Our incoherent HELP loan scheme

The government today introduced its legislation to increase the undergraduate FEE-HELP debt surcharge from 20% to 25%. For example, under the current system an undergraduate who borrowed $10,000 under FEE-HELP would incur a debt of $12,000. From 1 July 2010, if this legislation passes, they would incur a debt of $12,500.

I think we need to look at the cost and coherence of the HELP student loan system. There is possibly a case for increasing the surcharge. However, in the absence of a broader review I believe the Coalition should vote against this ad hoc and arbitrary measure.

As I pointed out when this idea was first raised, this targets most of the higher education providers offering students a second chance – the TAFEs and private feeder colleges (given the migration reforms announced on Monday, the non-public university education sector could be forgiven for thinking that this government is trying to put them out of business).

The one second-chance provider that escapes the net is Open Universities Australia, where there is no debt surcharge. I’m doing a unit at OUA this semester (not that I need a second chance, just that anyone can enrol with mostly no prerequisites), and I took out a FEE-HELP loan even though I could easily have afforded to pay up-front. It costs me nothing – while the struggletown kid going to TAFE pays an extra 25%.

There are two other HELP loans that cost students nothing. OS-HELP, which finances study overseas, has recently had its debt surcharge abolished. OS-HELP is presumably most likely to be taken out by the kids from affluent families who can finance a semester abroad (no need to work continuously, for example).

FEE-HELP for postgraduates is also surcharge free, even though many postgraduates are likely to have earnings and should be encouraged to pay up-front.

The government’s justification for the undergraduate/postgraduate distinction is that:

Undergraduate courses are longer in duration and the loan incurred may be substantially higher, taking longer to repay based on the income-contingent nature of HELP loans.

Undergraduate courses are typically longer, but what matters is the total HELP debt actually incurred. Students who go onto FEE-HELP courses while they still have a HECS-HELP debt will have larger overall HELP debts than students who just do one undergraduate FEE-HELP course. And there are $50,000 MBAs that are more expensive than full-fee undergraduate courses.

If there are concerns about the interest subsidy cost of large debts, the surcharge should be adjusted to the total existing HELP debt, rather than being based on undergraduate/postgraduate distinctions that entrench unfair anomalies in the system.

7 Responses to “Our incoherent HELP loan scheme

  • 1
    Dave Guerin
    February 10th, 2010 11:30

    Good post. In NZ we now have zero interest on all student loans, which is not only a bad idea economically, but it greatly increases the cost for any new places – the govt not only pays tuition subsidies to the provider but it immediately writes off a large part of the loans to students for fees and living costs. This makes it difficult for the govt to even encourage providers to take on unfunded students (which is viable for providers when enrolments are high during the recession) , as the govt still has a high cost to bear for loan writeoffs.

  • 2
    Rationalist
    February 10th, 2010 16:28

    I pay up front so I will not be affected by this. I have no sympathy for the middle class kids doing arts or humanities degrees on mummy and daddy’s expense but if you are and going to TAFE and doing vocational education judged to be needed in the economy the surcharge should be low or 0.

  • 3
    conrad
    February 11th, 2010 04:13

    “I have no sympathy for the middle class kids doing arts or humanities degrees on mummy and daddy’s expense but if you are and going to TAFE and doing vocational education judged to be needed in the economy the surcharge should be low or 0″
    .
    Unfortunately, I doubt people not doing engineering probably don’t have any sympathy for you!
    .
    This idea that there are only a small number of useful degrees is surely incorrect and based on the incorrect assumption that all we need is engineers and a few science people — which is basically how the Chinese university works (although changing slowly), the product of which is a massive oversupply of engineers. This of course is not surprising because most jobs are not for engineers and the small number of stereotyped jobs that come to people’s minds when they think of what people do.

  • 4
    Tinos
    February 11th, 2010 04:41

    It seems a step in the right direction. That is, removing subsidies. OUA looks alright, might look into it one day (@ UQ now)!

  • 5
    Sites of interest at Catallaxy Files
    February 12th, 2010 06:12

    [...] Andrew Norton on the incoherent student loan scheme. [...]

  • 6
    alanc
    February 13th, 2010 18:50

    Andrew, interesting to read that you’ve enrolled via OUA. As it happens, I’m currently working there (btw, not in a position that gives me access to student records), and I’d be interested to hear about your experience. Email me off-blog, if you’re amenable.

  • 7
    Ron
    March 9th, 2010 19:00

    A 20% fee is outrageous. Increasing it to 25% is ridiculously unfair. I’m not studying, but would encourage anyone affected by this price hike to write to your senator and persuade them to vote it down. Personally, I can’t see the point in having a loan fee at all. Education is a right. This fee is making it increasingly possible only for the privileged.