Higher Education Contribution Scheme (HECS) Debt

Eashwar AlagappanS4435560

Introduction to Problem• The Issue: Unpaid loans are predicted to exceed 70 billion dollars by

2017, with 25% never being repaid

What is HECS2015-2016 repayment rates

2015-2016 Repayment threshold Repayment % rate

Below $54,126 Nil

$54,126 - $60,292 4.0%

$60,293 - $66,456 4.5%

$66,457 - $69,949 5.0%

$69,950 - $75,190 5.5%

$75,191 - $81,432 6.0%

$81,433 - $85,718 6.5%

$85,719 - $94,331 7.0%

$94,332 - $100,519 7.5%

$100,520 and above 8.0%

What is HECSStudent contribution band 2016 Student annual contribution range

(per EFTSL)

Band 3: Law, dentistry, medicine, veterinary science, accounting, administration, economics, commerce $0 - $10,440

Band 2: Computing, built environment, other health, allied health, engineering, surveying, agriculture, mathematics, statistics, science

$0 - $8,917

Band 1: Humanities, behavioural science, social studies, education (see Notes), clinical psychology, foreign languages, visual and performing arts, nursing (see Notes)

$0 – $6,256

Why it is a problem

• Over-claiming deductions • Falsely declaring income • Debt not reclaimed from estates of deceased• Overseas graduates not repaying debt• Unscrupulous vocational education providers enrolling too many

student who don’t complete their qualifications

Why this is an important economic issue• Higher debt relative to GDP affects long run economic growth

• Opportunity cost to spend on other sectors of the economy such as Healthcare• National debt impacts foreign exchange rates

Spending on health goods and services 2009-10

What is currently being done• Stronger measures to force graduates who move overseas to repay

debt since 1st Jan 2016.• Tax Information data sharing with other countries• Must register with ATO when moving overseas >6 months

• Estimated loses from overseas graduates up to $30million per annum• There is no penalty for failing to register with the ATO

What is currently being done• Voluntary repayments of $500 or more receives bonus of 5% credit.• This bonus will be removed from 1 Jan 2017

My Solution : Increase credit offered from voluntary repayment scheme• Encourage earlier repayment of loans• Average time to start repaying is 5.1 years.• There is no real interest charged.• Indexed each year to reflect changes in CPI.• Govt suffers loss in opportunity cost

My Solution : Recover debt from deceased• Political considerations of appearing cruel can be mitigated.• Minimum age and estate value to recover debt from the deceased• Measures to not cause the vulnerable to suffer further

• Tony Abbott : “HECS debt are that they cease, they cease on decease, as it were” (May 2014)

My Solution: Lower threshold amount, lower initial percentage paid• Grattan Institute report recommends lowering initial threshold from

$54,126 to $42,000, saves at least $500 million a year.

• Opposed by the Greens, “incredibly difficult for new graduates earning less than the current threshold to save for big life decisions such as purchasing a house…” (Senator Robert Simms)

• Opposed by Labor: “women, lower income earners, people in part-time work and recently graduated young people who would be paying more, sooner”. (Sharon Bird, Member HOR)

My Solution: Reduce HECS loans offered to under-performing degrees• Determined by mean graduate salary and previous debt repayment

compliance rates.• Vocational Institutions have exploited HECS loans to recruit large numbers of

students with low income prospects.• VET Fee-Help numbers rose from ~ 55k in 2012 to ~ 203k in 2014, value of

loans from $325m to $1.76bn.

• Highly controversial measure• Discourages students from pursuing important but under-paying degrees (E.g.

Nursing)• Education has positive externalities.

References• https://www.theguardian.com/australia-news/2016/jan/01/graduates-who-move-overseas-to-be-forced-to-pay-back-student-debts

• http://theconversation.com/use-super-contributions-to-repay-student-loans-40759

• http://studyassist.gov.au/sites/studyassist/payingbackmyloan/loan-repayment/pages/loan-repayment

• https://www.hrblock.com.au/assets/tax-guide-photos/_resampled/SetWidth768-shutterstock-127820834-620x405.jpg

• http://www.theaustralian.com.au/higher-education/runaway-loans-students-set-to-owe-70bn/news-story/c3038c23a946d49a34a72b32b0524876

• http://www.abc.net.au/news/2015-11-09/senate-passes-legislation-requiring-expats-to-repay-hecs-debts/6925936

• http://singhstation.net/2014/05/education-minister-suggests-collecting-hecs-debts-dead-students/

• http://www.purefx.co.uk/help-centre/daily-market-commentary/view/how-does-national-debt-affect-the-foreign-exchange-rate

• http://www.aussiebushadventures.com.au/blog.php?id=73