HECS projected to hit $42bn

SNOWBALLING debt could alienate students and challenge the bottom line of future budgets, with predictions it will hit $42bn.

SNOWBALLING debt could alienate students and challenge the bottom line of future budgets, with debts from just one year expected to exceed those accumulated over the first 20 years of the HECS scheme.

Budget papers predict that students will owe the government $42.1 billion by the end of the forward estimates in 2016-17. Last year’s projection, for 2015-16, was $30.6bn.

This means HECS debt will accrue by $11.5bn in 2016-17, more than the $11bn in outstanding loans accumulated between 1989, when HECS was introduced, and mid-2009.

The projected debt bubble has more than tripled in five years. The current outstanding borrowings, originally projected at $13bn, have already blown out to $22.3bn.

Budget papers attribute the growth to increasing enrolments, mainly because of the uncapping of university places last year, and new HECS-style loans for vocational courses. However experts said it had been exacerbated by recent funding cuts, including measures in Tuesday’s budget.

Andrew Norton, higher education director with the Grattan Institute, said the elimination of the discount for upfront payment of university fees would lead more students to take out HECS loans. The conversion of income support scholarships into loans would also add to the projected debt, as would the 2011 abolition of a HECS discount for science and maths students.

“This has cumulative effects because these people won’t start repaying for some years,” Mr Norton said. “Every year all their debt is being added to the total, and none is being repaid. It compounds each year.”

Swinburne University adviser Andrew Dempster said the ballooning debt bubble showed how costs were being shifted to students, maintaining a trend that began with HECS’s introduction.

“Students now contribute around 40 per cent of the cost of their degree but the signs are increasingly that they will pay more. At some point higher student debt will become a disincentive to study, and that will work against the next generation of graduates.”

Money owed by graduates constitutes a growing share of government “asset”. Mr Dempster estimated that it had reached 6 per cent, and this would increase to 9 per cent by the end of the forward estimates.

Mr Norton said governments had to borrow to finance student loans, and this was not helping them balance the budget. “It’s still cheaper than paying it out as a grant, but the bigger this number gets, the more this becomes a public policy issue.”

University of NSW economist Tim Harcourt said he didn’t expect HECS costs to jeopardise future budget surpluses. He said governments would be able to meet the burgeoning cost of student loans through structural measures such as curbing middle class welfare.

But Mr Harcourt said the government needed to find ways of preventing HECS debt from snowballing too much.
HECS architect Bruce Chapman said there were relatively easy ways to boost repayments, such as collecting them from graduates living overseas – a measure he estimated would recover at least $30 million a year.

A spokesman for Tertiary Education Minister Craig Emerson estimated that “only around 1 per cent” of new loans risked not being recovered because borrowers moved abroad.