Today the Australian National Audit Office released a ‘performance audit’ (pdf) of the Higher Education Loan Program, which supports the three types of student loans: HECS-HELP for Commonwealth-subsidised students, FEE-HELP for full-fee students, and OS-HELP, which helps finance study overseas.
The ANAO’s audit was a box-ticking exercise that found little wrong with the administration of HELP. What’s more concerning, as I argued in my paper on FEE-HELP (pdf) last year, is the overall design of the system, which controls losses by setting arbitrary loan limits, while losing or delaying receipt of lots of money that could be recovered with better policy design.
Publications released since then highlight the problem. The DEST Higher Education Report 2005 stated that 1,121,822 people had a HECS debt as at 30 June 2005. Yet the ATO’s personal income tax report reports only 250,085 persons making a repayment through the taxation system in 2004-05. Where are the other 871,737 people?
More than half of them are still at university. My estimate (there are no exact figures) is that around 460,000 currently enrolled students have a HECS debt, though some of them, especially part-time students, will also be making repayments. The Higher Education Report 2005 records 157,710 debtors overseas or with an invalid or incomplete postcode (ie, they can’t find them). That’s 14% of all HECS debtors, highlighting the importance of the point I made in my paper of implementing measures to recover money from this group. It still leaves, however, about a quarter of a million people unaccounted for.
Comparing the 2004-05 ATO income tax report with its 2003-04 equivalent highlights the significance of raising the annual income threshold (xls) at which HECS repayments start from about $25,000 to around $35,000. It caused the number of people repaying to plummet by 27% between the two years, though with a revenue loss of only 3.6%. This was a useful exercise in showing how many HECS debtors are in the labour market but have modest annual incomes (though part of this will be a quirk of the financial year – people who start full-time work early the following year after completion will record only half their annual salary by 30 June).
This takes us down to about 160,000 people – or about 15% of the total – who are in Australia but either not in the workforce or earning less than $25,000 a year. That’s reasonably consistent with the figures I reported in my graduate labour market paper (pdf) earlier this year on the proportion of graduates out of the workforce or working part-time. Given the major flows in and out of the workforce I also document in that paper this group probably isn’t too much of a concern – most of them will be caught in the tax net at some time.
The 2004-05 ATO report also gives some insight into the earnings (xls) of people repaying HECS. Five HECS debtors reported an income of $1 million or more for 2004-05, 10 of between $500,000 and $1 million and 3,010 of between $100,000 and $500,000. If investors could buy shares in people, as suggested by Joe Clark (pdf), these high-earners would provide the windfall profits that would compensate for those graduates who don’t go on to high salaries.
The largest single group, 56% of all those who made a repayment in 2004-05, had earnings between $35,000 and $50,000, with nearly 40% in the $50,000 to $100,000 range, where we can find the overall average full-time earnings for graduates. But the large number in the $35,000 to $50,000 range highlights that many are slow to make the transition to good graduate earnings. This is partly because, as my over-educated graduates paper showed, because they are not in jobs that receive the labour market premium associated with higher education qualifications.