Universities Australia, formerly the AVCC, today released a paper suggesting that HELP student loan repayments be securitised.
Versions of this idea have been around for many years. In the past, people in the finance industry have wanted to buy the stream of future repayments from previous HECS debts (now HECS-HELP and FEE-HELP). They would of course have demanded a huge discount on the face value of these debts, because of the risks of slow or non-repayment we have discussed before. For financial and political reasons, previous governments have never agreed to this.
The Universities Australia version gets around the political problem of explaining to the punters that the $13 billion dollars lent to students still outstanding at 30 June 2007 is, on the government’s own estimates, worth only $8.2 billion. It suggests that the government sells bonds in the capital markets to raise money for higher education, and uses the income stream from HELP repayments to finance the interest it would have to pay the bond holders. Money not immediately spent on universities would be put in a Future Fund-like investment scheme, and the returns spent on universities in later years.
This idea neither should nor will go far, for at least the following reasons:
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