“Third, this completely over-turns the original idea behind HECS, which was to *reduce* the long-term cost of higher education to taxpayers.”

On the contrary, the original idea, under Labor, was to finance the necessary expansion of the higher education sector without an excessive additional burden on taxpayers. Among the Howard government’s many policy failures, cuts to public investment in higher education stand out as among the worst. The proposed policy will, rightly, reverse this.

It may be the case that the government could get a better return on the money invested in student loans by securitisation; that it will borrow at modest rates from risk-averse investors and make more by investing that cash in more lucrative investments. (Though there are other objections to this kind of backdoor nationalisation.)

But that is completely separate from saying that the money should be given to universities. The HELP repayment stream is, as I noted, effectively an abitrary amount - as usual, the unviersities have provided no evidence whatsover that they should be given this sum of money.

Arguably, the government presently faces a conflict of interest as the holder of HECS debts as well as the higher-ed policy-maker, because it gains from reductions in repayment thresholds or increases in the interest rate (express or implied) on HECS debt. This is convenient for people like me who believe that (HECS) students should pay more than they do, but it is similar to the conflicts of interest that the government faces elsewhere as market participant and regulator. As for the sale proceeds, they could be put in the FF, invested in higher-ed or returned in tax cuts - that is a separate policy question.

It is true that selling HECS bonds on the market, which would include the Future Fund, would mean that the government may be effectively ‘lending to itself’. But the difference is that (I assume) the FF will assess the investment like any other and buy the bonds if they fit within their overall investment strategy. Presently, the government is heavily exposed to the repayment behaviour of ex-students, just like it was (and still is to some extent) over-exposed to Telstra’s financial performance.

The issue about increasing the long-term cost of funding higher-ed to taxpayers is very similar to the “retention value” argument that frequently bedevils regular privatisations. John Quiggin has been a major exponent of this idea and it is, I think, currently being pushed by Nick Gruen on behalf of Unions NSW wrt the NSW energy privatisations. The idea is that because the expected revenues from public assets (whether energy businesses or HECS debts) are higher than the interest on the debt repaid as a result of the privatisation, the government should not sell the relevant asset. On this basis, of course, the government would own and run everything. My point is that selling HECS debts would crystallise and make transparent the true cost of providing HECS loans. This may be used as an excuse for Treasury to oppose additional funding, but so does every replacement of distortions (eg tariffs) with cash transfer payments.

I think your fifth concern arises from how money flows are handled. To my mind, student repayments should go straight to the bond holders. Government funding of universities for HECS students could be dealt with separately.

I won’t even try to address your sixth point!

One last thing - I’m no Warren Buffett, but present financial market conditions suggest to me that it is precisely the wrong time to be implementing something like this - the debt would probably sell for a lot less than $8.2b.