Most HELP debtors are not currently repaying

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

2 thoughts on “Most HELP debtors are not currently repaying

  1. Hi Andrew,

    Another interesting post and thanks for the figures. One obvious reason for the low proportion of debtors making HELP repayments is that those on higher incomes will quickly repay their debt and drop out of the figures, while those on low incomes will remain there forever. This may mean that the proportion will decline further in future years. The main point of interest is the % of all people who took out HELP loans who repay their debts. Otherwise it could become misleading if the minority who do not repay remain in the statistics, but those who repay do not.

    Another thing, do you think it is fair for the Government to change the thresholds retrospectively? People take the loans and accept the level of tuition fees on the assumption that repayments would be manageable. Shouldn’t debtors be provided some certainty that the rules won’t change?

    As it currently stands, HELP debt repayments kick in at $49000, which is about 66% of the FT average weekly earnings of all adult Australians.

    Personally, I think that an annual repayment of $2,000 for someone earning $50,000 (4% of their pre-tax income) is a significant contribution, particularly for those with dependents.

    Lowing the threshold to $45,000 would mean a $1800 HELP contribution for someone on $45,000. I’m not a tax expert, but after paying tax and the Medicare levy ($6885), this $1800 represents the difference between living off $735 per week or $700 per week. I suspect this extra $35 per week would make a big difference to their weekly budget.

    More generally, does the graduate living off $735 per week really represent someone who has gained a significant private benefit from their higher education? Maybe if they worked part-time, but I would not say it is the case for full-time employed graduates.

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  2. Peter – Yes on the compositional effects. For a similar reason the proportion of all debt not expected to be repaid is higher than the estimates for new debt.
    I think there is something to be said for broad stability of repayment systems. On the other hand, there nothing inherently unusual about fluctuating debt repayment requirements. Most students will eventually take out variable interest loans from banks. And I doubt most students have much idea about the precise threshold points.
    One possibility is just to change indexation of the threshold levels from average weekly earnings to CPI. Over time, I think that would speed up repayments without any in-principle change to the repayment system.

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