Government faces mounting unpaid student debt burden

More than 2.8 million Australians now owe the government AU$55 billion (US$40 billion) after graduating with a degree or a vocational education qualification. But at least a quarter of them will never earn enough to repay their debt.

Under the nation’s Higher Education Contribution Scheme, university students can defer paying their enrolment fees until they graduate and are earning at least AU$45,000 a year.

They effectively take out a loan from the government and then start repaying what they owe through the Australian Taxation Office.

There is no interest on the loans and, instead, the amount owed increases according to the extent of inflation the Australian currency experiences. That is unless the student starts repaying the debt incurred.

Australia’s unique higher education contribution scheme was introduced by a Labor government in 1989 as a simple and effective way of enabling even the poorest student to enrol at university.

Many other nations, including Britain and New Zealand, have adopted similar systems. In others, however, such as Finland, Germany and Sweden, university students face either nominal tuition fees or no charges at all.

Their governments therefore must meet all the costs of higher education for their students whereas Australia recovers only a proportion of what it spends on its university students.

Also, because more Australians are graduating but not earning enough to repay their tuition debts, or they leave the country and do not return, the government faces an ever-increasing sum that will never be repaid.

In addition, while Australia’s system of deferring tuition fees appears more generous than those in many other countries, the government does not contribute to student living costs via loans – as happens in the United Kingdom, New Zealand and some Canadian provinces.

International comparisons

Repayment systems for recovering student debt around the world, however, are harder to compare.

Australia has one of the lowest repayment rates, between 4% and 8% annually depending on the graduate’s income.

This compares with 9% in England, 12% in New Zealand and 10-20% for some United States income-based loan systems.

In Australia, too, repayments are calculated on a graduate’s entire income, while in other countries repayments are often based on incomes above a certain threshold.

The continuing problem for Australia’s government, though, is the increasing outlay on meeting university student tuition costs.

Back in June, the conservative government of prime minister Malcolm Turnbull (subsequently deposed) won the passage through parliament of a bill to claw back AU$250 million from graduates.

The bill requires a graduate to repay at least 1% of his or her income once they start earning AU$45,000 a year, down from what was then annual earnings of AU$56,000.

It also imposed a lifetime cap on taxpayer loans of AU$104,000 to students. But the government was forced to accept that once a graduate had repaid the amount owed, he or she could then access a new loan.

Previous efforts by the conservative parties to prevent continuing increases in the costs of higher education included plans to deregulate fees. This would have allowed the universities to set their own, something they would have welcomed. But this move, and another to cut course subsidies by 20%, were blocked by the Senate.

Spending freeze

The government’s response was to freeze its spending on universities for two years and to place a cap on future funding growth in line with Australia’s working age population.

This has forced the universities to search for cuts in their spending, or to find other ways of generating more income.

The most popular has been to recruit more foreign fee-paying students who face course costs of up to AU$40,000 a year.

Even so, they now number more than 550,000 in universities, colleges and schools, with those from China comprising around 30% of the total.

The current government, however, seems certain to lose the next election, to be held early in 2019, and the Labor opposition will be under considerable pressure to reverse many of the Conservatives’ higher education decisions.