Purpose of the bill
1.1
The Education and Other Legislation Amendment (Abolishing Indexation and Raising the Minimum Repayment Income for Education and Training Loans) Bill 2022 (the bill) seeks to amend the Higher Education Support Act 2003 (HESA), Social Security Act 1991 (Social Security Act), Student Assistance Act 1973 (Student Assistance Act), Trade Support Loans Act 2014, and VET Student Loans Act 2016 to raise the minimum repayment threshold for the loan schemes associated with these Acts by tying the threshold to the median wage, as well as removing the indexation of these loans.
1.2
The bill applies to the following loan schemes:
Higher Education Loan Program (HELP);
Student start-up loans (SSL) and student financial supplement scheme (SFSS);
ABSTUDY student start-up loans and financial supplement for tertiary students;
Trade support loans (TSL); and
Background
Context of the bill
1.3
The bill was introduced as a private senator's bill by Senator Mehreen Faruqi on 30 November 2022.
1.4
In her second reading speech, Senator Faruqi identified student debt as a significant burden for millions of Australians, particularly in light of the current cost of living crisis. Senator Faruqi expressed that student debt has 'an enormous impact on people's lives, especially young people and women who have borne the brunt of the pandemic and are now bearing the brunt of the cost of living crisis due to rising rents, insecure work and stagnant wages'.
1.5
Senator Faruqi noted that more than three million people in Australia have a HELP debt, coming to a total of around $74 billion, and that 'more than 1.5 million of those people have debts greater than $20 000'.
1.6
Senator Faruqi also highlighted the fact that student debts have increased in line with inflation and suggested that the bill is 'a clear and immediate step to start tackling the student debt crisis while providing cost of living relief to those with a study loan'.
Current settings for indexation and repayment of study loans
Current indexation of study loans
1.7
On 1 June each year, indexation is applied to the part of an accumulated study and training loan that has remained unpaid for more than 11 months, for the following study loans: HELP, SSL, SFSS, ABSTUDY Student Start-up Loan, TSL, and VSL.
1.8
The Australian Taxation Office (ATO) is responsible for the collection of compulsory and voluntary repayments towards study and training loans.
1.9
The ATO's website notes that study loans are indexed to the Consumer Price Index (CPI) and states that 'indexation maintains the real value of the loan by adjusting it in line with changes in the cost of living as measured by the CPI'. The indexation figure is calculated each year after the March CPI is released.
1.10
Between 2013 and 2020, the indexation rate applied to student loans varied between 1.5 per cent and 2.6 per cent.
1.11
In 2021, the indexation rate sat at 0.6 per cent, the lowest rate in the last 10 years. In 2022, indexation increased to 3.9 per cent.
Current requirements for minimum repayments
1.12
Since 2019 all study and training loans are covered by one set of thresholds and rates. These are set out in the HESA which provides that a person must commence compulsory repayment of their study loan once they earn above the minimum repayment threshold, currently set at $48 361.
1.13
In 2019-20, the former Coalition Government reduced the minimum repayment threshold from approximately $52 000 to $45 880, which has since risen with indexation.
1.14
Prior to 2019, repayment thresholds were indexed against average weekly earnings as determined by the Australian Bureau of Statistics (ABS). The alignment of thresholds with indexation means that debts and repayment thresholds are growing in sync, and not at different rates, as occurred previously.
1.15
The HESA includes a table which sets out a person's compulsory repayment rate, which is calculated based on the person’s income. At the lowest income threshold, a person is required to pay one per cent of the value of their annual income towards their debts, the equivalent of between $9 and $11 per week. This amount scales upwards with income, so that a person in the top income threshold is required to repay 10 per cent per year. There are a total of 18 repayment increments, ranging from $48 361 to $141 848 and above for
2022-23.
Overview of the bill
1.16
The bill would have two distinct effects which are set out in two schedules.
1.17
Schedule 1 of the bill would halt indexation of the following study loans: HELP, SSL, SFSS, ABSTUDY Student Start-up Loan, TSL, and VSL. As described earlier in this chapter, these study loans are currently indexed by CPI on 1 June each year. Indexation of these loans would be removed from 1 July 2022.
1.18
Schedule 2 of the bill would lift the current minimum repayment threshold of $48 361 to the median wage. This means that individuals with a study loan would not commence repayments until they are earning above median wage which is currently approximately $62 400.
1.19
The bill provides that the median wage would be calculated as 52 times the amount set out for the most recent month of August before the start of the income year under the headings 'Weekly earnings—Total', as drawn from the 'Employee earnings' publication by the Australian Statistician.
1.20
The bill would also provide a new table for calculating the amount that a person is liable to pay in respect of an income year based on the person's repayment income. This table specifies that an individual would be required to pay between one and 10 per cent of their income towards their study loan, based on their earnings. For example, a person earning $3000 or less above the median wage would be required to pay 1 per cent of their earnings towards their study loan; whereas a person earning between $17 000 and $21 000 above median wage would be required to pay 4 per cent.
1.21
As the median wage rises, so too would the minimum repayment thresholds established by this bill. This measure would come into effect from 1 July 2023.
Financial implications
1.22
The Explanatory Memorandum does not set out the financial implications of the measures proposed in the bill.
1.23
However, as detailed in Chapter 2 of this report, the evidence suggests significant financial impacts if the bill were to be enacted.
Consideration by other parliamentary committees
1.24
When examining a bill, the Senate Education and Employment Legislation Committee (committee) considers any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) and the Parliamentary Joint Committee on Human Rights (Human Rights Committee).
1.25
In their first reports for 2023, the Scrutiny Committee and the Human Rights Committee each stated that they had no comment in relation to this bill.
1.26
The committee notes that the statement of compatibility included with the explanatory memorandum of the bill states that the bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, as it does not raise any human rights issues.
Conduct of the inquiry
Referral
1.27
On 1 December 2022, the Senate referred the bill to the committee for inquiry and report by 17 April 2023.
1.28
The bill was referred to the committee following a recommendation of the Senate Standing Committee for the Selection of Bills (Selection of Bills Committee). The Selection of Bills Committee suggested that the bill be referred due to the complex nature of the bill, and possibly a high degree of public interest in the bill.
Evidence
1.29
The committee advertised the inquiry on its website, issued a media release, and invited submissions by 24 February 2023. The committee received 62 submissions, listed at Appendix 1 of this report.
1.30
The committee also held a public hearing in Sydney on 17 March 2023. A list of witnesses who gave evidence at the hearings is included at Appendix 2.
Acknowledgment
1.31
The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at the public hearings. The committee particularly thanks those individuals who shared their personal experiences with the committee.