Doubtful calculations of doubtful debt

The Department of Education’s annual report is out today, and with it more information on student loan doubtful debt. For 2005-06, they estimate that 19.3% of the debt is doubtful, down from the 20.6% estimate for 2004-05. It may not sound like a big change, but it is equivalent to more than $170 million.

I wish they would tell us more about how these figures are calculated. Since they started calculating the doubtful debt figure it has ranged from a low of 13.5% in 1996-97 to a high of 28.3% in 2003-04. All this suggests that there are going through some fairly major changes in actuarial assumptions, especially as the downward trend in estimates has occurred at the same time as the income threshold for making any repayment increased by more than $10,000, effectively excusing some lower-income people from their debt. My best guess for the cause is higher labour force participation rates, especially for women. But the variability suggests that all the estimates should be viewed sceptically.

Of course, if they took my advice and made more effort to collect from people living overseas and from deceased estates the financial position of the loans scheme would improve still further.