Graduate shock as wage level for loan payment is lowered

Tens of thousands of Australians who took out government loans to complete their university degrees will have to start paying them back from the beginning of July. Those already paying off loans will have to increase the rate of repayment.

So will all the students who dropped out of university before graduating, even if they were only enrolled for six months of the first year of their courses.

The conservative government in Canberra has lowered the wage level at which loan repayment becomes mandatory and will recover billions of dollars from graduates much sooner.

The compulsory repayment threshold for the 2018-19 year was set at almost AU$52,000 (US$36,500) but this has been dropped to nearly AU$46,000 for the 2019-20 year. This means thousands more young Australians than before will be required to start repaying the money they borrowed to complete their degrees.

And the more they earn, the more money they have to repay the government.

While a graduate on a salary of AU$52,000 a year has to repay 2% of that sum to the tax office each year as part of the loan repayment, the higher the salary the greater the repayment rate: a graduate earning more than AU$100,000 a year pays 7.5% in additional taxes.

Graduates earn more

At present, the minimum wage that Australian employers must pay their workers is AU$760 a week or nearly AU$40,000 a year.

Most graduates, however, can expect to earn much higher salaries so many more will now have to begin repaying the government what they owe through the tax system.

This also means that former students and graduates will be paying off their government loans even if they are earning little more than the minimum wage.

Only those who never earn the minimum sum where repayment starts, or who leave Australia and do not return, will escape having to repay the debt. Now, however, the Australian tax office is also investigating ways of forcing graduates working overseas to start repaying what they owe.

Dire consequences

“This change by the government will have dire consequences for graduates and postgraduates who are working in lower-paid industries or working part-time,” says Natasha Abrahams, national president of the Council of Australian Postgraduate Associations.

“It also disproportionately takes money from women with responsibilities caring for young children or elderly parents,” she says.

Abrahams points out that the government’s changes to recovering student loans were ‘waved through’ by the Senate last year.

“This was on the same day that Universities Australia released damning statistics showing the increasing levels of student poverty,” she says.

“The government’s decision to force more students and graduates to start repaying their loans will have a life-altering impact on those who are already struggling to pay for rent, food, bills, transport and textbooks.”

The situation will only become worse as struggling students and graduates see their take-home pay slashed by up to 15% following new government cuts to overtime penalty rates, she says.

Taking food from strugglers

“This will snatch food off the table for those who are struggling. Students who attend university during the week and work on weekends are particularly vulnerable to the impacts of penalty rate cuts,” she says. Many students work in hospitality, fast food and retail industries to cover their living expenses while studying.

Abrahams says her members have become increasingly concerned that the attacks on lower income-earning Australians will result in more people living in extreme poverty, and lead to an increase in the number of students and graduates accessing support from already overstretched charities.

“At the same time as lower-income earners are victimised, those earning higher incomes will be receiving substantial tax cuts,” Abrahams says.

“The government is committed to the myth of trickle-down economics, but historically the impact has been to widen the gap between the haves and have-nots.”