Category: Student loans

HELP debt indexation at the lower of CPI or a fixed maximum rate – giving HELP borrowers more certainty than the Universities Accord final report lower of CPI or WPI recommendation

Andrew NortonLeave a comment

Over the last two years high CPI-driven HELP debt indexation – 3.9% in 2022, 7.1% in 2023, probably in the vicinity of 5% this year – has been a major issue. It has brought to public attention HELP debt issues that had been waiting for their trigger.

The last time HELP debt indexation exceeded 5% was in 2001, as the the new GST flowed through into prices and an indexation rate of 5.3%. At that time 1.1 million people had HECS (as it then was) debts of about $7.2 billion. A Factiva search shows that this unusually high indexation was newsworthy at the time. But with much lower HELP balances per person than now the average debt increase was only $350. The indexation issue then went quiet for two decades, except when the government wanted to charge more than CPI.

The reason for HELP indexation’s long low media profile was that between 2002 and 2021 it averaged 2.4%. It was below 2% between 2016 and 2021. This extended period of low inflation left HELP indexation as a latent issue, as increases in HELP debtor numbers and average debts gave it far more potential to cause significant personal cost and political trouble than it had in 2001.

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Creating a better integrated education system – some notes on Rethinking Tertiary Education, a book building on the work of Peter Noonan

Andrew Norton1 Comment

Peter Noonan was a rare person with expertise across vocational and higher education, and an even rarer person who made significant policy contributions to both. Sadly he passed away in 2022 at the age of 67.

Rethinking Tertiary Education, co-edited by Peter Dawkins, Megan Lilly and Robert Pascoe, with sixteen others as co-authors, is billed as ‘building on the work of Peter Noonan’, and does so by exploring ways of making the component parts of Australia’s formal education sector – especially higher education and vocational education, but also schools – work together more smoothly than now. Pascoe also contributes an interesting biographical chapter on Noonan.

For historical and political reasons the vocational and higher education systems in Australia have quite sharp dividing lines in the nature of the qualifications they deliver, how they are funded, how they are taught, and with some exceptions the occupations they support. The book also looks at school credentials, especially the idea that they don’t measure all they should.

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The 2003 Cabinet papers and Brendan Nelson’s higher education reforms

Andrew Norton3 Comments

In the history of Australian higher education policy Brendan Nelson, the Liberal minister for education from 2001 to 2006, is perhaps under-rated. Several student funding structural changes he legislated 20 years ago are still in place. These include:

  • Student contributions set by universities up to a legislated maximum and going to universities (previously HECS was a fixed government charge);
  • A per full-time equivalent student Commonwealth contribution based on subject field of education (previously universities received an overall operating grant, which although informed by an early 1990s costing exercise did not directly tie money paid to discipline-level enrolments);
  • Commonwealth-university funding agreements as a method of allocating student funding to institutions, which made funding arrangements more transparent (but also turned into a backdoor instrument of policy and regulation that bypasses Parliament);
  • Through FEE-HELP, extension of student loans to full-fee undergraduates and students in private higher education institutions (the more limited Postgraduate Education Loan Scheme, PELS, was already supporting university full-fee postgraduates).

The 2003 Cabinet papers

The annual National Archives release of 20-year-old Cabinet papers, with the 2003 papers released earlier this week, gives us a look behind the scenes as Nelson’s reform package was developed and debated. Three digitised Cabinet documents record proposals and decisions, but not the Cabinet discussion. Sometimes, however, Cabinet thinking can be inferred from requests for further work and contextual material in the submissions.

This post focuses on changes to income contingent student loans.

The loan scheme that did not make it through Cabinet

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Mapping Australian higher education 2023 – official release

Andrew Norton2 Comments

Update 20/12/2025: More recent data here.

Mapping Australian higher education 2023 is now available from the ANU Centre for Social Research and Methods website.

Update 30/10/2024: There is a later version of Mapping 2023’s data here.

Update 26/10/23: A reader has pointed out that list of FEE-HELP NUHEPs is incomplete. A column of names from the original Excel file was omitted during production. The full list is available here. This list also includes three non-FEE-HELP providers registered by TEQSA since the pdf version was finalised. A corrected version of Mapping with the full list of NUHEPs, as of mid-2023, is here.

If anyone has noticed other errors please let me know.

The Universities Accord universal learning entitlement – how might it work?

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One Universities Accord interim report suggestion is a ‘universal learning entitlement’. But what would this mean, and how would it differ from what we have now?

The first part of this entitlement is to support Australians in obtaining a tertiary qualification. But it aims to go beyond ‘traditional targets’, such as for higher education or VET, to meet ‘a range of skills and other objectives’.

The interim report defines entitlement funding as ‘an appropriate combination of a public subsidy, a student contribution that would be paid through an income contingent loan … and, for some lifelong learning, an appropriate employer contribution’.

Current limits on higher education enrolments

While no Australian citizen is specifically disqualified from accessing a funded place in higher education, in practice three admissions-related obstacles can stand in their way.

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Free higher education as income and consumption smoothing

Andrew Norton2 Comments

The argument that free higher education would create additional higher education opportunities is empirically weak. History and international comparisons show that participation rates increase without it, and indeed due to budget constraints free higher education can lead to lower participation rates.

However there is another argument for free higher education which, while still contentious, has goals and likely outcomes that are consistent with each other.

Free higher education and income/consumption smoothing

The strongest argument for free (or cheaper) higher education is a better balancing of income and consumption over the life cycle. Needs are more consistent through life than income. Most people consume more than they earn when young and old and a large proportion earn more than they consume during their full-time working years. Smoothing these out is one of the principal functions of welfare states.

Compared to upfront fees or mortgage style student loans paid in instalments the HELP repayment system already has strong smoothing effects. It pushes the expense of higher education away from the years when full-time study limits scope for paid work. On low incomes no HELP repayment is required or repayments that are less than the minimum likely mortgage style loan repayment amount. On high incomes HELP repayments are more than the likely mortgage style loan repayment amount.

And higher education is already free for HELP debtors who persistently earn less than the first repayment threshold.

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Would free university increase or decrease higher education participation rates in Australia?

Andrew Norton5 Comments

In a previous post I argued that Australia’s practice of charging fees for higher education reflects its broader patterns of taxation and public funding of social services.

But we have had free higher education before, 1974-1988. For a government already spending over $600 billion a year the cost of free higher education is not beyond the feasible range. I estimate costs at $4.6 to $5.9 billion a year on status quo numbers of student places in public universities. The range reflects uncertainties about how domestic students currently paying full fees would be handled. The $4.6 billion transitions currently Commonwealth supported students to free, while the $5.9 billion fully compensates universities for lost fee revenue.

Of the arguments for free higher education the one that people find most intuitive is that it would increase higher education participation. People consume more when prices go down. But somebody is paying – the government on behalf of taxpayers – and so how they would respond is the key variable in whether the number of students would go up or down.

Debt aversion

Supporters of free higher education often make demand-side arguments, that fees or loans are a deterrent to higher education participation, especially to people from disadvantaged backgrounds.

As someone with working class origins free higher education advocate Duncan Maskell says he would not have gone to university if he had to take out a loan. Occasional school student surveys have picked up similar sentiments. But the ‘debt aversion’ hypothesis has always had trouble distinguishing between sensible prudence around taking out debt that probably is not worth it (good debt aversion), and over-caution in taking out debts that would probably lead to significant long-term benefits (bad debt aversion).

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Is the NTEU exaggerating student debt repayment times?

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The NTEU has a new report out today forecasting some alarmingly long HELP debt repayment times, including over 40 years in some high student contribution courses. While I agree that this issue needs attention – and have proposed linking student contributions with expected repayment times to narrow the course-linked differences between them – I think the NTEU forecasts are much longer than will typically happen in practice.

The key problem is how the NTEU models expected graduate income. In their report they take starting salaries and then increase them each year by average wage growth over the last decade, 2.3 per cent on their figures.

However graduate incomes usually increase by much more than that. Indeed, the financial value of a degree is opportunities for continuing income growth when the wages of people without degrees tend to plateau after a decade or so in the labour force.

Graduate career wages

Recently the ABS added ATO and DSS derived income data to the Census dataset, allowing more detailed analysis of income than was previously possible. As the chart below shows for graduates at the median and 75th percentile income does not peak until age 45-49 years, after doubling between the early 20s and late 30s.

The next chart looks at median income by single year of age in the early career period when most HELP debt is repaid. Initial income levels look affected by people in jobs that don’t require degrees, but as professional careers start and graduates are promoted or switch to better jobs income increases rapidly.

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Time to change the timing of HELP debt indexation?

Andrew Norton3 Comments

HELP debt indexation media attention has highlighted arcane aspects of student loan administration. One of these is that HELP debtors in repayment mode are indexed on debt they have already repaid.

To simplify – the processes outlined in division 140 of the Higher Education Support Act 2003 are convoluted – I will give the example of a graduate with no new HELP debt.

How HELP debt is indexed

HELP indexation occurs on 1 June each year, so it will next happen on 1 June 2023 at the controversially high rate of 7.1 per cent (see this earlier post on possible alternative ways of setting the indexation rate).

To calculate the amount to be indexed on 1 June 2023 the ATO:

i) takes the person’s HELP debt for the ‘immediately preceding financial year’, ie 1 July 2021-30 June 2022;

ii) subtracts any voluntary repayments made between 1 June in the immediately preceding financial year, ie 1 June 2022 and ending immediately before the next 1 June, ie 31 May 2023;

iii) subtracts any compulsory repayment amounts ‘assessed during that period’, ie between 1 June 2022 and 31 May 2023.

The trap is that HELP compulsory repayments for 2022-2023 will not be ‘assessed’ between 1 June 2022 and 31 May 2023, because the 2022-23 tax year does not finish until 30 June 2023. Instead, compulsory repayments for the 2021-22 tax year will be deducted.

The issue here is that by 1 June 2023 HELP debtors in the PAYG system will, in cash terms, already have paid about 90 per cent of what they will eventually owe for the 2022-23 tax year. Effectively, HELP debtors will be indexed on debt they have already repaid.

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Should HELP debt be indexed at the lesser of CPI and another economic indicator?

Andrew Norton1 Comment

On 1 June 2022 outstanding HELP debts were indexed, using a CPI-based formula, at 3.9 per cent. Someone whose HELP balance was $50,000 on 31 May owed $51,950 the next day.

There had been no change to indexation policy; CPI indexation has been in place since HECS was introduced more than 30 years ago. But the politics did change. A topic on which I previously received few media inquiries, and then only during the periodic doomed government attempts to impose a ‘real’ interest rate, suddenly became the subject journalists asked me about most often.

In a low inflation environment – indexation was 0.6 per cent in 2021 – public reaction to this annual increase in HELP debt was minimal. But higher indexation in 2022 revealed latent issues. With increasing average debt the same percentage indexation leads to larger absolute dollar increases. Huge growth in debtor numbers means that indexation affects more people than previously.

Calls to talkback radio programs suggest that the lower initial payment thresholds introduced since 2018-19 create a particular annoyance. At the current lowest threshold 1 per cent of income repayment rate debtors repay $500 or so, but high CPI indexation means that their total HELP debt still increases.

Policy responses

The Greens have a bill in the Parliament to remove indexation entirely. This is unlikely to happen, but even an organisation at the opposite end of the ideological spectrum as the Greens, the Productivity Commission, sees high CPI indexation as a problem. In their big 5-year productivity report last week they suggested that indexation could be a lesser of CPI and real wage growth (this concession made in the context of proposing higher student contributions to fund more student places).

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