Ideas@TheCentre
HELPing themselves to a free education
'Uni bludgers rack up debt,' screamed a headline in last Monday's Herald Sun newspaper. The story lamented the huge amounts some people owed under the government-funded HELP student loans scheme, the descendent of the HECS scheme established in 1989. Twenty people have HELP debts exceeding $160,000, which could easily take them 20 years to repay.
Perpetual students living off the taxpayer is a great tabloid story. But the real HELP story is a perhaps one for the Australian Financial Review rather than the Herald Sun. Though the HELP debt's nominal value exceeds $20 billion, the government's actuaries think it is worth less than $14 billion. They estimate that nearly $5 billion will never be repaid. And they knock almost $2 billion more off the face value because the government borrows at more than 5% interest per year and lends to students at the inflation rate.
We need to restrict how much money students can borrow on a soft loan basis. But less than 1% of all HELP debtors owe more than $50,000 (2008 figures), so broader issues with HELP are driving its high costs.
Under current rules, HELP debt outstanding at the debtor's death is written off. This greatly increases the long-term costs of HELP, as many people with HELP debts will have estates that could easily cover the repayment expense. The death write-off provides free education to people who believe they will never earn more than the repayment threshold, about $45,000 for 2010–11.
The basic idea behind the HELP loan scheme is still a good one – that students should be able to borrow and repay via the tax system. By closing off some loopholes, including limiting the amount of debt and the death write-off – we can make HELP fair for taxpayers as well as for students.
Andrew Norton is a Research Fellow at The Centre for Independent Studies. He will be publishing a paper on HELP later this year.
