Economists welcome changes to student debt repayments, but say government could do better for students than cutting HECS debt

The federal government’s plan to overhaul student loan payments has received a mixed reception from economists, who say it ignores the major problem of higher education costs.

As part of its pre-election pitch, the Albanian government has said it will raise the threshold for how much people can earn before they have to start repaying their Higher Education Loan Program (HELP) debt from $54,435 to $67,000, in addition to changes to the how refunds are made. are calculated.

Student debt will also be reduced by 20 percent. If re-elected next year, Labor’s policies would benefit those with existing student loans from June 1, 2025.

The higher threshold for repayment income was widely welcomed, but economists have told ABC News that Labor’s policies would only help a small proportion of university students and do little to ease pressure on living costs.

The proposal aims to ease the burden of student loans, which have become more expensive due to rising tuition costs.

The government said the average student debt had risen from about $13,600 in 2010 to $27,600 today.

Popular courses such as arts, law and economics became more expensive, with a full arts degree now costing around $50,000, largely due to changes by the previous coalition government.

Higher income limit is recommended

Bruce Chapman, who was part of the team that first designed the HECS system, said increasing the income threshold was very welcome as the current threshold was “miles lower than intended”.

Currently, reimbursements are determined as a percentage of total income. Under the changes, refunds would be calculated as a portion of a person’s income above the new $67,000 threshold.

“That’s the most important thing to happen to the system in 35 years,” he said.

“It’s a marginal collection, it’s much friendlier and more honest than before; we should have done it years ago.”

Angela Jackson of Impact Economics agreed that raising the income limit was a good move.

“It will help recent graduates and people on lower incomes by reducing their HECS repayments, so I think this is a positive and real reform,” she said.

‘How much coffee or lunch does that yield?’

Recent graduates and current students already working full-time would benefit from the higher income threshold, said Jack Thrower, a researcher at progressive think tank The Australia Institute.

“Previously the threshold was not much above the full-time minimum wage,” he says.

“Last year one in seven full-time students worked full-time, so if they were above the minimum wage they were already paying back their HECS while juggling everything else.”

The other part of the proposal would eliminate 20 percent of the current value of student loans. For example, an average HECS debt of $27,600 would drop to $22,080.

Despite the reduction in repayments and overall debt, Richard Holden, professor of economics at the University of New South Wales, argued the reforms would do little to ease pressure on the cost of living.

“It doesn’t feel like it moves the needle. It’s not like taking 20 percent off someone’s mortgage or car loan, so I don’t see it having a big effect (on spending).

“Do your own calculations on how much coffee or lunch you buy for that,” he said.

The broader economic impact, he said, would be the addition of $12 billion to $16 billion to the national debt.

“It makes the country poorer and everyone else’s future taxes will have to pay for that.”

Dr. Jackson said that from a budget perspective it was easy to understand why the announcement was made: the debt relief was outside the budget and therefore had no impact on the government’s underlying cash balance.

Student loans are excluded from the budget because they are intended to be repaid.

Dr. Jackson believed the debt relief was beneficial, but did not directly address the high cost of degrees, which she said had risen disproportionately compared to other costs of living.

“Reducing student debt by 20 percent will help, but it doesn’t address the core problem of student costs,” she said.

“Arts courses are now far more expensive than the cost of providing them, raising questions about whether these costs benefit students or the wider economy.”

Call to reduce high education costs

The economists ABC News spoke to agreed that more needs to be done to lower the cost of higher education.

Professor Chapman said the price of university degrees was unsustainable.

“Humanities degrees are too high, all the radical price changes happened in 2020 and must be reversed.”

Professor Holden said the most effective change the government could make would be to abolish the former coalition government’s ‘Job-Ready Graduates Programme’.

The scheme increased the cost of certain degrees, including arts and philosophy, while reducing the cost of a course in priority areas such as education, nursing and science, technology, engineering and mathematics (STEM).

It was widely criticized at the time for distorting degree subsidies based on arbitrary policy objectives, he said.

“It is the most important thing the Labor government needs to get rid of.”

Mr Thrower, from the Australia Institute, was also critical of the Job-Ready Graduates Program, saying his research showed it led to only about 1.5 percent of students changing courses.

‘It’s buying votes’

Mr. Thrower also noted that the policy’s 20 percent reduction in student debt could disproportionately benefit people with higher incomes, who have incurred higher levels of debt due to expensive degrees.

“Those in higher-paying fields, such as law or economics, will see a larger reduction, potentially widening the gap between low and high earners.”

Professor Holden criticized the policy as “regressive” because university graduates generally had higher incomes but only a select group would benefit from the proposal.

“People who are half way get half, so it really is a very specific group of people who benefit,” Professor Holden said.

“It’s buying votes – it’s trying to buy green votes, I don’t think it’s more complicated than that.”