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.