As part of its “everyone needs to contribute” approach to reducing the national debt, the government has announced major changes to higher education funding, such as deregulation of the sector beginning in 2016; the removal of caps on chargeable fees; and an increase in HELP repayments by way of lower repayment thresholds and higher repayment indexations. And higher fees and higher repayment indexations will mean students leaving university in the future will be saddled with a huge amount of debt, just as they enter the workforce.
Unless paid upfront, higher fees will manifest in a debt that students will have to repay after they find employment and earn more than $51,309 (2013-14), $53,345 (2014-15) or $50,638 (2016-17) per year. Current legislation means universities can’t charge more than a certain amount per course per year:
These fees mean those students who undertake three years of undergraduate study would incur HECS/HELP debts of $30,225; $25,839; and $18,132 for band 3, 2, and 1 respectively (many courses go beyond this three-year minimum, which would increase these totals). But the government is cutting the amount of money it provides to each course by about 20%, and caps on the amount universities charge students will be scraped from 2016.
As shown in the above table, if we take a conservative estimate of a 20% increase in the fees charged by universities, this would mean that students would instead be in debt to the tune of $36,270; $31,006; and $21,758 for band 3, 2 and 1 respectively. A 20% increase in fees is likely to be a conservative estimate, with the most prestigious institutions (Australian National University, Monash, University of Adelaide, University of Melbourne, University of New South Wales, University of Queensland, University of Sydney and University of Western Australia) likely to use tuition fees as a proxy for their status and brand, while other universities and private providers will be left to compete on the basis of price.
This increase in tuition fees to students is accompanied by a 30% reduction in the funding for Commonwealth-supported places. This effectively means that students will now fund an additional 20% of the cost of their higher education, either by paying up front or by adding to their HECS/HELP debt.
Saddling higher education students in this cycle of debt is problematic for a number of reasons and is sure to have detrimental consequences for the higher education sector and its varied stakeholders. Far from the government’s rhetoric of reducing debt for future generations, the funding cuts to higher education announced in the budget mean that higher education students (i.e. the current generation and the next entrants into the workforce) will bear a disproportionately higher burden in reducing overall national debt.
The full extent of this increased burden on students will hit students twofold: a) because of the possibility of much higher tuition fees (conservatively about 20%); and b) the increased share of fees that students have to bear (about 30%). This measure alone has the possibility of effectively raising the amount of student HECS/HELP debts by 50%. At present the amount a student owes the government is not subject to interest, but is indexed based on the CPI, which is typically between 2-3%. The government’s proposal is to effectively charge interest on student loans tied to the 10-year government bond rate to a maximum of 6% (the current government bond rate is 4%). When seen in combination, these measures may well result in the average three-year degree costing well over 1.5 times what is currently does, and will take longer to pay off.
Under the conditions we have described thus far, employability will likely be the primary driver of students’ course selections, whereas matters such as aptitude, desire, or academic intrigue may be seen as less important. All in all this is likely to lead to an approach to education that does not value education at all, but rather values only the economic benefit derived from being educated. In this form education ceases to be education, since such education only produces workers who fuel the economy.
And what better way to entrap young people into a system than to start them off in their working lives with the burdens of debt?
“employability will likely be the primary driver of students’ course selections, whereas matters such as aptitude, desire, or academic intrigue may be seen as less important.”
Err… how would be that different from now? There ain’t much point spending several years doing a degree that isn’t going to improve your job prospects in the real world. We can’t all live in an academic sheltered workshop.
I’d substitute ‘most’ for ‘many’, certainly in engineering and most science streams. In the latter case, a 4th i.e. Honours year is the de facto minimum for employment in related fields.
More Stupidity from government- the educated young will leave Australia rather than be saddled with debt. Already my young contacts are saying – why come home to an unimaginative ecologically and morally bankrupt government which has no appreciation of innovation, development and the future.
Look at the stats – how many are leaving, what age education bracket, how long do they stay away?
My daughter is paid to do post-graduate study in Europe.
Abbott Govt is crippling the young while claiming to be saving them from future debt- what a bloody lie.
Already the deregulation of education has seen shysters arise from the muck- delivering courses with “guaranteed” jobs at the end! More lies. My son has just completed one such and yes what a surprise not one in his course was given a job! More lies
A thought: the Commission of Audit recommended against privatising HECS/HELP debt, noting that the effective interest rate was too low to make it attractive to the private sector without a major price discount that would undermine the intent (assuming the only intent in selling off student debt was to reduce government debt).
A UK treasury review came to a similar conclusion. It didn’t stop the UK government from selling off some student debt.
The conservative government here seems to be getting an awful lot of its policy ideas from the Conservatives in the UK, especially in relation to education. And they have just raised the interest rate on student debt. Does this address the issue raised by the Commission of Audit? Could part of the intent behind the move be to make HECS/HELP debt a more attractive prospect? Will the next move be for Australia’s Tories to follow the lead of their UK cousins, and turn to the market?
Good article and good comments.
In short, straddling young people with a huge debt as they enter the work-force should be a criminal offense. But then handing them over to the private sector for collection is like opening the door to the wolves.
User pays gone mad and the witches have cast the spell, sorry, I mean “Hex”..