Category Archives: Student loans

Most HELP debtors are not currently repaying

Posted by on May 1, 2013 2 comments

Yesterday the ATO released tax statistics for the 2010-11 financial year. With the education department seemingly no longer publishing its annual higher education report the ATO tax statistics are the main source of information on some aspects of the HELP loan scheme.

Only about a quarter of HELP debtors, or 383,000 out of 1.57 million, made a repayment in 2010-11. The ATO classifies 593,000 people as ‘paying off’ their debt, presumably counting people who have made a repayment but have since fallen back below the threshold or have disappeared overseas (the number of people who are listed as overseas or with an unknown postcode more than tripled to 32,365, but I think this number is unreliable).

The reason is that HELP debtors are clustered in the lower income groups, as seen in the figure below. Many of them will still be students, but the largish number (122,000) in the $40,000-$49,999 range suggests that fiddling with the threshold for repayment, which was $45,000 in 2010-11, might substantially increase the number of people repaying. At the other end of the income spectrum, 5 HELP debtors had taxable incomes exceeding $1 million.

HELP debtor incomes 2011

The number of HELP debtors with $50,000+ debts increased from 15,143 in 2009-10 to 23,664 in 2010-11. This probably reflects FEE-HELP borrowers and more people staying in the system for long periods of times, such as those doing initial professional entry qualifications under the Melbourne Model.

Repayments through the tax system are increasing, as seen in the figure below. Repayments increased by more than repayers (7%/3%). But there is still far more being lent than being recovered (they don’t report on financial years, but I would estimate $3.5 billion in lending versus $1.3 billion in compulsory repayments).

HELP repayments

Is the student amenities fee loan scheme constitutional?

Posted by on June 24, 2012 2 comments

On the 7.30 current affairs program the other night, constitutional lawyer George Williams suggested that the Williams case High Court ruling might have implications for universities.

The case revolved around the constitutionality of the school chaplains program. Though reported in the past as about religion, the court in the end found for Williams on a ground concerning the executive power of the Commonwealth to act without legislation.

University funding does have a legislative basis. Its main constitutional backing is in section 51

(xxiiiA) the provision of maternity allowances, widows’ pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services (but not so as to authorize any form of civil conscription), benefits to students and family allowances; (emphasis added)

Three of the seven judges had something to say about what ‘benefits to students’ meant. Justice Kiefel said:

Social services provided to students might take the form of financial assistance, for example payment of fees and living and other allowances, or material assistance, such as the provision of books, computers and other necessary educational equipment, or the provision of services, such as additional tutoring. The term “benefits” in the context of s 51(xxiiiA) does not extend to every service which may be supportive of students at a personal level in the course of their education.

Read more »

Should HELP be extended to vocational education students?

Posted by on January 24, 2012 8 comments

Yesterday the Prime Minister said the government would extend income contingent loans to students studying for ‘high-level’ vocational skills (diploma-level voc ed courses already have HELP loans in some cases). Various concerns have been expressed in today’s paper.

One of my concerns is that this would be overly costly for taxpayers if the existing HELP loan scheme is used. This is because the repayment system is designed for graduate level income, not the incomes of people with vocational qualifications. It is not entirely clear what Gillard is proposing, but in 2009 the median annual income of someone with a certificate III or IV qualification was $45,600. In that year the threshold for repaying a HELP loan was $43,151.

The median is all workers, so the median for new workers would be lower (though in these lines of work, income tends to plateau early). This suggests that there would be large numbers of slow or non-repayers, with consequent interest and bad debt costs for taxpayers.

The HECS-HELP handout nobody is taking

Posted by on December 30, 2011 3 comments

Back in 2007, I thought that Labor’s election promise to introduce HECS remissions for people entering specified occupations might have something going for it, at least compared to other mechanisms for steering labour market preferences via higher education funding.

It’s not paid unless the graduate actually enters the desired occupation, and provides near-term financial relief, which is more attractive than cuts to student contributions – which effectively mean that someone entering first year will typically gain financially in 8 to 12 years time (when they finish repaying earlier than they would have otherwise). (The ATO site on the scheme is here.)

However a report in The Australian this morning shows that only 405 people applied for the benefit for 2009-10, and only 232 were approved.

This is consistent with some analysis of graduate occupational choices by Graduate Careers Australia, done at my request comparing the first year of the program (2009) with the year before. Statistically, the two years were identical in the proportion of graduates entering the occupations being favoured by the government. I did not publish the data at the time because GCA argued that the scheme was new and that 2009 was a bad year for graduate employment, so more people could have tried to enter those occupations but failed (though if there are no jobs anyway, a policy aimed at increasing demand for non-existent jobs is not necessary).

The 2010 data should be examined, but the very small numbers claiming the benefit suggests that this scheme is so unsuccesful that the government can’t even give money away (far more than 232 would have been able to claim just for pursuing the career they were going to pursue anyway).

Perhaps this policy escaped the last couple of rounds of higher education cuts because its failure meant its costs were much lower than anticipated. But as the government is imposing cuts on the public service, getting rid of a complex and bureaucratic policy that is not obviously achieving anything would make sense.

A degree and net worth

Posted by on October 16, 2011 No comments

Last Friday the ABS put out their latest report on household wealth and wealth distribution. This includes average ‘study loan’ debt, though there is nothing in the ‘assets’ section on the value of human capital. This is not a criticism of the ABS; human capital is not a directly tradeable asset and there are substantial methodological issues in valuing it.

Nevertheless, for most younger people their human capital is their most important asset. If what we are hoping to measure is capacity to command resources over the longer term (superannuation is included), then excluding human capital gives a fundamentally misleading idea of how wealth is distributed.

Combining numbers from two tables gives us an idea of what impact this has. The highest average HECS debt is in the households with the lowest net worth. Unfair! Students impoverished by debt! But looking at average HECS debts by gross household income quintiles things are reversed – the highest average HECS debt is in the top income quintiles. Equity! The rich being forced to pay their way!

What I suspect is happening here is that the net worth numbers are picking up many new households, graduates starting to earn good salaries but still renting and with little superannuation. But the household income numbers are picking up graduates living together; since they tend to overtake the incomes of non-graduates early in their careers putting two or more graduates together in a household gives them high collective earnings.

Because there are very large life cycle effects in wealth distribution, it will always be far more equal over a lifetime than at any one time. HECS/HELP will make it mildly more progressive.

Separate student amenities fees to return

Posted by on October 11, 2011 11 comments

After much Coalition stalling, the government’s amenities fee legislation passed into law today. However, it is not a restoration of the previous status quo. The key differences are:

* while before 2006 unis could charge what they liked in a separate amenities fee, now it is capped - a maximum of $263 next year, with indexation for future years;

* before 2006, it was an up-front fee, but now it can be deferred through a new income-contingent loan scheme, SA-HELP;

* before 2006, there was no Commonwealth regulation of what they could spend the amenities fee on (though there had been some state legislation), but now there are some restrictions, including on political parties and local, state or federal campaigns;

* before 2006, there was no Commonwealth regulation of universities in their provision of general student and advocacy services, and now there is (same legislation, but not connected to the amenities fee – the trigger is receipt of Commonwealth grants, not the amenities fee).

So overall there is a substantial increase in bureaucratic complexity compared to the pre-2006 situation.

As longtime readers of my blog will know, my position is that both sides to this debate are wrong. A separate amenities fee is a relic of an earlier funding system, in which the Commonwealth paid grants that were specifically for academic matters (some of which they recovered via HECS from 1989), and permitted universities to charge students for non-academic matters. Read more »

Please study at home

Posted by on October 5, 2011 6 comments

The bill introduced last month to reduce the discounts for up-front payment of student contribution amounts or early repayment of HELP debts (discussed here and here) contains a previously unannounced policy: to stop Australian students getting tuition subsidies or HELP loans if their course of study is primarily at an overseas campus of an Australian university.

Peter Garrett’s second reading speech explained the rationale:

As students are only required to pay back their HECS-HELP debt if they file an Australian tax return, there is a higher risk that HECS-HELP debts incurred offshore will not be repaid, or not repaid for a longer period of time.

I’m not sure how big a problem this is in itself, but it is a sign that the government is concerned about HELP debt held by people not living in Australia. That the government makes no attempt to recover HELP debt from Australians working overseas is one clear design flaw in the income-contingent loan scheme.

It’s a flaw that has been exacerbated by other changes to law and policy. As dual citizenship has been permitted by Australia and other countries, the number of people with work rights in multiple countries has increased. More people can work overseas, and it would be very surprising if we did not see more people doing so.

The source countries of migration to Australia have also shifted towards the Asian countries in which Australian universities have their overseas campuses. According to the 2010 enrolment data, nearly 7% of domestic students speak an east or south-east Asian language at home (and probably more can speak one, but tend to speak English at home). A similar proportion were born in those countries. It would presumably be relatively easy for them to return to Asia to study at an Australian campus.

The flow of people between Australia and other countries is not a problem it itself. But it becomes a problem when it interacts with a debt recovery system designed for a less mobile world.