What? The Australian Government contributes to the cost of higher education through the Commonwealth Grant Scheme (CGS) and the Higher Education Loan Program (HELP). CGS pays tuition subsidies directly to universities on behalf of all full-time Commonwealth supported students. In other words, institutions are compensated according to the number of students enrolled in study (Parker, Dempster, & Warburton 2018). HELP allows students to defer the upfront payment of tuition by providing income-contingent loans. The total outstanding HELP debt has been rising at an increasing rate over the last decade. If this trend were to continue, HELP costs would escalate, putting teaching and research at risk of budget cuts (Norton & Cherastidtham 2016). As of 1 July 2019, the initial repayment threshold was reduced from $51,957 to $45,881.
Why? In 2012, the demand driven system replaced the supply driven system. This lifted the previously imposed ‘caps’ on domestic student numbers at public universities. The rate of people that attended university by the age of 22 jumped approximately 7% between 2010 and 2016. However, within that same six year period, the total outstanding HELP debt soared from $19.9 billion to $47.9 billion (Parliament of Australia 2019). While HELP lending is climbing, HELP repayments are stalling.
Who? A widening proportion of graduates are earning less than the initial threshold and are subsequently exempted from repayments. A report by the Grattan Institute revealed a narrowing gap between the threshold and median starting salaries, specifically within the last ten years. The labour market, still in recovery from the 2008 financial crisis, may have been impacted by the university boom. The HELP income contingency significantly lowers student risks. The initial repayment threshold places the risk of low debtor income on the government. People earning less than the initial threshold cannot default, as they are not liable to repay. While debtors with income below the initial threshold are protected, those earning more than the threshold can fall behind in their HELP repayments.
If risk management is the HELP core function, fairness considerations suggest that a lower threshold is needed. Students should expect to repay their debts, except when they experience financial hardship. The threshold should not be set with reference to average weekly earnings, but should instead use benchmarks of low income. So? The HELP debtor population is changing. The number of diploma holders and part-time workers is rising. As lower-income earner numbers increase, there will be a higher proportion of debtors earning less than the current threshold than has historically been the case. Outro! The income contingent loan scheme has been an innovation that, when combined with needs based student allowances, has essentially removed the financial barrier to higher education study, though not necessarily barriers imposed by the experience, culture and expectations of non traditional students.