Problems with cutting student debt

In 2016, it was estimated that around 23 percent ($18 billion) of the total outstanding of $78.2 billion are bad debts that the Commonwealth will never get to collect.

This is a substantial benefit to students, as well as the tertiary institutions that trained them for jobs that couldn't wear the cost of the degree.

Then there is the implicit subsidy in the difference between what students pay the government, versus what they would have to pay a commercial provider.

That figure fluctuates because of the relationship between inflation and borrowing rates, but it would have been $13 billion in 2020, $11 billion in 2021, and in the last financial year it would have been $5 billion.

(For the comparison, I've used figures from the Reserve Bank of Australia for lease rates, so this is a conservative figure. Student debt is essentially a personal loan, so the rate would probably be even higher as there is no asset that can be repossessed.)

Now Mr. Albanese is adding another $3 billion to the cost to the government. This will be a very poor political and economic investment.

There is a novel economic theory, particularly amongst those with student debt, that there is a benefit to the economy from their education, and so they ought to be educated for nothing, at least, and perhaps even be paid for their "services".

The theory takes no account of the fact that there are also positive externalities from the work of people who don't go to university-who often earn less than uni graduates-and are supposed to pay for the graduates' qualifications through their taxes.

The political problem is uni students won't notice a difference

The type of student that mouths this sort of argument is not going to be happy to save only $927.29 from the capital of their loan in say eight years' time, when they pay it off-the position faced by the average student on average weekly earnings once Prime Minister Albanese's policy is implemented.

Chances are they won't really notice the reduction anyway because their repayments won't change, they will still be paying whatever percentage is commensurate with their income, it's just that the loan will be paid off faster.

The treasurer should have stayed the course. He needs to save every bit of money he can. The headline will generate expectations from other groups that they should receive special consideration and tax breaks as well.

If anything he should be looking at how to reduce the Commonwealth's escalating liability on education fees, as students repayments fail to keep up with the rate of increase in the total pool.