A report released by independent think tank Grattan Institute concludes that without reducing the thresholds at which Higher Education Loan Program (HELP) repayments are triggered, the costs of the program will escalate beyond sustainability and put other education programs at risk.
Reducing the thresholds would also increase repayment money by an initial $500 million in the first year, which the public policy researcher says would grow over time.
The Grattan report cites several factors that contribute to a growing unsustainability of the HELP program. For one, the array of educational course covered and student eligibility has greatly expanded since the program was launched (under the name Higher Education Contribution Scheme, or HECS) in 1989. With this expansion, HELP lending has escalated rapidly, doubling between 2010-11 and 2014-15 to reach $7.8 billion. As of mid-2015, $42 billion of HELP debt was outstanding.
The report concludes that a major cause of the program’s under-repayment problem is the growing proportion of graduates that end up working part-time, and a lot of part-time employment is paid less than the current HELP threshold.
The report, HELP for the future: fairer repayment of student debt, also found that about 20% of lending made under the program over 2014-15 (or about $1.6 billion) will never be repaid.
The Grattan report says the distinctive feature of the HELP debt repayment system is that it is income contingent. There are no repayments until income reaches a threshold of $54,126, and after this debtors make repayments at 4%, which increases progressively as income grows, to a maximum repayment rate of 8%.
Another financial cost with the scheme stems from these interest levels. Since debtors are charged “inflation rate” interest rather than a rate that more closely reflects the government’s cost of borrowing, there is a resulting “interest subsidy”. And the longer debtors take to repay, the bigger this gets.
One measure that might go some way to ease the fiscal pressure is that from July 1, 2017, people living overseas will also be required to make loan repayments once income exceeds the thresholds, just as they would were they still living in Australia. Also, anyone with an outstanding HELP debt who is planning to move overseas for longer than six months will be required to advise the ATO with overseas contact details within seven days of leaving Australia.
Grattan Institute argues for reducing the trigger threshold from its present level of $54,126 to $42,000, concluding that this would cut interest costs as well as HELP’s rapidly growing doubtful debt bill. It also recommends a 3% initial repayment rate instead of 4% to help maintain debtor living standards. The other threshold levels would also be trimmed back proportionally.