Opinion & Commentary
Cost of New Loans Trivial
In 2005, the system of income-contingent loans that began with HECS in 1989 was extended to Australian students in private higher education providers or paying full-fees at public universities. Under the FEE-HELP scheme, most can borrow all their course fees from the federal government, and repay later through the tax system.
All students in vocational courses remained excluded, despite the significant fees sometimes charged for vocational education. After lobbying by the Australian Council for Private Education and Training (ACPET), in this year’s Budget the government announced VET FEE-HELP. In 2008, income contingent loans will become available to students in diploma or advanced diploma courses, where arrangements exist for students to move on, with appropriate credit transfer, to a related degree qualification.
While still leaving many students facing up-front fees, VET FEE-HELP will make it possible for some students to take courses they could not otherwise afford, and will ease financial burdens on those currently paying up-front.
In the AFR’s Education Supplement last week, Geoff Maslen reported that VET FEE-HELP is “likely to cost the Australian taxpayer dearly”. Key aspects of Maslen’s analysis are mistaken.
Maslen states that graduates already owe the government more than $11 billion with the “default rate” (sic) expected to be close to $4 billion. Neither of these numbers, which imply that more than a third of the debt will be written off, are correct. In the government’s Higher Education Report 2005, accumulated debt as at 30 June 2006 was estimated at just under $13 billion, with $2.5 billion expected not to be repaid. That’s just over 19% of the total amount owing.
We cannot infer from this, however, that 19% of the money lent in any one year will never be recovered. That figure includes “debt creep”, the accumulating effect of previous debt assumed to be unrecoverable. An Australian Government Actuary report from the late 1990s estimated that about 13% of the money lent in any one year might not be repaid.
When introducing the VET FEE-HELP legislation into the House of Representatives, Vocational Education Minister Andrew Robb said that the government expects to lend $221 million in the next four years to the newly-eligible students. On that forecast, if 13% of the capital is at risk $30 million may eventually be written off.
However, we need also to take into account that VET FEE-HELP borrowers will incur a 20% debt surcharge. Someone who borrowed $10,000 to pay a tuition fee would owe the government $12,000. Even after allowing for those who will never repay, the government will receive back more than it lent.
The only losses to taxpayers will be loan administration and the opportunity cost involved in lending money at a low interest rate. In the context of total post-school education spending, these VET FEE-HELP expenses will be trivial.
Andrew Norton’s paper ‘HELPless: How the FEE-HELP loans system lets students down and how to fix it’ was published by The Centre for Independent Studies in 2006.
