Karen Lomas
May 29, 2014

Modelling shows more students face lifetime debt under deregulated fees

Here’s a report from The Conversation highlighting the likely outcomes of the Federal Government’s proposals regarding educational funding in Australia. Interestingly it is believed that such changes may initiate some investigation on the part of students and parents, into international university courses as these become more financially competitive.

Watch this space.

Debtors prison: under the proposed changes to higher education students may be straddled with debt for life.

The proposed changes to higher education funding could saddle some students with debt they cannot pay off in their lifetime, our new modelling released today shows.

The National Centre for Student Equity in Higher Education has undertaken modelling on the likely effects of the higher education proposals.

The budget changes, including reduced Commonwealth funding for supported places, fee deregulation and higher interest on HECS-HELP loans will mean more graduates will struggle to stay abreast of interest payments on their loans, let alone pay off the principal loan.

If the universities were to alter their student contributions to maintain their current levels of funding (in other words, only seek from the student what they will lose from the government), about a third of courses offered could keep fee increases to 10% or less. Almost half would see costs to students rise by more than 15%, with engineering, science, and social sciences requiring fee increases of 50% or more, agriculture, medicine and veterinary science all increasing by more than 30%, and nursing and education increasing by more than 15%. A few would actually have fee decreases, including mathematics (29%) and humanities (10%).

It’s unlikely the sector overall will show such restraint. Most universities will probably increase their fees on most of their courses by more than they lose from the Commonwealth. Combined with the new repayment schedule and method of calculating interest, this would mean students overall and low-income earning graduates in particular experiencing higher levels of debt through HECS-HELP. In many cases the level of debt would be unpayable in the student’s lifetime.

For example, a student graduating with a $50,000 HECS-HELP debt would have to average about $80,000 a year to pay off his/her debt before retirement. Even then it would take 43 years to do so. This assumes full-time, uninterrupted employment, regular wage growth and a final salary well above $80,000 in order to become debt-free.

Graduates averaging less than this would still have a debt at the age of 70. At this point income for many retirees (i.e. their pension) would not be enough to keep abreast of the interest payments and the debt would start to grow again.

Worst off will be those who have to take time out of the workforce.
Those most at risk are lifetime low-income earners or people experiencing extended periods of absence from, or underemployment within, the workforce. This includes those with parenting or carer responsibilities, those experiencing illness or injury, or unemployment during periods of economic downturn. The problem for these people is that while they are not paying back the debt, the interest on the loan continues to accumulate.

Graduates who find high-paying jobs straight away will be better off. Those who take longer to find the right job will not.

This is actually the case with the current arrangements. It’s just that even more students will be affected under the new proposals, since initial debt will almost certainly be much higher and the interest charged on it definitely will be.

Of course, graduates can also reduce debt by making additional payments, especially at the beginning. However, for most people this will not be a realistic option, because they will have other debt in their life, particularly mortgages and credit cards. Since these loans have higher interest charges, any spare cash they might have would be better spent on these debts. So student debt will, for most, be the last place to make additional payments.

The good news is that these changes are not yet set in stone. The Education Minister, Christopher Pyne, has already indicated the government is willing to negotiate on the proposed changes.

The government should look much more closely at the long-term consequences of fee deregulation and changes to HECS-HELP. In particular, it should consider:

  • A much lower level of interest on the HECS-HELP loan until the student graduates;
  • Suspending interest charges on HECS-HELP loans for specified periods outside the workforce (such as family or carer responsibilities) and/or situations of unemployment or underemployment;
  • Varying the interest rate charged so that it is on a progressive scale – ie. lower rates of interest for graduates on lower incomes and higher rates for those earning higher incomes;
  • Forgiving HECS-HELP debt after a certain number of years; and
  • Ensuring an equitable distribution of the scholarships created under the proposals.
  • And when the time comes for universities to set fees, they need to remember their public mission.

29 May 2014


Tim Pitman
Senior Research Fellow, National Centre for Student Equity in Higher Education at Curtin University

John Phillimore
Executive Director, John Curtin Institute for Public Policy at Curtin University

Paul Koshy
Research Fellow at the Natiional Centre for Student Equity in Higher Education at Curtin University

Tim Pitman is affiliated with the National Centre for Student Equity in HIgher Education

John Phillimore is also Program Director – Research, at the National Centre for Student Equity in Higher Education at Curtin University.

Paul Koshy is a research fellow with the National Centre for Student Equity in Higher Education at Curtin University.

Curtin University
Provides funding as a Member of The Conversation.

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