HELPless taxpayers ripped off

About a year ago, I called the ATO. Unlike most people who call the ATO, I was hoping I could pay them some money – albeit not because I wanted to give the ATO revenue, but in order to make a political point about the absurdities of the HELP loan scheme.

This is the interaction between the bonus for repaying ‘early’ (to be cut from 10% to 5% as a result of the Budget) and the arrangements for FEE-HELP applying to students who enrol through Open Universities Australia (as I had) and postgraduates. Undergraduates taking out FEE-HELP loans have to pay a 25% debt surcharge/loan fee, but OUA and postgraduate students do not.

The incentive that creates, of course, is to take out a FEE-HELP loan whether you need it or not and then repay ‘early’ and get the bonus. For people like me, rather than this being a bonus for repaying early, it is a discount for paying late.

Last year when I rang the ATO they couldn’t help. In late April 2010, they had no record of a debt incurred earlier that year. Yesterday, 15 months after I first enrolled, I rang the ATO again. This time they did have a record of my semester 1 2010 HELP debt, though not of the two subsequent debts incurred later than year. The very helpful lady I spoke to told me that with my bonus for ‘early’ repayment I could clear my $895 debt for $813, giving me a saving of $82. I transferred my payment last night.

The reason I was keen to pay now was that otherwise my debt would be indexed on 1 June. If that happened, the ATO would recover a good proportion of the estimated $58 in interest I have cost the government since my debt was first incurred (the actuary’s report on the HELP debt assumes 5.2% interest).

So all up I have transferred about $140 in costs to my fellow taxpayers – not counting the $1,800 or so I still owe but the ATO doesn’t know about yet. Admittedly as I have had the money sitting in an interest-bearing account all this time they will recover some of it via income tax, but as a matter of principle I should not be allowed to do what I have just done.

A debt surcharge/loan fee should be imposed on OUA and postgraduate students. And how hard could it really be to start charging interest on a loan as soon as it is taken out? Every credit institution in the country manages to do it, so I don’t see why it should be beyond DEEWR/the ATO.

19 Responses to “HELPless taxpayers ripped off

  • 1
    Rajat Sood
    May 18th, 2011 13:38

    Andrew, I’m glad you didn’t have any moral scruples about taking advantage of a tax absurdity/loophole. It makes me feel better about claiming ‘independent’ Austudy when I was living at home at the age of 23.

  • 2
    Andrew Norton
    May 18th, 2011 13:55

    Rajat – I never stooped that low:) Am I the only classical liberal who has never been on welfare?

  • 3
    Rajat Sood
    May 18th, 2011 15:32

    I figured I would pay more than enough tax eventually, which has proved correct! Surely you won’t refuse the pension when you get to a ripe age?

  • 4
    Andrew Norton
    May 18th, 2011 15:43

    Yes, we will both end up big net contributors to the welfare state. I am hoping I will have saved enough not to have to live on the pension. Retirement will be miserable enough without having to live on subsistence income, desperately hoping that the government will come and fix my tv…

  • 5
    Rajat Sood
    May 18th, 2011 16:07

    Unless you have > $668k in savings (in today’s money), you would be entitled to at least a part pension. See <a href=";.here.

  • 6
    May 19th, 2011 06:21

    He may be eligible by Today’s standards, but it’s debatable whether the aged pension will still exist in Today’s form by the time he retires. I have a strong suspicion that the aged pension in particular, but also the welfare state in general, is unsustainable, and will be rolled-back in a major way during my life-span.

    Re: Classical Liberals and Welfare: I received Youth Allowance for four and a half years from 16-20 (when I graduated Uni), but I choose not to receive unemployment benefits after that which was great. Graduating Uni was good, but “graduating” from Centrelink was even better. I then spent the next 8 months looking for a full time job, but only being able to get little pieces of part-time work, which put my determination not to go back on welfare to the test. (Luckily my family where willing to loan me a couple of hundred dollars for a few times when I had trouble paying the rent) This experience (and the guilt over receiving property that was taken from others with the threat of force) was a major factor in my move towards Classical Liberalism.

  • 7
    Andrew Norton
    May 19th, 2011 06:45

    Tim – Excellent, a repentant welfare recipient! As for the aged pension, I’m not sure about that. The elderly are only going to grow in number which will give them huge political power. And unlike other big welfare state bills – such as family payments – the client group will often have few adequate alternative sources of income. I think an increasing retirement age is quite plausible (indeed, it is already going up a little) but am less convinced about lower future benefits for those who are retired.

  • 8
    May 19th, 2011 13:46

    I still think you’re thinking about this the wrong way. You’re not getting an $82 discount – you’re paying $813 !! – which is $813 more than any baby boomer ever paid for their education !

    There’s also plenty of other good schemes going round – not just installing set-top boxes, school halls or green house credit checks either. There’s this beaut scheme where they subside you to put in solar power. Well, they don’t actually subsise the installation, they subsidise the feed-in tarriffs 9what you get for the electricity). it’s so generous, and what you do is get a few like minded mates in the neighbourhood, do a bulk buy on this installation. The estimates for this mate is a set-up cost of $6K with $2K per annum in personal tarriff revenue for in perpetuity! Unbelievable. My friends in the Catonese-speaking community are all over it ! So why shouldn’t I????

  • 9
    May 19th, 2011 17:10

    Really? Postgrad students don’t have to pay any charge on a FEE-HELP loan? And then they can repay early and effectively get a discount on their tuition fees? Awesome, something to keep in mind!

  • 10
    May 19th, 2011 17:10

    Oh wait, PhD’s are free in Australia anyway. No tuition fee.

  • 11
    Andrew Norton
    May 19th, 2011 18:12

    Sukrit – It applies to postgraduate coursework. Nearly $400 million was borrowed by postgraduates in 2009.

  • 12
    Sinclair Davidson
    May 19th, 2011 19:04

    Sukrit – PhDs are not ‘free’. Universities offer all sorts of scholarships and the like, but if you don’t qualify for one of those – and in some years the competition can be quite stiff – you get to pay fees.

  • 13
    Andrew Norton
    May 19th, 2011 20:21

    In practice, almost all domestic PhDs are free, 96% in 2009. You would have to be unlucky to miss out having met the academic requirements. Getting a scholarship that gives you an income is harder.

  • 14
    May 20th, 2011 05:13

    “In practice, almost all domestic PhDs are free, 96% in 2009”
    This will certainly change at the end of PhDs — some places now force students to pay once they go over time, which very large numbers historically have.

  • 15
    Sinclair Davidson
    May 20th, 2011 05:41

    Two points – that is the ex post observation and domestic PhDs are a small component of the market. In my experience the ‘free’ PhDs dominate in science where pathways are fewer and cleaner.

  • 16
    Andrew Norton
    May 20th, 2011 11:26

    2009 numbers – about 20,000 domestic EFTSL under Research Training Scheme, about 2,000 under other fee waivers, and about 800 fee payers. About 9,000 internationals.

  • 17
    Sinclair Davidson
    May 21st, 2011 13:45

    Those numbers don’t reflect my experiences.

  • 18
    May 23rd, 2011 22:31

    In practice, almost all domestic PhDs are free

    Pay peanuts get monkeys.

  • 19
    Sinclair Davidson
    May 24th, 2011 07:11

    There must be a very strong discipline effect in the data – the front page of the Fin Review higher education supplement yesterday was a reflection of my experiences.