Unsurprisingly, HELP, formerly known as HECS, is starting to attract political attention. Education minister Christopher Pyne has said that the Commission of Audit, which is currently looking for savings in the federal budget, is going to look into whether “securitising” this debt would be better than leaving it on the government’s books.
HELP does have financial problems, but securitisation – selling the rights to future income streams from student repayments – does not of itself solve them. The danger is that it could create additional political problems that make reforming HELP harder.
HELP has two main financial issues, high doubtful debt and interest subsidies. The budget papers estimate that 19% of new HELP debt will not be repaid. There are interest subsidies because the government indexes HELP debt at inflation, but itself borrows at higher rates. As a result of the issues, the estimated market value of HELP debt is much less than its face value.
The $26 billion HELP debtors owed in 2012 is written down to $19 billion in the government’s balance sheet.
As these numbers imply, HELP is generous to students and former students. They don’t pay anything unless they earn at or above $51,309 a year, and this threshold is increasing in real terms as it is linked to average weekly earnings. If HELP debtors go overseas they don’t pay anything, and the debt is written off if they die. No other publicly available loan has such soft terms.
Put in annual terms, HELP’s costs are estimated to be $1.7 billion a year by 2016-17, equivalent to nearly a quarter of what the government expects to spend on tuition subsidies. The higher education cuts announced by the former government earlier this year that caused so much angst in the sector would be unnecessary if HELP’s costs were brought down.
The cost of HELP is also a potential obstacle to further uses for income-contingent loans. The Universities Australia student finances survey found that most full-time undergraduates would be interested in a HECS-like loan for living expenses.
In principle this is a good idea, but aside from it directly replacing Youth Allowance – as is happening with the Start-up Scholarship – it is hard to see the government agreeing to it on HELP’s current arrangements.