Unpaid debt set to soar as fees rise

December 10, 2004

Australian students owe the Federal Government more than A$11 billion (Pounds 4.4 billion) in deferred tuition fees incurred under the Higher Education Contribution Scheme.

"Doubtful debt", the money the Government does not anticipate being repaid, has soared to almost A$3 billion - about a third of the outstanding amount.

A significant and growing number of students will not pay back any of the money they owe because they either emigrate, never reach the income threshold or die. Some graduates are believed to be avoiding repayment by declaring themselves bankrupt. Doubtful debt is expected to rise when most universities increase Hecs charges next month by up to 25 per cent.

The National Union of Students said the latest figures highlighted students' financial burden. The union claimed that many graduates would see a big portion of their disposable income "disappearing to the tax office" every week for years to come.

The Labor Opposition said that since the Conservative Government of Prime Minister John Howard was elected in 1996, student debt had more than doubled. It would "skyrocket" because of the rise in Hecs fees, a Labor spokeswoman said.

Brendan Nelson, Federal Education Minister, said Hecs had enabled thousands of Australians to enrol in higher education who might not have done so. He said that more than 700,000 students had already repaid A$5 billion through Hecs.

Bruce Chapman, the Australian National University economist who designed the Hecs system 15 years ago, believed the loans would only encourage universities to impose ever-higher fees.

"Some universities may end up charging students far in excess of the costs of providing the course - a situation a long way from the ideal of charges reflecting course costs, student demand and government subsidies," he said.

Professor Chapman urged the Government to impose a cap on the fees universities would be allowed to charge. This could be at the same level as Hecs, so students on the same course would pay the same charge and there would be far less "rent-seeking" behaviour by institutions.

"A A$50,000 limit on loans will restrict access to the poor and represents a major regressive step in higher education financing," Professor Chapman said. "This will diminish access to university of relatively poor prospective students, which was an important motivation behind the design of Hecs."

Hecs allows students to defer their tuition costs until they graduate and are earning more than A$35,000 a year. After a series of higher education reforms that come into effect next year, debt levels will still rise sharply as a result of a second loan system - students who miss out on a Hecs place and are prepared to pay the full course costs can borrow up to A$50,000 in government-backed loans to complete their courses.

Unlike Hecs, however, the loans incur interest. They can be repaid through a tax surcharge on earnings, the same as with Hecs.

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