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Australia¡¯s proposed 20 per cent student debt wipe is unfair

<ÁñÁ«ÊÓƵ class="standfirst">Better to revise the previous government¡¯s tuition fee hikes than redirect taxpayers¡¯ money into wealthy graduates¡¯ pockets, says Maxwell Yong
November 22, 2024
A piggy bank with a mortar board
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There is no doubt that I have greatly benefited from the academic learning, as well as the increase in my earnings potential, conferred by my four-year bachelor of commerce honours degree. As a result, I think it is completely fair that I should have to repay the income-contingent HECS loan I took out to pay for it.

Hence, while I will benefit from it, I don¡¯t approve of the 20 per cent reduction in student debt that the Albanese government has promised if it is re-elected next year. At a price of A$16 billion (?8.3 billion), this sweeping write-off will disproportionately benefit graduates, who typically earn more over their lifetimes than those without degrees. In other words, this is a regressive policy, which will transfer money from taxpayers generally to graduates in particular, many of whom are towards the upper end of the earnings scale.

I note that my degree was already heavily subsidised by the Australian taxpayer because I ¨C along with most other domestic undergraduates ¨C held a Commonwealth Support place. The rationale behind this is that my higher labour productivity post-graduation supports the broader Australian economy through higher output and income taxation revenue, making it a worthwhile investment from the taxpayer¡¯s perspective.

But that doesn¡¯t mean graduates shouldn¡¯t also pay their fair share. I understand the concern about rising HECS debt but the write-off merely sidesteps the real issues driving this. Chief among those is the previous Morrison government¡¯s Job-Ready Graduates programme, which raised fees for some courses, such as those in the humanities, to as high as A$50,000.

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For many students, especially those in fields that typically lead to lower-paying jobs, tuition costs are creating debt loads that are becoming less and less likely to be paid off during their working life. Moreover, my research has shown that the policy didn¡¯t even meet its intended outcomes of shifting students into ¡°job-ready¡± courses, defeating the entire rationale of the fee changes in the first place.

Effective reform would start by addressing inflated and unfair tuition fees across different fields to ensure the HECS system remains manageable. The Universities Accord recommends a shift back to the old structure, whereby fees are aligned to graduates¡¯ expected future earnings. As well as feeling fair, this is also pragmatic because it increases the probability of graduates actually being able to pay off their debt during their working lives. It is important to remember that any unpaid HECS debts are fully written off at death, meaning that the taxpayer ends up footing the bill for those anyway.

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Beyond this, direct government funding to universities could lessen the over-reliance on tuition fees, which are now critical to cross-subsidising research costs. This approach does raise an issue similar to the one surrounding debt relief ¨C namely, it shifts some of the university funding burden on to taxpayers. However, direct funding underpins critical research activities not solely linked to teaching, thereby aligning better with the broader public interest in maintaining Australia¡¯s research capabilities.

An additional consideration is that international student fees currently play a significant role in funding universities. However, this revenue source comes with trade-offs, including increased demand for housing and pressure on immigration systems, leading the Albanese government to impose caps on international enrolment. Ultimately, balancing these factors involves assessing the trade-offs between a taxation-funded model, which can offer stable support for research and teaching, and reliance on international tuition, which introduces broader economic and social complexities.

The 20 per cent debt wipe may be a clever political move, but it risks setting a costly precedent without real long-term benefit. Calling it pork barrelling might be a step too far, but it definitely has a porcine whiff about it. Additionally, I'm not sure younger voters realise they¡¯ll probably end up covering part of the write-off down the line anyway, through higher taxes. A fairer model would rein in tuition inflation and reframe HECS as a manageable, income-based repayment system.

In that regard, the government¡¯s other HECS-HELP changes are more grounded in fairness and common sense. Raising the minimum repayment threshold to A$67,000 will have an immediate impact on middle-income earners, noticeably increasing their take-home pay. The trade-off here is longer repayment times, but in this high-inflation period, that seems like a reasonable trade off for lower cost-of-living pressures.

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Moreover, switching to a marginal repayment model, replacing 18 repayment rates with just two, fixes a flaw in the previous repayment system, whereby it was possible for graduates to reduce their take-home pay by earning an extra A$1 of taxable income because they moved into a higher repayment bracket.

Ultimately, Australia¡¯s higher education system should open doors, not burden students or taxpayers with unsustainable costs. We need to address pressures at the source, not mask them with blanket write-offs that play well in headlines but benefit graduates at the expense of everyone else.

?is an economist and policy researcher currently working with co-authors at the University?of Melbourne on higher education policy.

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