Student debt starts to bite in Australia

Soaring inflation, fee hikes and changes to repayment rules have made student loans a source of grief for some Australians, denying cash to low-income earners and sentencing graduates to decades of debt.

While inflation is fuelling enterprise bargaining showdowns between universities and their staff, it is also exacerbating students’ poverty through higher rent, food prices and power bills. Things may not improve much after they graduate, as a cocktail of factors elevate the pain point of student borrowing.

One is the consumer price index, which reached a 21-year peak of 5.1 per cent in March and is tipped to hit 7 per cent by December. As a consequence, the Australian Taxation Office increased student loan balances by 3.9 per cent on 1 June – far higher than rises averaging 1.5 per cent over the previous six years.

Another factor is Australia’s sluggish wage growth, which stalled years ago. A third factor is altered repayment arrangements. The earnings threshold at which student loans must be repaid was reduced from about A$56,000 (£32,270) in 2018 to A$46,000 in 2020, although the minimum annual repayment rate has also been cut from 4 per cent of the loan balance to 1 per cent.

A fourth factor is fees, particularly for humanities degrees which more than doubled under the Job-ready Graduates reforms. Australian National University (ANU) policy expert Andrew Norton said students were being “hit twice”, with arts degree fees approaching A$50,000 and subject to higher indexation.

“It is a problem both for the students – because this will be hanging over many of them for decades – and for the government, because there’s a higher risk that it’ll never be repaid. And if it is repaid, it’ll take a very long time. That’s really not in the interests of either party.”

Professor Norton said that the government’s annual costs in running the Higher Education Loan Programme (Help) were projected to more than double to more than A$2 billion between 2020-21 and 2024-25.

Meanwhile, the interplay of wages, taxes, income support and loan repayments will see some students and graduates losing disposable income just when they need it the most.

Former social security department policy adviser David Plunkett said that for a couple of mature students living in rented premises, on a single income and without health insurance, disposable income declined once their earnings exceeded A$48,000 – marginally above the poverty line – and remained depressed until they reached A$64,000.

Mr Plunkett said higher indexation could benefit some students by raising repayment thresholds. But he said that the altered repayment rules had reduced the disposable income of many graduates, particularly couples on combined incomes of more than A$140,000. “[If] your mortgage is stressed out, it places you in a problematic position.”

The Help scheme’s architect, ANU economist Bruce Chapman, said the people facing significant repayments tended to be higher earners with greater capacity to pay. “The system is designed to subsidise low-income people. [Those] who receive no income or [are] under the threshold don’t pay anything.”

Professor Chapman said students should not get “anxious” about repayment changes that would only apply in about a decade, when their earnings had increased considerably. “The humanities [fee] increases are fairly big…but they’ll just add to the period under which people repay. There is no way, in my view, that the inflation adjustment will have any behavioural effects on anybody.”

john.ross@timeshighereducation.com