HECS changes on the way04/05/17
It would appear that the government has no intention of slowing down in their cutbacks on spending and attempts to increase revenue – last week we spoke about the potentially short-sighted changes to GST, and now we are looking at some upcoming changes to HECS debt repayments. For many students, this is likely to be a hot topic as the government tries to reign in their budget, and at the time of writing this there have already been some student protests on the issue.
At the beginning of this year, the government already removed the 10% discount previously received by students paying their fees upfront – a pretty strong incentive for students who could afford it to pay fees early rather than accumulate massive amounts of HECS debt to be repaid in the distant future. They also promised to make a greater effort to track down HECS repayment from Australian graduates living overseas, who tended to not pay down HECS debt when working in foreign countries.
The latest proposal contains several major changes, including a decrease to the student repayment income threshold, a cut to university funding, and an increase in the share of university fees burdened by the student. The proposed changes would have students paying their debt at an income threshold of just $42,000, only marginally higher than the minimum wage and about $13,000 less than the current threshold. Amid times of record youth unemployment, underemployment, and stagnating wage growth, the proposal is unlikely to be particularly successful in drawing in government revenue, nor at keeping an educated population.
While having these debts repaid is important for the nation to ensure the budget remains in balance, these kind of changes will not only deter more people from university, particularly the disadvantaged, but it will also make it impossibly difficult for many young graduates to make ends meet – most low and middle-income graduates struggle to afford reasonable housing and food as it is, without adding more expenses on top of that.
Some critics of the changes have pointed out that the cost of a degree has sky-rocketed, while wages for graduates remain much the same as they were two decades ago, which comes in light of the proposed changes to also increase the fees paid by students by almost $4000. Students will need to more carefully consider their choice of degree, the career prospects related to it, and to plan for how they will manage this level of debt on what will likely be a low wage early in their careers. For high school leavers in particular, this will make going to university an even more difficult decision – for those who live outside of major cities and from low income backgrounds, that decision tends to be extremely difficult as is, without adding even more risks and costs.
In its worst form, such changes could lead to students entering university with the hopes of gaining better earnings post-graduation, only to enter a relatively weak graduate employment market with low wages, finding themselves in a job that pays hardly more than one which requires no degree, but now burdened with up to $50,000 in HECS debt that needs to be repaid.
In addition to this, the proposal has brought criticism from the New Zealand Government, as it could result in many New Zealand residents paying the full fee to universities.
Perhaps one unintended positive consequence, however, is that by pushing people away from university degrees, they may instead trend towards trade schools and other areas where workers are in shorter supply when compared to the broader graduate market. Whether this would actually eventuate or not is yet to be determined, but a better equilibrium between university graduates and tradespeople may help balance out the employment market as a whole.
Unfortunately this may not offset some of the negatives for current and future graduates, because ultimately, what we are ending up with is young Australians who are trying to set a foundation to build their life upon being punished financially for doing so. The Government is once more using students to shore up their budget rather than aiming for more measured spending cuts elsewhere. While theoretically the increased government revenue from the proposal might be money that could be spent elsewhere to help the nation, given the track record of the Australian government, it seems unlikely that a large portion of it would go to something useful.
The proposal has not yet passed through the senate, but if passed is expected to gradually phase through many of its changes over a few years. Many anticipate that the proposal will not pass.