The $2.3 billion higher education ‘saving’ that nobody is talking about

In April, there was fury in higher education circles over billion of dollars in cuts to higher education-related spending (how much depends on how many years of the forward estimates you count). But comparison of the 2012-13 and 2013-14 budget papers suggests that the government is anticipating another large saving that nobody is talking about – revised down estimated future costs of the HELP loan scheme.

The chart below shows that over the future overlapping years of the two budgets (2013-14 to 2015-16) the saving will total about $2.3 billion. A small part of this reduction is the announced removal of the discount for paying student contributions up-front and the bonus for repaying early. But most of it is a big reduction in future anticipated interest costs.

HELP saving

The method they use for calculating the interest cost is apparently in accordance with accounting standards, though it is very confusing and does not aid understanding of the policy issues. The method we have used at Grattan (pages 42-45) is more straightforward (so far we arrive at similar numbers to the Department). We look at the difference between the interest the government is paying on its debt and the CPI inflation interest they are charging on outstanding HELP debt. The difference between them is the interest subsidy (or profit; it’s happened once).

Essentially, the government is borrowing quite cheaply at the moment, and they anticipate that this will continue in the few years covered by the forward estimates. But due to the huge amounts outstanding on HELP even small movements in bond rates could have major cost consequences. At the end of the forward estimates period, every 1 percentage point gap between the bond rate and CPI would add around $500 million to the interest subsidy.

The loan scheme gets little attention from universities; money they or currently enrolled students don’t receive is invisible to them. But HELP is a major part of higher education funding, and controlling its costs needs to be part of an overall higher education funding policy.

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