philosophical issues for it to make the list of recommendations.

  1. It would be easy to determine who was in a relevant relationship, surely?

    According to the ATO

  2. You must complete this section if you had a spouse during 2014-15.

  3. The difficulties come from making repayments as a share of (total) household income. This gives more repayments, true.
    What if the trigger for repayments is level of household income (say, twice the single person threshold) but repayments are simply the usual percentage of the liable student’s income?
    Sure, we then get repayments only according to that person’s income. But administration gets easy – employers could simply assume that the repayment general percentage applies (like a ‘second income’ situation) and any overpayment is an end-of-tax-year refund.
    The liability of third parties problem goes away, too – it’s only the liable student who is ever liable to pay.
    Coupledom is tricky, but usually only because unreasonably tricky rules have been applied to it (at least in benefit cases).

  4. For the ATO the definition of spouse includes
    ‘although not legally married, lived with you on a genuine domestic relationship as a couple’ and this includes same-sex.

  5. I am a fan of the family (“partner for tax purposes”) option. The issues you raise Andrew can be worked through and some actuarial analysis could help determine the repayment details. It seems to me that getting the money sooner rather than waiting until death – which could be some 80 years after it has been accrued – makes better sense. It does however need to be seen holistically as a system rather than just a bolt on additional payment. As it stands the whole ICL approach is evolving in haphazard ways. At the very least strip VetFeeHelp out of HESA – or strip HELP out of HESA and make sure that what is accrued is reasonable value – leads to some economically or socially productive improvement – then align repayments with underlying purpose and benefits. It seems silly that the thresholds for help/vet fee help / apprenticeship tools are all treated the same way.

  6. Just saw this. I’m sick of all the payments for tax bring based on family income yet I can’t split my tax either. If you want the partners income to be considered then you should also allow that partner to share the income reducing his tax as well. Either tax the family unit or the individual but at least be consistent with it. Not do what suits you.

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