Student loans must be ‘simpler and fairer’, says Universities Accord

The HECS-HELP loan scheme must be ‘modernised to make it simpler and fairer’, Universities Accord tells the Albanese government. Here’s how it would work.

The Universities Accord panel has recommended changes to the HECS and HELP student loan schemes.

Graduates earning $75,000 a year would pay back $1000 a year less in student loans through a “fairer and simpler’’ shake-up of the HECS-HELP system, flagged by federal Education Minister Jason Clare yesterday.

Home buyers would also benefit from the Universities Accord’s call to stop banks counting student debts in loan applications.

Reforms to the Higher Education Loan Program (HELP), previously the Higher Education Contribution Scheme (HECS) – have been recommended by the federal government’s year-long review of higher education.

It calls on the government to cap the indexation of outstanding HECS-HELP debts, which jumped 7.1 per cent last year in line with the highest level of inflation since the 1980s and is on track to rise 5 per cent higher in June.

In a win for homebuyers, it also demands that banks stop treating HELP debts in the same way as credit cards or personal loans when graduates apply for a home loan.

It recommends a review of bank lending practices “to ensure that HELP loans are not like other types of loans and are not treated in a way that unduly limits peoples’ borrowing capacity for loans’’.

“Unless someone earns sufficient income, there is no obligation to repay (HELP debts), and as such they should be treated differently,’’ it states.

The Universities Accord calls on banks to change the way they assess HECS debts for home loans.

The Universities Accord says that high HECS-HELP debts “risks deterring some people from seeking higher education at exactly the time we need growth in participation”.

“Detailed changes have been recommended to reduce the financial burden of repayment on low-income earners, particularly women and those just starting out in their careers, limit disincentives to do additional work, change the timing of indexation to deduct compulsory payments first, and ensure that HELP liabilities do not grow faster than wages,’’ it states.

Nearly 3 million graduates owe the government a total of $78 billion – an average debt of $26,500 each.

Mr Clare yesterday said a graduate earning $75,000 a year would pay back $1000 less each year under the Accord’s changes.

“That’s something that could provide an immediate cost-of-living benefit for people after they finish uni and they’re in the workforce,’’ he said.

Mr Clare refused to commit to the changes, saying the government would “cost and prioritise what we do first’’, and respond “in the next few months’’.

Opposition education spokeswoman Senator Sarah Henderson said there was “no excuse’’ for the government’s “failure to act on escalating student debt driven by Labor’s high inflation’’.

The Accord recommends that interest-free loans be indexed, to ensure debts retain their real value over time – but the annual increases should be capped.

It recommends that debts be indexed to rise in line with wages – pegged to the Wage Price Index, which was 4.2 per cent last year – unless the rate of inflation is lower.

The Accord panel found that high inflation at a time of low wage growth has created “concern for those whose debts are increasing faster than repayments’’.

“A cap will ensure that the indexation of HELP debts no longer outstrips the growth in wages and the servicing capacity of debtors does not go backwards overall,’’ it states.

The Accord also calls on the Australian Taxation Office (ATO) to ensure that any repayments made during the year are deducted from the balance of a student’s outstanding debt before it is indexed in June each year.

Home buyers would benefit if banks stopped treating HECS and HELP debt like credit cards or personal loans, the Universities Accord report reveals.

The review found that some low-income earners – especially women – are deliberately keeping their wages below the repayment threshold for student loans.

HECS-HELP repayments have become “more burdensome’’ for low-income earners over time, the report says.

Graduates have to start repaying their debts once they start earning $51,550 – not much more than the minimum wage.

The report warns this can “create a disincentive to earn additional income, particularly for those who already face high barriers to entering the workforce, such as sole parents and those on income support payments’’.

“The system also creates incentives for debtors to reduce their incomes to avoid repayment, potentially by reducing hours worked or by claiming additional tax deductions against their assessable income,’’ it states.

“This is particularly pronounced for women with HELP debts, who are more likely to be on lower repayment incomes, especially due to part-time work.’’

HECS-HELP loans let students defer the cost of a university degree, by borrowing from the federal government and then repaying the debt through the tax system.

Graduates must pay 1 per cent of their income towards their debt once they start earning $51,550 a year, and repayments rise in line with income to hit 10 per cent of a $151,205 salary.

If debtors remain unemployed or never earn enough money to repay the loan, taxpayers are lumped with the unpaid debt.