Month: July 2025

Will the new HELP repayment system make high EMTR problems better or worse?

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The new HELP repayment system being legislated this week will move from repaying a % of total income to a % of income above the repayment threshold, a marginal system. In introducing the bill to Parliament, education minister Jason Clare quoted Bruce Chapman on a marginal system: ‘it’s much gentler and much fairer than previously—we should have done it years ago.’

While the new marginal repayment system may be gentler and fairer, it could create more widespread disincentives to working additional hours than the current total income system.

The problem with total income systems

The Universities Accord Final Report, which guides the government’s higher education agenda, criticised the total income repayment as unfair and a deterrent to work.

The underlying problem is that a multi-rate total income repayment system creates multiple threshold ‘cliffs’, income points at which earning $1 more triggers a big increase in student debt repayment. The most extreme cliffs are the lower income levels. Under the current system a debtor whose income reaches the $56,156 first threshold faces an increase in repayments from $0 to $561.56, plus 30 cents of income tax.  By earning more the student debtor reduces their take-home pay. Repayment cliffs exist, at less extreme levels, at all 18 income thresholds in the current student debt repayment system.

A total income repayment system produces some very high effective marginal tax rates (EMTR). An EMTR is jargon for how much of an extra dollar earned is lost to income tax, withdrawal of benefits, and in this case HELP repayments. EMTRs are a big issue in Australia’s welfare state, which makes widespread use of means tests – of which the HELP repayment thresholds are a version.

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The new HELP repayment system and lifetimes of student debt

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The prime minister says that a degree should not come with a lifetime of debt. For that goal, the government’s HELP legislation introduced last week is contradictory. It will cut all debt owed as of 1 June 2025 by 20%, which will shorten repayment times for current debtors. But it will also cut annual debt repayments for 99% of debtors, which will lengthen compulsory repayment times for many and push others into the PM’s lifetime of debt.

In the analysis below, female debtors owing $25,000 or more with incomes in the lowest 40% of graduate earnings face an increased risk of a lifetime of student debt. However, what percentage of female debtors actually face a lifetime of debt will depend on initial debt levels and how much their incomes vary through their careers. Voluntary repayments can also affect repayment times.

How the repayment system will change

My previous post on the initial threshold summarised how the repayment system will change. The key elements are that 1) repayment exempt incomes will include everyone on $67,000 or less compared to less than $56,156 now and 2) a marginal rather than total income repayment system will reduce what most debtors repay, particularly at lower income levels.

The chart below shows how this will affect HELP debtors at different annual income levels. Based on 2022-23 ATO data I estimate that 99% of debtors repaying under current thresholds will repay less per year than under the current system. The other 1%, all high income earners, will repay the same amount per year as now.

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International students and the rental market

Andrew Norton5 Comments

The housing section of the RBA’s report last week on international students and the economy had higher education media dismissing the contribution of students to rent increases as a ‘furphy’. I agree that international students are at most one factor amongst many in post-COVID accommodation market problems. That said, the RBA may understate the scale of international education’s contribution to rental demand.

Student Experience Survey results

The RBA used the Student Experience Survey to try to work out the proportion of students in the private rental market where they compete with others for accommodation. The question the SES asks is below.

The RBA’s conclusion that about half of international students are in the private rental market is based on the result below, which is for undergraduates. Taking a broad definition of undergraduate that was about 40% of international students in 2023. But assuming it is broadly representative, there is still one number that I have persistently struggled to understand in this survey, which is the high percentage of international students who say they live with their parents – 19% in 2023. Can that be right?

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The history and politics of the first student debt repayment threshold

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The government’s HELP legislation, cutting student debts by 20% and introducing a new repayment system, was introduced into Parliament yesterday. While I have criticisms of the 20% cut, it will be implemented and once done cannot be reversed. The changes to the repayment system will pass now but can, and probably should, be changed at a later date.

In this post I briefly explain how the repayment system will change and then discuss the choice of the first threshold.

The current and proposed student debt repayment systems

Under the current system, repayments start at an annual income of $56,156, at which point student debtors repay 1% of their total income. From there the percentage of income repaid increases incrementally to reach 10% of income at $164,712.

Under the new system repayments start at when income exceeds $67,000. At this point a marginal rate of 15% of income above $67,000 applies up to $124,999, where a marginal rate of 17% applies for income of $125,000 or more. Unexpectedly the bill restores part of the old system with an annual repayment cap of 10% of total income. This avoids some high income earners paying more than now.

The new thresholds will be indexed to growth in average weekly earnings. The current thresholds are indexed to CPI.

The logic of the first threshold

As the chart below shows, in the black dotted line, the first repayment threshold has changed over time. The long-term policy/political tension is between the idea that graduates should enjoy some financial advantage before repaying their student debt and the idea that student debt should be repaid except in cases of financial hardship. The policy pendulum is currently shifting from the latter to the former.

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Despite an increase in applications for the 2024 academic year, school leaver interest in higher education remained below mid-2010s levels

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University applications statistics for 2022 to 2024 were finally released late last week, giving us another data source on demand for higher education.

This post focuses on recent school leavers. The chart below shows that applications for this group were up in 2024 on 2023, but that the slump in applications since the late 2010s remained evident – other than the spike for academic year 2021, which is only apparent for teenagers who finished school prior to 2020. This is consistent with people deciding to sit out the COVID recession at university.

That COVID spike meant that in 2021 an unusually large share – 35% – of the 19 and under applicant group were not people who had finished school the year before. This share was 32.5% in each of 2023 and 2024, higher than any year 2012 to 2020, when it averaged 28.4%. This could mean that we are seeing more young people delaying higher education. This data source does not, however, distinguish between people who delayed applying until one or two years after finishing school, and people who enrolled but reapplied to change university and/or course.

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