Daily BulletinHoliday Centre

The Conversation

  • Written by Bruce Chapman, Director, Policy Impact, Crawford School of Economics and Government, Australian National University

The Grattan Institute has proposed that a 15% surcharge should be added to the Higher Education Loan Program (HELP) debt of undergraduate and college students.

The surcharge is not an up front fee. It is a fee that is added to the existing debt and paid later, depending on a graduate’s future income. Repayments are only made if a graduate’s income exceeds about A$56,000 per annum.

This flat rate means that, while a graduate’s loan would initially increase by 15%, that figure would not get bigger over time.

Currently full-fee undergraduates pay a 25% fee on their loans, vocational education students a 20% fee, while postgraduate and government-supported students pay no loan fee. There is no obvious reason for these disparities and they seem to have evolved through a lack of policy attention by many governments.

So for administrative simplicity and coherence it would seem a good idea that all HELP loans are treated in the same way.

Not a radical idea

The 15% surcharge might seem like a radical reform idea, but the notion of a surcharge actually fits comfortably with the underlying economics of the HELP system, and was part of the original HECS design of 1989.

Benefits to low income earners

While an increase in the size of the loan may raise the ire of prospective students, it is important to remember that this does not leave those who go on to earn a lower income any worse off relative to their wealthier counterparts.

In fact they would be better off under this reform, because there would be no financial advantage to paying off the loan quickly. This is not currently the case.

The lower income earners who take longer to pay off their loans as the system is now are also penalised with having to pay back more interest over time.

In this sense, the change will act as a kind of subsidy on the loans of lower income earners, negating some of the cost and keeping loans from spiralling out of control.

Benefits to the government

A starting point is that the government already passes a considerable discount to students by indexing the loans by the CPI instead of the government’s own cost of borrowing.

While in the past the suggestion of imposing a real, and much higher rate of interest on the loans has been floated, it has been demonstrated that this is not the most equitable solution.

While a 15% spike in underlying cost may understandably attract headlines, this isn’t out of the blue. Having a surcharge on HELP debts for normal undergraduates was part of the original HECS design, but it took the form of a 20% discount for those who chose to pay up front.

This is just the other side of the coin of a surcharge, and was part of the original policy to cover the interest rate issue explained above.

Also, there are already surcharges on other HELP debts, and these are currently (and strangely) different depending on the nature of the tertiary education that people are undertaking.

Why 15% fee?

However, these points in favour of a surcharge should not be conflated with a judgement concerning what is the “correct” level of HELP charges in total.

This means that simply adding a 15% surcharge is an implicit recognition that the debts for graduates are too low at the moment, and should be increased.

The case for a surcharge should be made independently from the issue of what the correct overall level of a charge should be.

The economic case of the Grattan argument for a surcharge stands without reference to any budgetary concerns related to the level of HECS debts, which is a considerably more complicated (and ultimately political) judgement.

Authors: Bruce Chapman, Director, Policy Impact, Crawford School of Economics and Government, Australian National University

Read more http://theconversation.com/the-case-for-a-fixed-15-fee-on-all-student-loans-69993


The Conversation


Scott Morrison at National Press Club

ADDRESS, NATIONAL PRESS CLUB NATIONAL PRESS CLUB, ACT WEDNESDAY 29 JANUARY 2020   PRIME MINISTER: Thank you very much Sabra, and thank you for all attending here today. I am particularly conscio...

Scott Morrison - avatar Scott Morrison

Scott Morrison on Credlin

PETA CREDLIN: Thank you for your time tonight, PM I know you've got a lot on your plate. I'll get to the issue of bushfires in just a moment, but I can't let it go unremarked that with Australia Day...

Peta Credlin - avatar Peta Credlin

Scott Morrison interview with Ray Hadley

RAY HADLEY: Prime Minister, good morning.    PRIME MINISTER: G’day Ray.    HADLEY: Jeez you copped a hammering while I was away.   PRIME MINISTER: Goes with the job mate.    HADLEY: Well, yo...

Ray Hadley - avatar Ray Hadley

Business News

A Checklist for Setting Up your Own Business

If you have had enough of the 9-5 grind and figure that you can do better by going it alone, you certainly wouldn’t be alone in your thinking. Many Australians have successfully made the transition ...

News Company - avatar News Company

Workplace Bullying: What Are Your Options?

Workplace Bullying: What Are Your Options? Workplace bullying is something no employee ever wants to experience. Unfortunately, it is an all too common occurrence in many workplaces around the nati...

News Company - avatar News Company

How to Design a Website That Best Represents Your Business

A business website is the modern equivalent of a traditional brick and mortar storefront. Since the majority of businesses today need an online presence, it is essential to choose a design that best...

News Company - avatar News Company


A Travel Guide for Vacations Overseas

There are two types of tourists. Of course, that's a sweeping generalization, and we could be talking about any possible part of traveling.  In this case, we're discussing those who stick to the ma...

News Company - avatar News Company

The Family Travel Handbook from Lonely Planet

Everything you need to know to take unforgettable trips with your children   Full of practical advice, ideas and inspiration for every type of family, Lonely Planet's The Family Travel Handbook ...

Adam Bennett - avatar Adam Bennett

3 Ideas for a Family-Friendly Holiday to Bali

A family holiday is always an exciting time, but it can often come with its fair share of challenges, especially when trying to keep every member of the family happy. Thankfully, the beautiful islan...

News Company - avatar News Company