Australian universities will benefit only peripherally from Canberra¡¯s lavish proposal to forgive A$16 billion (?8.1 billion) of graduate debt, as part of a wider overhaul of student loans.

The Labor government says legislation to authorise the one-off reduction to debt, which would cut 20 per cent from higher education and vocational students¡¯ loan balances, will be the first bill it introduces if it wins next year¡¯s federal election.

The government made the promise a day after announcing that it would adopt an Australian Universities Accord?recommendation?to change the Higher Education Loan Programme (Help), informally known as Hecs. Repayments will be based on ¡°marginal rates¡± rather than graduates¡¯ overall earnings, with debtors only repaying portions of their incomes above the repayment threshold.

The threshold will also be raised from the current A$54,435 to A$67,000 and maintained at around three-quarters of recent higher education graduates¡¯ average full-time earnings. The bewildering array of 18 repayment rates will be replaced with just two ¨C 15 per cent of earnings between A$67,000 and A$124,999, and 17 per cent above A$125,000.

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The marginal system also requires legislation. It would remove perverse incentives from the current repayment arrangements, which discourage graduates from seeking extra work that could reduce their take-home pay by bumping them into higher repayment brackets.

¡°This is about putting money back into your pocket and putting intergenerational equity back into the system,¡± said prime minister Anthony Albanese.

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The changes come on top of the government¡¯s?backdated pledge?to change the indexation of student debt, costing treasury another A$3 billion. Education minister Jason Clare said the new proposals would give some relief to ¡°a lot of young people¡±.

¡°They¡¯re straight out of uni¡­on a low income. They¡¯re paying the bills, trying to save for a mortgage, trying to start a family, and they already have to start paying off their Hecs bill,¡± Mr Clare told?. ¡°This¡­takes the pressure off.¡±

While the proposals would benefit graduates, they will not help universities navigate the?budgetary pressures?from the government¡¯s?international education crackdown.?¡°A higher threshold might attract a handful of mature-age students, who would no longer have to start immediately repaying their Help debt,¡± said Australian National University analyst Andrew Norton. ¡°Apart from that, there¡¯s absolutely nothing in there for unis.¡±

Professor Norton said the debt relief measure would probably cost the government about A$12 billion, because the A$16 billion estimate included money that was ¡°never expected to be repaid anyway. Nevertheless¡­that is a very serious amount of future revenue forgone.¡±

He said arguments to relieve student debt were assisted, within government circles, by the ¡°dodgy¡± accounting of Help which meant major changes to repayment forecasts did not affect calculations of government surpluses or deficits.

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Proposals to increase university funding, by comparison, directly affect the government¡¯s bottom line. Professor Norton said the ¡°genuinely new money¡± recently allocated to universities had been ¡°pretty small¡±, with most reforms financed by ¡°offsets¡± in the education budget.

Improving university funding ¡°is not a priority for the government, despite all the big talk around the accord¡±, he said. About 3 million Help graduates will benefit from debt relief, he pointed out. ¡°A very large number of voters¡­are affected by this. I can totally understand the politics.¡±

The opposition said the government was ¡°picking winners¡± with a relief measure that offered no benefit to the 24 million people without student loans. ¡°All 27 million Australians will pay the price,¡± said shadow treasurer Angus Taylor. ¡°The coalition is deeply sceptical of this policy and will examine which components, if any, we can support.¡±

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Western Sydney University vice-chancellor George Williams said the proposals did not address the ¡°inflated¡± tuition fees at ¡°the root of the debt spiral problem¡±. He said the?A$50,000 price tag?for undergraduate arts degrees was ¡°actively discouraging¡± participation.

¡°The system for setting student fees in the first place is broken and deeply unfair,¡± Professor Williams said. ¡°We need action on all fronts.¡±

Professor Norton predicted looming changes to fees, despite the government¡¯s insistence that the proposed?Australian Tertiary Education Commission?will handle such matters.

¡°Why would they spend vast sums on these two measures and then leave that arts student contribution issue hanging? [It] has given them hundreds of negative media stories over the last couple of years.¡±

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He said the increased threshold would slow down repayments and make it ¡°even less likely¡± that arts graduates would fully discharge their loans. ¡°It reduces the cost to government of fixing it, because more of the debt is basically bad debt anyway.¡±

john.ross@timeshighereducation.com