Overview of evidence received
2.1
The committee received evidence from a range of organisations including student associations, postgraduate associations, academics, peak bodies and other professional organisations.
2.2
The committee also received evidence from over 40 private individuals, who bravely laid out the details of their personal financial situations to assist the committee in its consideration of the bill.
2.3
Participants in the inquiry provided analysis of the two principal measures of the bill. In addition, the committee received evidence in relation to the current level of student debt in Australia, the increased cost of tertiary education under the former Coalition Government's Job Ready Graduates Package, and the impact of the current cost of living crisis on individuals with a study loan.
2.4
This chapter examines these broader issues in the context of the bill before addressing specific comments relating to the measures in the bill.
Current levels of student debt in Australia
2.5
As noted in Chapter 1, there are currently over three million Australians with an outstanding HECS-HELP debt. According to Australian Tax Office (ATO) data, this debt totalled more than $74.3 billion in 2021-22.
2.6
In their joint submission to the inquiry, the National Union of Students (NUS) and the Foundation for Young Australians (FYA) noted that 'this is a 191% increase in the total amount of student debt in Australia in the 10 years since 2011-12'.
2.7
In addition to an increase in the overall amount of student debt in Australia, the committee received evidence that the amount of debt per individual has also increased. In particular, the National Tertiary Education Union (NTEU) highlighted that the average amount of student debt is now $24 770 per student, compared to $15 191 per student in 2012.
2.8
The Centre for Future Work also highlighted that the number of people with HELP debts worth over $100 000 has increased from 22 514 to 70 962 people in the last three years.
2.9
Given the increase in overall and individual student debt, the NTEU and the Centre for Future Work both contended that debt repayments are becoming an increasing burden during important early-career years.
2.10
In answers to questions on notice, the ATO confirmed that the average time to repay a debt in full has increased from an average of 7.3 years in 2005-06, to an average of 9.5 years in 2021-22.
2.11
ATO data also showed that the time to make a first compulsory repayment has only increased from 5 years in 2007-08 to 5.6 years in 2021-22.
2.12
The NTEU commented that the trend of students taking longer on average to pay off their degree will 'continue to worsen under the current model - with high inflation-based indexation, low wage growth, and all-time high fees feeding into higher debt burdens for students and graduates'.
Job Ready Graduates Package
2.13
Multiple submitters to the inquiry highlighted the negative impact of the former Coalition Government's Job Ready Graduates Package (JRGP) on the cost of university fees in Australia.
2.14
For example, Public Universities Australia gave evidence that:
Despite the Coalition Government's claims to the contrary, its 'Job-ready' policy has resulted in a 15 percent cut in total public funding per student, and a 7 percent increase in student debt.
2.15
Submitters such as the Centre for Future Work observed that the decrease in government funding for certain university courses resulted in the increase of fees paid by students, and in turn, higher levels of student debt.
2.16
Indeed, the NTEU noted CPI figures released by the Australian Bureau of Statistics on the March quarter (Mar Qtr 2021 to Mar Qtr 2022) which show that the cost of tertiary education rose 6.3 percent due to the impact of JRGP, which commenced in January 2021.
2.17
The NTEU also highlighted that in some programs, these increases have been very significant; pointing to a 113 per cent increase for humanities degrees, including society and culture, communications, behavioural science and social studies; and a 28 per cent increase for economics, law, commerce and accounting.
2.18
The NTEU went on to contend that rather than increasing the number of graduates in areas of expected demand the policy has 'failed even to meet this basic premise'. Instead, the JRGP has resulted in 'universities receiving a lower rate of funding per student in many fields in which they are expected to expand enrolment while also incentivising universities to increase enrolments in subjects that were supposedly not preferred by the former Coalition Government'.
Cost of living
2.19
Participants in the inquiry agreed that the current cost of living crisis in Australia is having a significant impact on low-income earners, who are often students, and that the measures proposed in the bill should be viewed in this context.
2.20
For example, the NUS and FYA contended that the cost of living crisis 'disproportionately affects lower income individuals and those least able to afford it. Young graduates aged 20-34 who are more likely to have outstanding HELP debts have lower median weekly earnings than older workers aged
35-59'.
2.21
Similarly, the Council of Australian Postgraduate Associations (CAPA) and the National Aboriginal and Torres Strait Islander Postgraduate Association (NATSIPA)'s joint submission to the inquiry noted that of the three million Australians with outstanding student debts, over 66 per cent of these individuals are Australians aged between 20 and 40 years old. CAPA and NATSIPA specified that 'the demographic represented includes low-income earners and young families already facing financial hardship due to the rising cost of living'.
2.22
The Youth Affairs Council of South Australia (YACSA) also supported this position, noting:
Young people continue to be overrepresented in unemployment, underemployment, precarious employment and low-waged employment, and the current cost of living and housing crises are hitting them harder than other age cohorts.
2.23
Several participants, such as the QUT Student Guild and the Curtin Student Guild also pointed to the broader impact of this financial pressure on students' living conditions, standard of education and mental wellbeing.
2.24
This was also highlighted by the NTEU, which explained:
It can have ramifications for access to health, education, and other social-welfare services, and can even prevent or delay starting a family. All of these have socio-economic impacts beyond the individual.
2.25
The Sydney University Postgraduate Representative Association (SUPRA) also suggested that 'the increased cost of basic necessities like food and fuel is putting great financial, emotional and psychological pressure on individuals and families'.
Home ownership
2.26
Further to the everyday cost of living pressures faced by students and graduates with student loans, many participants in the inquiry noted that a HELP debt can impact an individual’s borrowing power. Indeed, NUS and FYA explained that:
Having a HECS debt affects your ability to take out a mortgage, as lenders consider it when assessing your borrowing capacity. This is because HECS debt repayments reduce your disposable income, which in turn affects your debt-to-income ratio, a key factor in determining your loan eligibility.
2.27
NTEU agreed and acknowledged that 'high debt impacts on the ability to save and the loan burden can be detrimental to applying for finance for major investments such as a home or starting a business'.
2.28
Likewise, YACSA cited research that found that as education debt increased, homeownership rates declined, rental stress increased and rates of entrepreneurship as well as new business formation dropped.
Views on the bill
2.29
While most participants in the inquiry supported the intent of the bill, the committee also received evidence that the measures proposed in the bill may not be the most effective way to address the issues it proposes to resolve. Further, the bill is likely to have significant financial implications.
2.30
Notably, Independent Tertiary Education Council of Australia (ITECA) suggested that 'there might be more practical ways to ease the burden on students and the sector as well as expanding the scope of students who are eligible for support'.
2.31
Further, in November 2022, the Government announced a new review of the higher education system, the Universities Accord. In a media release, the Minister for Education, The Hon Jason Clare MP, explained that the review will provide an opportunity to 'look at everything from funding and access, to affordability, transparency, regulation, employment conditions and how higher education and vocational education and training can and should work together'.
2.32
This section sets out views on four key issues: indexation, minimum repayment thresholds, financial implications of the bill, and interaction with the Universities Accord.
Indexation
2.33
Schedule 1 of the bill would halt indexation of the following study loans: HELP, SSL, SFSS, ABSTUDY Student Start-up Loan, TSL, and VSL. These study loans are currently indexed by CPI on 1 June each year.
2.34
Numerous participants in the inquiry, supported the removal of CPI indexation from study loans, noting that the application of indexation increases an individual’s total amount of debt burden.
2.35
This included evidence from numerous private individuals describing the impact of the recent application of CPI indexation to their study loan in June 2022.
2.36
For example, one submitter provided information about their personal study loan which showed that on 16 May 2022, after making a voluntary repayment of $300, their HELP debt was $57 765.45. On 1 June 2022 the debt was indexed to CPI at the rate of 3.9 per cent, increasing their debt to $60 008.93. On 9 August 2022 a compulsory repayment of $2282.94 was made, bringing the total remaining debt to $57 725.00. This submitter noted that despite making repayments, their student debt had only decreased by $30.
2.37
Several other submitters also described similar circumstances and commented on the difficulty of making repayments to their study loans only to find that the rate of CPI indexation applied to the loan negated the effect of any repayments made.
2.38
The committee also received evidence proposing that no changes be made to the current indexation of student loans. This position was supported by ITECA which stated that it would be 'very concerned if, for example, changes were made to indexation arrangements that resulted in significantly higher costs to the Australian Government across the loan program and this resulted in a substantial reduction in the scope and size of loans available to students'.
2.39
Similarly, Independent Higher Education Australia noted that from a Federal Budget perspective rising inflation levels make an argument for retaining indexation on loans.
2.40
The departments explained in their joint submission that indexation does not have an impact on the rate at which a person repays their loan, as repayment rates are calculated based on an individual’s income, rather than on the amount of their student loan.
2.41
Ms Catriona Jackson, Chief Executive of Universities Australia, noted that, in line with the departments' explanation, if indexation were abolished or frozen, it would make no difference to the cost-of-living pressures being faced by people with a study loan. Ms Jackson advised that abolishing indexation of student loans would not be a constructive measure.
2.42
A central focus of the evidence received in relation to CPI indexation was discussion of what rate would be applied to student loans on 1 June 2023.
2.43
The NTEU contended that the rate of CPI applied to study loans in 2023 would be higher than in 2022:
If we are to use a reasonable estimate of 1.8 per cent inflation for the current quarter (a slight decrease from the previous quarter) this produces an indexation rate for June 1 2023 of 6.15 percent – higher than the current average outstanding home loan rate.
2.44
The Centre for Future Work also reasoned that the indexation rate applied to education and training loans on 1 June 2023 would likely be between six and seven per cent. It explained:
Over the twelve months to December 2022, CPI rose 7.8 per cent and the Reserve Bank of Australia forecast CPI to increase by 6.7 per cent in the twelve months to June 2023. Based on the average HELP debt, this means students face an average increase in their debt of around $1,600 when their debt is next indexed.
2.45
NUS and FYA commented that the predicted rise of approximately
seven per cent in HELP debts in 2023 would have significant impacts on individuals with study loans. NUS and FYA gave the following example in their submission:
With CPI running at under 2% up until 2020 this resulted in an increase of $460 pa on the average HECS loan. CPI is now much higher than that, reaching 7.8% by December 2022. This will result in the average HECS loan rising by $2,900 (13%) over the next 2 years.
…a graduate on an $60,000 pa entry level position will pay ~2.5% of their salary, or $1,500 in 2023 as a HECS repayment. These repayments will be completely wiped out by inflation.
2.46
CAPA and NATSIPA also raised concerns that 'some of the most vulnerable Australians will regress on paying off their student debt when the legislated indexation takes effect on June 1st'.
2.47
The departments acknowledged that CPI rose rapidly in 2021 and 2022, due to a range of circumstances including significant global disruption. The departments also confirmed that the 2023 rate of CPI indexation is likely to be higher than the decade average. They noted, however, it is unclear how long this rate of inflation will continue.
2.48
However, while acknowledging the need to address indexation, some submitters proposed alternatives to abolishing indexation entirely.
2.49
For example, Think Forward agreed that indexation of student loans should be addressed, and proposed that rather than abolishing indexation entirely, a freeze should be put on the inflation of student loans, while consideration is given to indexing student loans to real wages growth.
2.50
CAPA and NATSIPA and Public Universities Australia also recommended that aligning the indexation of HELP debts to the CPI should be abandoned, and consideration given to its realignment to the Wage Price Index (WPI).
2.51
CAPA and NATSIPA explained that aligning indexation in this way would have several advantages:
The WPI appears more stable than CPI yet still follows similar trends over longer periods.
It would align with the value of Australian labour and less from the price inflation often affected by external factors in the global markets.
Aligning the indexation to real wage growth would be the fairest indexation form if retained.
2.52
CAPA and NATSIPA also noted that CPI is a flawed metric for the following reasons:
…its fluctuations are easily influenced by global market trends, including spiking in energy costs, market bubbles, trade bans/tariffs and other external factors that may result in the rise of inflation. While some may justify that the current situation is an exceptional economic anomaly, it is worth highlighting that the stable inflation rates we have enjoyed over the last two decades are not necessarily representative over broader periods.
Minimum repayment thresholds
2.53
As explained by the Centre for New Industry, the introduction of income contingent loans (ICLs) in exchange for education was first implemented in Australia in 1989 by the Hawke Government. This system assumed that by engaging in higher education, young people would receive considerable financial benefit from their studies in the future, and therefore should share the societal cost associated with their studies.
2.54
Emeritus Professor James Guthrie, Professor John Dumay and
Dr Ann Martin-Sardesai further explained that the premise of introducing ICLs was that graduates would only pay off their debts when they began earning a comfortable income.
2.55
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.
2.56
Participants in the inquiry were generally supportive of this measure. Many submitters held that the current minimum repayment threshold is too low and is placing financial pressure on individuals.
2.57
In 2019-20, the former Coalition government reduced the minimum repayment threshold from approximately $52 000 to $45 880, which has since risen slightly with indexation.
2.58
The Centre for New Industry noted that in lowering the repayment threshold from $52 000 to the current level of $48 361, the current threshold sits at just $6105 above an annualised minimum wage income.
2.59
The Centre for New Industry also highlighted that the reductions in the HECS repayment threshold go against the underlying principle of the design of HECS:
It was never intended that university graduates would be required to pay back HECS debts from lower-than-average wages earned in jobs they could have obtained without their qualifications.
2.60
QUT Student Guild also voiced concerns about the former government's policy, highlighting that:
With the minimum repayment threshold decreasing by over $7,000 in 5 years, tertiary students are being pushed to repayment earlier.
2.61
Public Universities Australia agreed and argued that 'significant changes in government policies over the years with regard to student debt has changed the system in such a way that it no longer functions in the manner originally intended'.
2.62
The Curtin Student Guild noted its support for the measure as 'it will benefit low-income earners and those most vulnerable to rising costs of living who often struggle to repay their loans while also covering their basic living expenses'.
2.63
CAPA and NATSIPA argued that:
Consistent with the system's original objective, we argue that those earning below the median annual wage fall under the category of low-income earners and, thus, should be exempt from making compulsory payments to their student debt.
2.64
CAPA and NATSIPA also outlined in their joint submission that if the minimum repayment threshold was increased to $65 000, that over 337 000 Australians would benefit from an average increase of approximately $975 in take-home pay. CAPA and NATSIPA also estimated that this would lower the annual tax revenue by $353 million but would also 'effectively serve as a non-inflationary response and target low earners'.
2.65
Mr Chris Gyetvay, Assistant Commissioner at the ATO advised the committee that the measure in the bill would increase the number of people who are currently below the compulsory repayment threshold from approximately 1.21 million people to 1.638 million people, which equates to about 420,000 individuals.
2.66
However, support for this measure was not universal.
2.67
For example, ITECA stated that increasing the minimum repayment threshold 'would likely have perverse outcomes on other aspects of the design of the overall loan program'. ITECA explained:
…the current repayment rate for this level of income is 3.00% and removing all debtors from the repayment system at rates of 1.00%-2.50% repayment (i.e. all debtors with a HELP income up to $65,000 – currently between 1.5 million and 1.6 million debtors), ITECA holds concern that this may adversely affect student access across higher education and skills training.
2.68
Likewise, the departments agreed that there were potentially harmful consequences to increasing the minimum repayment threshold:
An increase in the minimum repayment threshold may significantly increase the proportion of debt that is not expected to be repaid, in turn impacting the long-term financial sustainability of the loan programs, due to the delay in persons commencing making repayments, and more never meeting or exceeding the minimum repayment income.
2.69
Further, the departments explained that the ICL system ensures that students are protected from the financial pressures of fixed term repayments and the risk of default.
2.70
The departments also acknowledged that a central tenet of the student loans policy is that 'some individuals will never have the financial capability to make repayments, and it is expected that a certain amount of student debt will never be repaid'.
2.71
In discussing this aspect of the system, the departments commented that:
Government accepts this liability, as it recognises that individuals who have not realised the financial benefits of a higher education qualification are not required to make repayments that could lead to significant hardship.
2.72
The departments also clarified that while the ICL system provides this protection for students unable to make repayments, 'it is expected that individuals who have received a personal benefit from tertiary education and have the financial capacity to repay their debts, do so'.
2.73
The departments concluded that raising the repayment threshold and ceasing indexation of these loans will likely create inequities in the system, disadvantaging individuals who have already repaid their loans, including indexation.
Financial implications of the bill
2.74
As noted in Chapter 1, the explanatory memorandum does not set out the financial implications of the measures proposed in the bill.
2.75
As explored throughout this chapter, however, the two measures in the bill would have significant financial implications if enacted.
2.76
In relation to the proposed removal of indexation from study loans, the departments advised:
At a minimum, there are financial implications of allowing debts to lose their real value over time and their effects both on sustainability of HELP and VSL and potential regressive effects for individuals. Due to the extended nature of the repayment of loans, there is a significant cost to Government, and ultimately to taxpayers, in providing loans at a discounted rate.
2.77
In relation to the minimum repayment threshold, the departments explained that 'because the total value of income contingent loan debt is so large, even comparatively minor changes to repayment thresholds can have a significant cost to the Budget, and therefore taxpayers, in the long term'.
2.78
The departments also set out that the current repayment threshold levels are 'intended to balance equity and financial concerns and encourage students to make repayments where it is not unduly financially burdensome for them to do so'.
2.79
Overall, the departments noted that while they have not attempted to model the potential effects of removing indexation or changing repayment thresholds, they have estimated that cash costs of the bill over the forward estimates would be in the order of $2 billion, and $9 billion for ongoing revenue effects for loans made during that period.
Interaction with the Universities Accord
2.80
In their joint submission to the inquiry, the departments recommended 'taking advantage of the current Universities Accord process and the ongoing National Skills Agreement process to consider any immediate relief for students or long-term policy changes, so the implications for the broader higher education system and social security system can be considered holistically'.
2.81
The department has also previously noted that 'the issue of student debt and what it looks like is certainly under consideration' by the Accord.
2.82
The departments suggested that any changes to the design of HELP, VSL, VFH, SFSS or SSL take place in the context of the Accord and broader skills reforms, which will allow for detailed analysis and modelling to occur so that the full cost of any proposals can be understood. The Department also noted that the Accord also provide an opportunity for wide and deep consultation with the sectors:
This includes, but is not limited to, universities, higher education and VET providers, educators and researchers, students, parents, unions, business, State and Territory governments and groups who have been under-represented in higher education. A key aim of the consultation process will be to ensure the voices of First Nations Australians and people from under-represented groups are heard and reflected in the interim and final report.
2.83
Of the organisations that participated in the committee's inquiry, many confirmed that they are, or are intending to, engage with the Universities Accord process.
Committee view
2.84
The committee thanks all organisations and individuals for their engagement with the inquiry, particularly those individuals who shared their personal experiences with the committee.
2.85
The committee acknowledges that the recent increase in the cost-of-living has had significant impacts for many Australians, particularly those on low incomes, and agrees that measures should be taken to ease the cost-of-living burden on Australians. The committee notes the Government has made substantial investments in reforms to ease cost-of-living pressures, including the Energy Price Relief Plan, and investments in making medicines, early childhood education and TAFE cheaper.
2.86
While the committee agrees that measures should be taken to ease the cost-of-living burden on Australians, it is unclear whether the measures proposed in the bill will achieve this effectively.
2.87
The committee accepts the evidence of some inquiry participants that the removal of indexation from student loans will not ease the cost-of-living for individuals with a loan in the short-term, given that an individual’s repayments are calculated based on the individual’s income, rather than the total amount of the loan.
2.88
In addition, the committee notes that an increase in the minimum repayment threshold may significantly increase the proportion of debt that is not expected to be repaid, in turn impacting the long-term financial sustainability of the loan programs.
2.89
The committee is particularly concerned about the uncosted financial implications of the bill which, according to the departments’ evidence, could be in the order of $2 billion, and $9 billion for ongoing revenue effects.
2.90
However, the committee does support a comprehensive review of the affordability of higher education in Australia. The committee notes the Universities Accord process currently underway, which is looking at access and opportunity as well as investment and affordability of the tertiary education system. In particular, the committee notes that the Universities Accord will explore funding and contribution arrangements that deliver equity, access, quality and longer-term investments to meet priorities in teaching, research, workforce and infrastructure.
2.91
The committee notes the engagement of numerous organisations in the Universities Accord process and encourages all organisations involved in higher education to contribute.
2.92
On balance, given the evidence received, the committee recommends that the bill not be passed and that discussions around the affordability of the higher education system be continued within the Universities Accord process.
2.93
The committee recommends that the Senate not pass the bill.
Senator Tony Sheldon
Chair