Jan 5, 2012

Australia’s Student Loan System: Model or Mess?

Rónán Burtenshaw

Deputy Editor


Australia’s student loan system was introduced by the Hawke Labor government in 1989. It was part of a broader policy, known as the ‘Dawkins Revolution’ after long-time Education Minister John Dawkins. The policy aimed to increase “the efficiency and international competitiveness of Australian universities” after the previous ‘free-fee’ system introduced in the 1970s was deemed to have failed.

Student debt in Australia currently stands at AUS$15billion (€11.2billion), which includes a total of AUS$4billion that the government estimates will never be repaid due to graduates dying, leaving to live in another country or never reaching the income threshold when they have to start repaying their debt. The vast majority of this debt was run up under the Hawke government’s Higher Education Contribution Scheme (HECS).

In 2005 the Australian Howard government introduced a new system, called the Higher Education Loan Programme (HELP), to replace the HECS. The programme is open to all students, but those who chose to pay their full tuition fee upfront receive a 20% discount. Those who chose to partake in HELP have two options: they can pay some of the tuition fee up-front and request a HELP loan for the remainder or request a loan for the full tuition fee.

Under the HELP system the government lends the student the amount of any tuition fee for each unit of their course that has not been paid directly to the institution. Graduates will begin to repay their student debt once they reach a certain level of income, with the rates at the moment standing at 4% of annual income starting at AUS$50,000 and rising to 8% for someone on an annual income of AUS$83,400 or over. Graduates earning less than AUS$45,000 p/a have no repayment requirements until such a point as they begin to earn inside the repayment bracket.

HELP loans don’t attract interest, but are instead indexed to the Consumer Price Index (CPI) on 1 June each year. The government, therefore, gets back more than it lends because the CPI goes up every year, with the indexation rate was 2.8% in 2006 and 3.5% in 2010.

A 20% loan fee applies to HELP loans for undergraduate courses. This means that students borrowing AUS$10,000 to pay for a course will incur a fee of AUS$2,000. Students or graduates can make voluntary repayment of AUS$500 or more, receiving a bonus of 10% when they do so. In practice this means that voluntary payments of AUS$1,000 credit their accounts with AUS$1,100.

Limits are also in place for total repayment costs graduates are liable to pay. At the moment those maximums stand at AUS$86,400 for students not undertaking a medicine, dentistry or veterinary science course and AUS$108,000 for those who are. This dichotomy is made based on the perceived earning power of degrees linked directly to established, highly-paying professions.

Each university or other higher education provider sets the tuition fee for each unit of study and the date by which payment of the fee is required. It is based upon the expected earnings following a students’ graduation, not the cost of providing the course. Students attending private universities may also avail of a similar FEE-HELP system.

The Australian HELP system has been widely praised by university administrations but many in the country hold concerns over rising debt levels for students. According to the government average student debt now stands at over AUS$20,000, but this can be a misleading figure because it includes students who pay upfront and incur no debt.

Many graduates of elite Australian public institutions have debts closer to the maximum levels. Australian students borrow around AUS$1billion per year for their education, with some degrees costing up to AUS$200,000.

This is, in large part, due to the steady increase in the cost of obtaining a degree in Australia. With deregulation of university fees in 2005 many colleges took advantage of an opprtunity to increase fees by up to 25%. The recent general election saw calls for a further increase coming from Australian universities.

Higher-education commentators, like The Australian’s Stephen Hatchett, warn that the pressures for fee rises will continue. In an August 2011 column on his Common Room blog he warned that student debt could “blow out”. Drawing comparisons with the US system, where total student debt stands at over $1billion and average debts are above $25,000, he pointed to a study that showed US higher-education costs had risen 439% between 1982 and 2006 (compared to just 251% for healthcare). “The US experience,” he says, “demonstrates what can happen.”

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