Labor has promised to slash 20% off all student loan debts if elected, wiping around $16 billion of debt for about 3 million Australians. Under a new system, the remaining debt would be repaid with no compulsory repayments for people earning less than $67,000 a year. Both measures would need parliamentary approval, but is this good policy?
For this week’s Friday Fight, economist Steve Hamilton argues against the policy, and writer Ben Eltham makes the affirmative case.
The now-forgotten Morris Iemma campaigned and won reelection in New South Wales on the slogan “More to do but heading in the right direction”. The sentiment seems to sum up the approach of the Albanese government, which has made a fetish of small-scale and incremental change.
Labor’s proposal to slash student HECS and HELP debts is a recent example. The government says it will cut around $16 billion of education debt accrued by current and former university students — but only if it is reelected.
The government is saying it will slash 20% from the outstanding HECS and HELP debts of more than three million Australians, helping reduce the amount they will need to repay. For a taxpayer with an average student debt of $27,600, this would mean a $5,500 reduction in their total student debt.
The debt reduction will apply to all government-supported student debt, including HECS, HELP, VET student loans, Australian Apprenticeship Support Loans and other student support loans.
The government is also planning to raise the income threshold for debt repayment, meaning student debt repayments won’t kick in until a taxpayer earns $67,000. This will reduce repayments for someone earning $70,000 a year by around $1,300 annually. The increased thresholds will continue up the income scale, helping middle- and high-income earners up to $180,000 a year.
“I will always fight for every young Australian to have access to a good education,” Prime Minister Anthony Albanese told the media this week. “My government will make sure our education system is fairer and affordable for every Australian and we won’t delay unwinding the damage caused by the former Coalition government.”
In recent days, the government has also started hinting that it is going to wind back some of the worst excesses of Job Ready Graduates, which cut student fees for courses like agriculture and nursing, but more than doubled them for courses like arts, business and law. Job Ready Graduates has been a disastrous failure, saddling many undergraduates with life-changing debt, but failing to encourage more students into cheaper degrees.
As happens a lot these days, criticisms have come from both the left and right of politics. The Coalition has argued that debt forgiveness is fiscally irresponsible and unfair to taxpayers who never went to uni. The Greens want a jubilee, abolishing all student debt completely.
The Coalition’s equity criticism has been widely reported in the media. According to the Coalition’s education spokesperson Sarah Henderson, “the people who benefit from this policy will tend to be higher income earners across their lifetime.”
This is true, as far as it goes. In recent decades, jobs growth has been concentrated among university graduates and workers with vocational qualifications; there are far fewer jobs for people with Year 12 or lower attainment. University graduates do tend to earn higher lifetime wages than those with a high school education, although as more school leavers go to university, the income boost from a university degree is fading.
But such arguments ignore the fact that Australia’s income tax system is already progressive. High-income graduates pay more tax than lower-earning non-graduates, in aggregate, precisely because they earn more income. Graduates earning higher incomes also repay their loans faster, and Labor’s changes will retain this progressivity.
It’s hard to take the Coalition’s lines on student loan unfairness seriously. When in government, the Coalition showed few concerns for equity, legislating a raft of stage three tax cuts that flattened the income tax scale and delivered enormous tax cuts to high-income earners. The Coalition also sees no problem with tax subsidies for owners of negatively geared property or fully franked shares.
Leaving aside taxes and transfers, the argument that ordinary taxpayers are unfairly subsidising university graduates relies on the assumption that all the benefits of a university education are private. But universities provide vital public good to Australian society across many dimensions.
A better-educated society is more productive, more innovative and healthier. Ordinary Australians who never went to university benefit from taxpayer funding for higher education every time they are treated by a doctor or a nurse trained here. University graduates deliver many of Australia’s essential services, from health and education to transport, engineering and infrastructure. Indeed, this was the very argument made by the Coalition’s Dan Tehan which he slashed student fees for nursing and agriculture.
The stronger argument against Labor’s student loan forgiveness is that it doesn’t go far enough. When the Hawke government first introduced HECS in the 1980s, it was justified on the grounds that students should make a modest contribution towards the cost of their degrees. That once-modest contribution has now become very expensive indeed, saddling graduates (and worse, those who don’t graduate but still incur student fees) with decades of debt repayments through the prime of their adult lives.
DING! DING! DING! CRIKEY EDITORS DECLARE ELTHAM HAS OFFICIALLY PASSED HIS ALLOCATED WORD COUNT
Slashing one-fifth of student debt is quite significant, but it won’t magically return us to free education. The average graduate is still going to be paying back quite a lot of money every year in loan repayments. Even after these changes, a middle-income graduate on $100,000 a year will be handing the ATO nearly $5,000 a year in student loan repayments — raising their effective marginal tax rate by 5%.
Since 2006, the average HECS/HELP debt for a 20-something has more than doubled. Australia’s public investment in higher education is one of the lowest in the OECD, and students now pay some of the highest university fees in the rich world. Adjusting Australia’s tax and transfer system to reduce the burden of student debt will help alleviate some of that impost.
Labor’s changes will make our increasingly unaffordable university system slightly more affordable, and that’s to be applauded. If the government follows through and reduces the massive student fee hikes levied by Job-Ready Graduates, the prime minister’s rhetoric of a fairer and affordable education system might even start to resonate with younger voters.
Read the opposing argument by Steven Hamilton.
