Extract from The Guardian
Australian government’s proposed higher education changes could hit those already in the workforce
- Daniel Hurst, political correspondent
Australians who finished university courses five years ago face an
extra $2,000 to $5,000 in interest payments on their student loans as a
result of government changes, new modelling shows.
Most of the federal government’s higher education proposals will affect only new students, but increases to the interest rate on higher education loan program (Help) debts will hit students and graduates already in the workforce.
From June 2016 the government plans to charge interest on debts at the 10-year bond rate up to a cap of 6%, rather than indexing the loan at the consumer price index (currently 2.9%).
New modelling showing graduates who are already in the workforce will pay thousands of dollars extra as a result.
A science graduate who had a starting debt of $34,400 under the existing system and had been in the workforce for five years at the time of the change would face an additional interest bill of $4,600, according to figures calculated by the Greens.
A nursing graduate who had a starting debt of $18,000 would have to pay an extra $2,201 and an arts graduate with a similar starting debt faces an extra bill of $3,600.
In the case of a law graduate with a starting debt of $49,000, the extra interest would be $7,700, according to the modelling.
The scenarios assume an interest rate 2% above inflation will begin five years after the graduates had entered the workforce. The modelling takes into account the average starting salaries for each occupation and assumes annual pay rises of 2% above inflation.
The Greens’ spokeswoman on higher education, Lee Rhiannon, said the government’s proposal was “akin to a bank charging you a variable interest rate when you signed up for a fixed rate”.
“The one million Australians who have finished university and are currently saddled with a Hecs [Higher Education Contributions Scheme] debt will feel absolutely misled by the Abbott government’s policies to change the terms of their loan agreement,” she said.
“Lower income graduates and working women who take time off from the workforce to raise a family will be the hardest hit by these changes.”
Combined with a lowering of the minimum repayment threshold, the interest rate changes are expected to deliver $3.2bn to the budget over four years.
The financial impact on individual graduates will vary depending on their level of starting debt and how much they have already paid off.
The education minister, Christopher Pyne, has rebuffed criticism of the interest rate changes by saying the student loan terms remained generous compared with a commercial loan.
Pyne told parliament: “Imagine going to the bank and saying to the bank manager, ‘I'd like to borrow a credit card for $16,800’ – which is the average Hecs debt in 2012 – 'but there are a few conditions that I am going to put on this loan. I'm not going to pay it back at greater than the 10-year government bond rate, I'm not going to start paying it back until I earn over $50,000 a year, and I'm only going to pay back 2% of my income.'
“The bank manager would look askance at the customer, but that is exactly what the taxpayer provides right now for students at universities around Australia … It is the best loan that a student will ever get.”
The Education Department has updated its website to make clear that former students will be among those affected by the changes to Help, beginning with the indexation of debts on 1 June 2016.
The other major elements of the higher education reforms – the deregulation of university fees and the reduction in the commonwealth contribution from January 2016 – apply only to new students.
The government faces a difficult task in securing Senate approval for the higher education changes, with Labor, the Greens and the Palmer United party all signalling their opposition.
University vice-chancellors told Guardian Australia last week they had serious concerns about elements of the reforms including the prospect of students being saddled with higher debts.
Most of the federal government’s higher education proposals will affect only new students, but increases to the interest rate on higher education loan program (Help) debts will hit students and graduates already in the workforce.
From June 2016 the government plans to charge interest on debts at the 10-year bond rate up to a cap of 6%, rather than indexing the loan at the consumer price index (currently 2.9%).
New modelling showing graduates who are already in the workforce will pay thousands of dollars extra as a result.
A science graduate who had a starting debt of $34,400 under the existing system and had been in the workforce for five years at the time of the change would face an additional interest bill of $4,600, according to figures calculated by the Greens.
A nursing graduate who had a starting debt of $18,000 would have to pay an extra $2,201 and an arts graduate with a similar starting debt faces an extra bill of $3,600.
In the case of a law graduate with a starting debt of $49,000, the extra interest would be $7,700, according to the modelling.
The scenarios assume an interest rate 2% above inflation will begin five years after the graduates had entered the workforce. The modelling takes into account the average starting salaries for each occupation and assumes annual pay rises of 2% above inflation.
The Greens’ spokeswoman on higher education, Lee Rhiannon, said the government’s proposal was “akin to a bank charging you a variable interest rate when you signed up for a fixed rate”.
“The one million Australians who have finished university and are currently saddled with a Hecs [Higher Education Contributions Scheme] debt will feel absolutely misled by the Abbott government’s policies to change the terms of their loan agreement,” she said.
“Lower income graduates and working women who take time off from the workforce to raise a family will be the hardest hit by these changes.”
Combined with a lowering of the minimum repayment threshold, the interest rate changes are expected to deliver $3.2bn to the budget over four years.
The financial impact on individual graduates will vary depending on their level of starting debt and how much they have already paid off.
The education minister, Christopher Pyne, has rebuffed criticism of the interest rate changes by saying the student loan terms remained generous compared with a commercial loan.
Pyne told parliament: “Imagine going to the bank and saying to the bank manager, ‘I'd like to borrow a credit card for $16,800’ – which is the average Hecs debt in 2012 – 'but there are a few conditions that I am going to put on this loan. I'm not going to pay it back at greater than the 10-year government bond rate, I'm not going to start paying it back until I earn over $50,000 a year, and I'm only going to pay back 2% of my income.'
“The bank manager would look askance at the customer, but that is exactly what the taxpayer provides right now for students at universities around Australia … It is the best loan that a student will ever get.”
The Education Department has updated its website to make clear that former students will be among those affected by the changes to Help, beginning with the indexation of debts on 1 June 2016.
The other major elements of the higher education reforms – the deregulation of university fees and the reduction in the commonwealth contribution from January 2016 – apply only to new students.
The government faces a difficult task in securing Senate approval for the higher education changes, with Labor, the Greens and the Palmer United party all signalling their opposition.
University vice-chancellors told Guardian Australia last week they had serious concerns about elements of the reforms including the prospect of students being saddled with higher debts.
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