- Unpaid HECS (Higher Education Contribution Scheme) student loan debt in Australia is predicted to exceed $70 billion by 2017, with 25% expected to never be repaid. The growing debt poses economic issues for Australia. - Current measures aim to increase repayment rates, such as requiring Australians living overseas to register with the tax office and repay loans. However, there is no penalty for failing to register. - The author proposes several solutions to reduce HECS debt, such as offering higher voluntary repayment bonuses, recovering debt from deceased estates, lowering the repayment threshold, and reducing loans offered to underperforming degrees. These solutions remain controversial and politically difficult.

1. Higher Education Contribution Scheme
(HECS) Debt
Eashwar Alagappan
S4435560

2. Introduction to Problem
• The Issue: Unpaid loans are predicted to exceed 70 billion dollars by
2017, with 25% never being repaid

3. What is HECS
2015-2016 repayment rates
2015-2016 Repayment threshold Repayment % rate
Below $54,126 Nil
$54,126 - $60,292 4.0%
$60,293 - $66,456 4.5%
$66,457 - $69,949 5.0%
$69,950 - $75,190 5.5%
$75,191 - $81,432 6.0%
$81,433 - $85,718 6.5%
$85,719 - $94,331 7.0%
$94,332 - $100,519 7.5%
$100,520 and above 8.0%

4. What is HECS
Student contribution band
2016 Student annual contribution range
(per EFTSL)
Band 3: Law, dentistry, medicine, veterinary science,
accounting, administration, economics, commerce
$0 - $10,440
Band 2: Computing, built environment, other health,
allied health, engineering, surveying, agriculture,
mathematics, statistics, science
$0 - $8,917
Band 1: Humanities, behavioural science, social
studies, education (see Notes), clinical psychology,
foreign languages, visual and performing arts,
nursing (see Notes)
$0 – $6,256

5. Why it is a problem
• Over-claiming deductions
• Falsely declaring income
• Debt not reclaimed from estates of deceased
• Overseas graduates not repaying debt
• Unscrupulous vocational education providers enrolling too many
student who don’t complete their qualifications

6. Why this is an important economic issue
• Higher debt relative to GDP affects long run economic growth
• Opportunity cost to spend on other sectors of the economy such as
Healthcare
• National debt impacts foreign exchange rates
Spending on health goods and services 2009-10

7. What is currently being done
• Stronger measures to force graduates who move overseas to repay
debt since 1st Jan 2016.
• Tax Information data sharing with other countries
• Must register with ATO when moving overseas >6 months
• Estimated loses from overseas graduates up to $30million per annum
• There is no penalty for failing to register with the ATO

8. What is currently being done
• Voluntary repayments of $500 or more receives bonus of 5% credit.
• This bonus will be removed from 1 Jan 2017

9. My Solution : Increase credit offered from
voluntary repayment scheme
• Encourage earlier repayment of loans
• Average time to start repaying is 5.1 years.
• There is no real interest charged.
• Indexed each year to reflect changes in CPI.
• Govt suffers loss in opportunity cost

10. My Solution : Recover debt from deceased
• Political considerations of appearing cruel can be mitigated.
• Minimum age and estate value to recover debt from the deceased
• Measures to not cause the vulnerable to suffer further
• Tony Abbott : “HECS debt are that they cease, they cease on decease,
as it were” (May 2014)

11. My Solution: Lower threshold amount, lower
initial percentage paid
• Grattan Institute report recommends lowering initial threshold from
$54,126 to $42,000, saves at least $500 million a year.
• Opposed by the Greens, “incredibly difficult for new graduates
earning less than the current threshold to save for big life decisions
such as purchasing a house…” (Senator Robert Simms)
• Opposed by Labor: “women, lower income earners, people in part-
time work and recently graduated young people who would be paying
more, sooner”. (Sharon Bird, Member HOR)

12. My Solution: Reduce HECS loans offered to
under-performing degrees
• Determined by mean graduate salary and previous debt repayment
compliance rates.
• Vocational Institutions have exploited HECS loans to recruit large
numbers of students with low income prospects.
• VET Fee-Help numbers rose from ~ 55k in 2012 to ~ 203k in 2014,
value of loans from $325m to $1.76bn.
• Highly controversial measure
• Discourages students from pursuing important but under-paying degrees
(E.g. Nursing)
• Education has positive externalities.

13. References
• https://www.theguardian.com/australia-news/2016/jan/01/graduates-who-move-overseas-to-be-forced-to-pay-back-student-debts
• http://theconversation.com/use-super-contributions-to-repay-student-loans-40759
• http://studyassist.gov.au/sites/studyassist/payingbackmyloan/loan-repayment/pages/loan-repayment
• https://www.hrblock.com.au/assets/tax-guide-photos/_resampled/SetWidth768-shutterstock-127820834-620x405.jpg
• http://www.theaustralian.com.au/higher-education/runaway-loans-students-set-to-owe-70bn/news-
story/c3038c23a946d49a34a72b32b0524876
• http://www.abc.net.au/news/2015-11-09/senate-passes-legislation-requiring-expats-to-repay-hecs-debts/6925936
• http://singhstation.net/2014/05/education-minister-suggests-collecting-hecs-debts-dead-students/
• http://www.purefx.co.uk/help-centre/daily-market-commentary/view/how-does-national-debt-affect-the-foreign-exchange-rate
• http://www.aussiebushadventures.com.au/blog.php?id=73