24 October 2014 Register to receive our free newsletter by email each week
Advanced Search
View Printable VersionEmail Article To a Friend
AUSTRALIA
Student debt balloons to A$28 billion, report reveals
Australia’s university students and their predecessors now owe taxpayers A$28 billion (US$29.4 billion) – a direct result of taking out government loans over the past 23 years to cover much of the cost of their tuition. A report released last Monday says that more than $6 billion of the money owed is unlikely ever to be repaid and is increasing each year.

The report, Mapping Australian Higher Education, 2013, was published by the independent Grattan Institute in Melbourne. It estimates that the net interest bill on the debt now amounts to more than $600 million a year – equivalent to the entire annual budgets of many universities.

Australia created the world’s first income-contingent loans scheme in 1989, to assist students in going to university by allowing them to borrow from the federal government to meet most of the cost of their tuition. This was on the basis that they would eventually repay the money, interest-free, over several years as a tax surcharge after graduating.

The amount to be repaid was set as a percentage of their annual earning, rising as incomes rose; but if the graduates never reached the minimum income level at which the surcharge applied, the government would never recover the debt. Likewise, graduates who left Australia to live overseas escaped having to repay what they owed.

The effectiveness of the Higher Education Contribution Scheme, or HECS – now called the Higher Education Loans Program, or HELP – in boosting enrolments attracted attention from governments around the world, and many other countries have adopted similar models.

But in a report last September, the US Rand Corporation noted that an income-contingent system of loans requires strong financial and legal infrastructure (which many countries do not have) and may discourage some students intimidated by large debts.

“Countries have implemented various programmes to mitigate this pressure through interest-rate subsidies or easier repayment terms. Such programmes are based on family or student means (Canada, Chile and Malaysia), subsequent earnings (England, The Netherlands and New Zealand), successful academic performance (The Netherlands and South Africa), or work benefiting the public good (US),” the Rand Corporation report says.

“Yet as the drop in applications to English universities shows [following a sharp rise in tuition fees], even income-contingent repayment may not mitigate all student fear of debt...Students must have access to sound information about their choices and their potential consequences.

“Systems should strive to produce indicators that can measure return on investment, such as post-graduation employment rates, graduate earnings, student-loan debt burden, and loan default rates.”

The new ‘demand-driven’ system

Last year, the Australian Labor government under Prime Minister Julia Gillard took the loans system to a new stage by lifting its caps on enrolments and introducing a ‘demand-driven’ system that allowed universities to admit as many students as they wished.

The aim was to give disadvantaged students from poorer families increased opportunities to enter higher education with lower school scores, and to push up the proportion of Australians aged from 25-34 with degrees to 40% of the general population by 2025 – up from nearly 30% this year.

Universities seized the chance to boost the number of local students and generate more income to counter a sharp drop in international student enrolments, which fell for the first time in 2011 after 25 years of growth.

But offering more loans to students and losing significant sums in doing so has left the government with ever-increasing debt and non-repayment issues.

The Grattan report notes that the median male bachelor degree holder in Australia earns $1.4 million more over his lifetime than a male who did no further education after leaving school. Among women, the estimated lifetime earnings premium is just under $1 million, compared to a female who did not go on to further education.

“Despite large increases in the numbers of Australian residents with university qualifications, the proportion of graduates obtaining managerial or professional jobs is similar over time. However, comparison of the 2006 and 2011 censuses shows that young graduates are finding it a little more difficult to get jobs matching their skills,” the report states.

“These work transition problems are not showing in graduate income, with rates of return on higher education investment increasing between 2006 and 2011.”

The Australian National University economist Professor Bruce Chapman, who devised the HECS scheme for the then Labor government, dismissed the report’s somewhat alarming reference to the growing size of Australia’s student debt as a non-issue.

Chapman said the system was designed with the assumption that about 20% of student debt would never be repaid.

Non-recovery of the debt had been built into the system. If people did not earn enough money, they did not have to repay what they owed “and that’s part of the consequence of an income-contingent debt” because it was better to have high levels of student debt than to lock poorer students out of education by demanding upfront fees for education.

“Why should anyone care about the size of the debt? We don’t care about the size of the debt, we care about people’s access to the system,” Chapman said in an article in the academic newsletter The Conversation. “Of course you accumulate a big stock of debt, because there are so many graduates.”

But Tim Mazzarol, a professor of entrepreneurship and innovation at the University of Western Australia, said that although the assumption that there is substantial financial return to education may still broadly hold true, it is now under serious challenge in many countries.

“There have been reports from Europe and the United States suggesting that graduates with major debts from college fees can no longer expect to get back their investment as they once did,” Mazzarol said in a response to the Chapman comments.

“For a young person entering the workforce with a HECS-HELP debt of $40,000 the impact can be significant. It can affect their ability to borrow money, as the tax liability will reduce their ability to service loans.

“We don't charge fees of this kind for vocational education courses yet they also cost the taxpayer to deliver them. Further, the young tradesperson who gets qualified in a field that will win them a job in the mining or energy sector will out-earn most of the graduates from university.

“If we believe that human capital is Australia's most valuable asset over the longer term, why do we burden our brightest and best with such debts just when they are trying to get a start in life?”
Disclaimer
All reader responses posted on this site are those of the reader ONLY and NOT those of University World News or Higher Education Web Publishing, their associated trademarks, websites and services. University World News or Higher Education Web Publishing does not necessarily endorse, support, sanction, encourage, verify or agree with any comments, opinions or statements or other content provided by readers.