Category Archives: Education

Abbott government creates interest-incurring personal debt for 1.5 million Australians

Conservatives like to make a big deal about sovereign risk – the idea that if a new government is willing to change the rules after people have entered into deals with it, then people will not trust it in future, and its costs of doing business will increase.

Apparently that doesn’t matter if the people with whom it’s doing business are ordinary Australians.

The Australian Government in the 1980s, 1990s and 2000s made a deal with the most recent generations of Australian students. Unlike your parents, we’ll be charging you for your degrees. Sure, we could just tax you progressively like everyone else if you make lots of money as a result of that degree, but we’re going to specifically make you pay us back for that degree itself, when your income hits an average sort of level. The repayment will be indexed with CPI so you do pay us back the real cost of that degree.

HECS no interest

OK? Sign up to that, and you can go to university.

Fast-forward to 2014 and this new Abbott Liberal/National Coalition government is changing that deal, quite drastically, and after the fact – not just for future students, but anyone with an existing HECS/HELP “debt”:

A new minimum repayment threshold for HELP will be introduced from the 2016‑17 income year (1 July 2016‑30 June 2017). In that year, graduates will commence repaying their HELP debt once their income reaches an estimated $50,638. A 2 per cent repayment rate will apply for those with incomes above this new threshold, up to the existing threshold (estimated to be $56,264 for the 2016-17 income year)…

HELP debts will be indexed by the Treasury 10 year bond rate (to a maximum of 6.0 per cent per annum) rather than the Consumer Price Index (CPI). This means that government is lending money at broadly the same rate it borrows money. The new arrangements will apply to all HELP debts that are subject to indexation on 1 June 2016, regardless of when the debt was incurred and whether the student is still studying or has completed their studies.

Got it? If you have a $100,000 HECS debt, then guess what – you just gained a second “mortgage”. (Well, a debt like a mortgage, only without actually having an asset to cover it.) Would you have borrowed $100,000 if it was going to have interest charged on it? Maybe not, but stiff – this government is changing the rules on you.

You’ll be paying it back as soon as your income hits $50k, considerably less than the current average Australian wage of $74,760.40. Got it? Because this government assumes everyone at University graduates with an above-average wage (serves you right for spending taxpayer money studying a low-paying degree in order to help ordinary Australians, social workers!), it will hit you hard the minute you reach two thirds of the average wage – and if you take a while to get there, don’t worry: your debt will be incurring interest and growing ever more severe with every passing day.

Big gamble for poor people going to university now, isn’t it? Better pick a high-paying degree, or we’re throwing you into a debt trap. (On the much higher fees that universities will now be free to charge.)

But, I suppose – at least students commencing degrees now will get to make the decision, knowing the (ridiculous, prohibitive) cost. The 1.5 million Australians who just got lumped with an interest-bearing debt were never warned when they incurred that debt that any future government would have the unbelievable gall to create a mortgage-sized debt on them out of thin air.

Because that’s what has just happened – unless we somehow stop it.

It’s the perfect storm of unfairness, of inequity, of destruction to the future of Australia. It’s unfair on students now and in the past. It’s inequitable and puts higher education out of the reach of the poor. And it will drive down enrolments in degrees whose graduates might not make a lot of money, but whose contributions to the future of the country are vital.

Is this the worst thing in this most ridiculous and indefensible of budgets, in which the government slashes spending to fund its tax cuts for the rich? Well, maybe not – gouging a huge hole in the safety net so that we are actually saying to Australian citizens “I’m sorry, but if you can’t find a job and don’t have the money to enrol in a course then you’ll just have to starve to death for six months each year” is even worse, let alone imprisoning refugee children on remote islands without any protections, or wrecking universal healthcare to discourage poor people from going to the doctor – but, still. I’ve never heard of the Australian government making a deal with 1.5 million Australians and then sneakily turning it into an interest-bearing debt.

It’s not enough for the ALP to block random measures of this Budget. There’s nothing worth salvaging. The whole thing needs to be thrown out and started again. And no member of this thoroughly untrustworthy, cynically dishonest, class warrior, far-right, society-destroying government deserves to win a seat in an Australian parliament ever again.

UPDATE: Dear easily-confused media. The government is indeed forcing people to pay their HECS “sooner”, but it is completely false to describe the interest issue as just “higher interest”. The issue is that they’re charging interest where people signed up to the scheme being promised to be charged no interest. Yes, it was to be adjusted with CPI – but that’s not in any way interest. CPI just means that the value of the debt is adjusted to take into account inflation. Interest makes the debt bigger for every year you can’t pay it, compounding.

(Please tell me Australian journalists understand the difference between CPI adjustments and interest. Please.)

In short: this is charging interest after incurring the debt where it was promised none would be charged before incurring the debt.