To extend student loans we must reduce student debt

In the Doubtful Debt report, we suggest ways of reducing HELP's costs while still protecting students from financial hardship.

The quickest way of reducing doubtful debt would be cutting the income threshold for repayment, but the report recommends caution on this idea. When the threshold was slashed in 1997-98, demand for university education from mature age people fell. Many of them work already and would have to repay while still studying. That conflicts with the goal of HELP encouraging people to study.

The threshold was increased in 2004, but the report suggests that it could be indexed to the consumer price index instead of increases in average weekly earnings. This would slow its rate of growth, and over time more people would make repayments.

Some HELP doubtful debt is caused by people living overseas. The report recommends a flat annual HELP repayment for people outside Australia, but on its own this would not make a major difference to doubtful debt. Most overseas HELP debtors eventually return and repay.

The change that would make the biggest financial difference is ending the current practice of writing off HELP debt in deceased estates. Almost all other debts, including those owed to the government, must be paid from the estate.

Most people who die without fully repaying their HELP debt will do so in their sixties, seventies or eighties. Although their personal incomes will not have been high enough to trigger repayment of all their student debt, this does not mean that they were poor. Many of them will have been in high income households. About 40 per cent of partnered female graduates earning less than threshold have partners who earn $100,000 a year or more.

The main beneficiaries of the HELP deceased estate write-off are likely to be the adult children of HELP debtors. This makes the write-off very poorly targeted social policy. If HELP was repaid from all estates worth $100,000 or more it would focus expenditure on families that are more likely to be genuinely needy.

If HELP doubtful debt costs can be controlled, there would be more scope for new uses for income contingent loans. Under current repayment policies, the level of doubtful debt suggests that governments should be very cautious about lending students larger amounts of money.