When Simon Birmingham was asked about the size of his own Hecs debt he admitted that he couldn’t remember it.
I’m always a bit hesitant to get too excited about such gotcha questions because a) generally they don’t reveal much, and b) often I don’t know the answer myself.
I get worried when treasurers clearly don’t understand the impact of their policy – such as when Joe Hockey tried to suggest the fuel excise indexation was a progressive tax.
But, for example, when Chris Bowen got stuck when asked by Alan Jones about the tax scales I have to confess I often forget some of them. Generally I confuse whether or not one threshold is $32,500 or $37,000 before remembering it is the latter and the tax rate is 32.5%. Even now I must admit I had to check the ATO’s page just to make sure I got them right.
The same memory loss struck me when considering the question of Birmingham’s Hecs debt. Birmingham is a couple of years older than me, so we’re roughly the same vintage, and I have to admit I also can’t remember what my debt was when I left uni in 1993. I think it might have been about $11,000 but I’d say the margin of error on that is plus or minus $2,000.
A quick (admittedly very small sample) survey of friends had most of them also admitting they had no idea what their debt was – certainly those in ignorance were in the majority, including those who have graduated in the past decade.
Perhaps it is a generational thing – perhaps yet another example of the differences of generations – some of the boomers got their education for free, the Gen Xers had to pay Hecs but can’t remember it, and Gen Y are vitally aware of how great is their debt.
This issue arose because Birmingham has recently made it clear that the government intends to continue with a form of deregulation of the tertiary sector – despite it being a large part of the failed 2014 budget – a policy that will see student debt escalate exponentially.
It also came after a report by the Parliamentary Budget Office report on the costs of the Hecs/Help schemes that showed the cost to the budget of the scheme will grow from $1.7bn this year to $11.1bn in 2025-26.
One aspect perhaps not widely understood is that Hecs/Help loans are not a direct cost to the budget. Your Help loan from the government is just that, a loan, and thus is treated as an asset for budget purposes because you are expected to repay it.
But this does not mean the loans do not add to the budget’s bottom line. Because the government has to pay the interest on the money loaned to you while you get around to repaying it – and the interest it pays is higher than the one students pay on their loans. It also has to cover loans not repaid.
As the PBO notes, “the debt used to finance the Help loans needs to be serviced even if borrowers are not making repayments” – and if the amount being repaid is less than the cost of servicing new loans then the total cost to the budget increases.
The cumulative impact of the Hecs/Help loans on the budget add to the government’s debt levels. And because currently other aspects of debt are expected to peak and student loans are expected to keep growing, that means Hecs/Help loans start to take on a greater proportion of the government debt level.
Currently Hecs/Help loans account for about 8% of the net debt held by the government but the PBO estimates than by 2025-26 that will be up to 18%. It is worth noting, however, that this increase in debt is not due to an increase in students. The PBO estimates a fairly flat trajectory of students in both university and the non-university tertiary sector.
The PBO estimates the large increases occur because it assumes the government’s current policy of deregulating the tertiary sector will go ahead.
It assumes that due to this policy universities will recover their costs from cuts to the commonwealth grants scheme by increasing fees by about 40% and then that universities will also increase fees “by 2% in real terms each year from 2018, over and above recouping cuts in the commonwealth grant scheme”.
Birmingham suggested on ABC’s 7.30 that the main reason for the increase in costs was due to the ALP government’s decision to open the Help system to the private vocational education sector.
And certainly that policy did open up students to a great deal of shonky behaviour and skyrocketing fees.
A parliamentary review of the program found that many private vocational educational operators were viewing the use of Help loans as a means of profit growth – with the costs of some courses increasing by as much as $18,000.
Moreover, although Tafe accounts for “nearly twice as many government-funded students in VET courses as were enrolled with other providers … more than 75% of VET FEE-HELP funding goes to private, for profit providers”.
And because of the dubious quality of many of those courses, the likelihood of students repaying that loan is diminished compared to those from other institutions.
Similarly while the decision by the ALP government to uncap university student numbers has allowed an increase in people attending university, because more people have degrees, the currency of that degree has fallen – with starting salaries.
But the PBO found that the main driver of the increase in the size of the overall level of Help debt was the projected increases in student fees from 2017 due to the announced higher education reforms.
The increase in fee leads to an increase in the level of debt help by students and also an increase in the amount of debt not repaid by students.
The PBO report has been seen as somehow being a wake-up call on the time bomb of debt that is the student loan scheme but really it is a wake-up call on the impact of the government’s policy of fee deregulation.
Not only will it lead to students being lumped with higher levels of debt, so too will it increase the government’s own debt and increase the difficulty of returning the budget to surplus.
Whether or not the minister for education knows his own student debt level is rather irrelevant but it is inexcusable if he goes ahead with fee deregulation now that the debt impact on students and the government is brutally clear.