Opinion & Commentary
Loan help half baked
Everyone agrees that there are too few doctors. So, two weeks ago, the Prime Minister and the premiers agreed on a plan to expand the number of medical students.
The Federal Government is hoping for medical students on the cheap. All the new places are for full-fee students, with the limit on their numbers increasing from 10 per cent to 25 per cent of all Australian undergraduate places.
To help these students pay for their education, the Government announced another change. At present, full-fee students can borrow up to about $51,000 for their university studies through the Fee-Help student loans scheme, to be paid back the same way as HECS, through the tax system on incomes of more than $36,000. However, $51,000 won't pay for a medical degree, and so for medical students only the Government has lifted the cap to $80,000.
Unfortunately, $80,000 won't pay for a medical education, either. Several medical degrees cost twice as much or more. To take one of these courses, students need to find at least another $80,000 to pay up front.
This makes new Education Minister Julie Bishop's statement that under the new policy "up to 400 more medical students will be able to study medicine" very optimistic. The up-front fees required are so high that no significant increase in the number of medical students is likely.
Regrettably, this problem is not restricted to medicine. There are more than 300 other undergraduate full-fee courses in Australian universities where total costs exceed the $51,000 students can borrow through Fee-Help. No veterinary science or dental science courses have fees anywhere near $51,000. Only three law courses and one engineering course could be completed without the student paying some fees up front. Many other disciplines are also affected.
When Fee-Help was announced back in 2003, the then education minister, Brendan Nelson, issued a booklet that described as "inequitable" the fact that students could not access loans for full-fee courses, and lauded Fee-Help as a way of reducing unmet demand for university places and helping students acquire skills and take their preferred courses.
With the loan cap set at such a low point, these objectives are being only partially met and the "inequitable" nature of the up-front fees remains. The courses with the highest unmet demand from both prospective students and employers are the hardest hit by the Fee-Help cap.
The Government has never given any official reasons for setting the cap at $51,000. However, in late 2004 a newspaper report on a proposal to increase it quoted unnamed Department of Finance and Treasury officials worrying that thousands of graduates would never earn enough to repay their debt, or would avoid repaying it by working overseas.
This unease cannot be dismissed. With HECS' doubtful debt running at 20 per cent, or about $2.4 billion, in the middle of 2005, the financial implications for other taxpayers of non-repayment of student loans are not trivial.
While the Government's concerns about repayment are legitimate, its way of reducing doubtful debt is crude and clumsy. The basic idea seems to be that it can't lose money it doesn't lend in the first place. Yet by setting the maximum loan at just $51,000 (or $80,000 in medicine), Fee-Help cannot fully do what it was set up to do.
In the longer term, Fee-Help should be reconfigured so that it operates as what it essentially is: part of the commercial education market, financing personal human capital investment.
Commercial lenders have more sophisticated ways of controlling doubtful debt. Instead of setting arbitrary borrowing limits, they lend according to likely ability to repay. Financing a $180,000 medical degree for a talented, committed young person would make sense, since their earnings would easily cover repayment obligations. Financing a $30,000 arts degree for a 70-year-old pensioner would not make sense, since pensioners do not earn enough to repay large loans. Yet Fee-Help would fully fund the pensioner but not the young medical student. By targeting lending more carefully, doubtful debt could be reduced substantially.
Even without improved lending practices, there are ways of reducing non-repayment. For example, Britain and New Zealand , which both copied Australia 's income-contingent student loans scheme, have measures to recover money owing by graduates living overseas. Despite the difficulties of international enforcement, the New Zealanders successfully collect money from about half their expatriate student debtors.
There are ways of cutting Fee-Help costs to finance a higher cap. Unless the cap is increased soon, the Government's plans to lift the number of medical students will fail, and the patients of the future will wait even longer to see a doctor.
Andrew Norton is a research fellow for The Centre for Independent Studies. For his paper, ‘HELPless: How the FEE-HELP loans system lets students down and how to fix it’, visit www.cis.org.au
