No privatisation of HECS debt: Hockey

THE federal government has hosed down speculation that it plans to sell off $23 billion in accumulated HECS debt.

Joe Hockey

THE federal government has hosed down speculation that it plans to privatise student debt, following claims that the right to recoup loans worth about $23 billion may be "sold off" to the private sector.

The West Australian yesterday reported that the government was considering converting accumulated HECS debt into securities to be sold to investors. The proposal had won support in financial circles and was to be examined by the commission of audit to be announced soon by Treasurer Joe Hockey.

Mr Hockey’s spokesman would not comment on the commission of audit’s deliberations, but said the proposal was “not current Coalition policy”.

However the snowballing debt, which is predicted to climb past $42bn in four years, is likely to attract the audit’s attention. The amount of outstanding debt will increase more in 2016-17 than in the first 20 years of the scheme’s existence.

HECS architect Bruce Chapman said “securitising” the HECS debt would make no difference to students. “It’s really about when governments want the money,” said Professor Chapman, an economist with the Crawford School of Public Policy at the Australian National University.

“If they sell the debt, they’ll have to sell it in a way that will be profitable to the commercial institution that purchases it. They’ll get the money now, but in the longer term they’ll get less.”

However, Professor Chapman said it was important not to change the key features of the loans scheme, with debts collected through the tax office after graduates’ incomes reached a certain threshold.

Fellow ANU economist Glenn Withers, who proposed securitisation of the HECS debt when he was head of peak body Universities Australia in 2008, said it was a sensible idea. It would give investors access to a “long-dated low-risk bond asset” while making money available for immediate spending.

“It’s not the same as raising debt, because the debt is already there,” he said.

While Professor Withers acknowledged this was “accounting games”, it was preferable to full privatisation of the HECS debt, which would force the government to cede control of the collection methods and terms of repayment.

You’d soon have pressure from the private sector to alter the terms and conditions,” he said.

Greens higher education spokeswoman Lee Rhiannon said shifting HECS into private hands would create “perverse incentives” to raise student debt. “The private sector isn’t lobbying for this change out of the goodness of their hearts,” Senator Rhiannon said.

Swinburne University policy analyst Andrew Dempster tweeted that privatisation of HECS debt would “generate plenty of heat”, but the government had other options to rein in unpaid HECS debt.

One was to establish bilateral agreements to recoup loans from graduates living overseas. Over a million Australians who work abroad can currently avoid repaying HECS, Mr Dempster said.