Why we should repay our HECS debt when we die

ONE of the biggest beneficiaries of unpaid HECS debt write-offs prove why collecting money from the dead is not as cruel as it sounds.

GENERICS of University of Sydney Students on graduation day.

WHILE the idea of clawing back unpaid HECS debt from the estates of dead people may seem unsavoury to some, it’s not as cruel as it sounds once you know who benefits the most from the current scheme.

The Grattan Institute floated the idea last year and estimated it could bring in $800 million for the government.

The issue has been put back on the table by Federal Education Minister Simon Birmingham who believes a range of controversial measures from the failed higher education reforms should be reconsidered.

In an address to the AFR’s Higher Education Summit, Mr Birmingham indicated he would be looking at old measures, including ending the write-off for HECS loans at death, which former education minister Christopher Pyne ruled out last year.

Grattan higher education program director Andrew Norton recommended the change last year, after analysis found debt being written off was often held by secondary income earners of wealthy households.

Many of those benefiting were women who did not work, or did not return to work fulltime after having children, because their partner was able to support them financially.

Mr Norton said he did not think this was consistent with the original intent of the debt write-off, which was to guard against young people’s estates being pursued for money if they died suddenly in an accident or due to illness.

“Thankfully that is not a common way that people die, most people die in their 70s, but some don’t pay their HECS debt because they have been working part-time and don’t earn enough to reach the $54,000 threshold to start paying,” he said.

More than 20 per cent of higher education debt will never be repaid and Mr Norton said this was benefiting the adult children of these people, not needy groups in the community.

About two thirds of this debt, worth about $800 million, could be recovered if the government sought payment from deceased estates with assets worth more than $100,000, he said.

While Mr Norton acknowledged the threshold would essentially include anyone who owned a home, and recovering the debt could cause hardship for some, he believed these could be considered on a case-by-case basis.

“It’s better than the entire scheme being too generous,” he said.

He said this could also address the issues around older students, who decide to start studying once they retire and are therefore unlikely to earn enough to repay their loans. Some countries like New Zealand have placed an age limit on students wanting to access its university loan scheme but Mr Norton said there was currently no age limit in Australia and introducing one would raise complex issues around age discrimination.

OTHER OPTIONS

Lowering the threshold at which people begin paying back their HECS debt could also be a good idea, Mr Norton said.

Currently the threshold is indexed to average weekly earnings instead of inflation and so it has risen substantially over time. It currently sits around $54,000.

Mr Norton said lowering it to $45,000 would bring it back in line with the level it was 10 years ago, and get more people repaying the money.

This was also important because the HECS scheme has been extended to vocational education students whose wages were typically not as high as university students.

Other changes could involve introducing a lifetime limit on the amount of debt that could be racked up, as some students studied for so long they had no hope of repaying their debt.

Senator Birmingham said higher education was expensive and it had to be paid for by the public purse, direct beneficiaries of that education or a combination of both.

While he did not indicate whether plans to deregulate university fees would proceed, he emphasised the need to ensure everyone had access to institutions.

He said other options that could be worth considering involve raising the interest rate on HECS debt or reviewing the way government subsidies were distributed between courses.

Birmingham also launched a new report that outlines old policy options that he says were worth re-examining.

Originally published as Why we should repay our HECS debt when we die