Earlier this month, the Australian Government announced drastic changes to its Hecs (Higher Education Contribution Scheme) repayment scheme that has some Aussie graduates quaking in their boots. The changes will see the repayment threshold dropped by a whopping 11 per cent, meaning any Australian graduate – or current student – earning over $45,881 a year will need to begin paying back their university debt, effective immediately. To add salt to the wound, fee-fleeing students seeking to evade the repayment scheme will now be ‘chased’ overseas, with new laws in place allowing the Australian Tax Office to pursue those debts overseas. The new rules apply not only to Hecs debt but also to Vocational Education & Training student loan (VSL) and Trade Support Loan (TSL) debts. As a university graduate who hasn’t paid a cent of her Hecs debt and who lives overseas, I am not unaware of the ramifications the new changes will have on my and Australia’s future graduates’ professional lives. Will it force students who until now might have breezed through university life – playing sports, drinking, earning a buck or two through cheap essay writing services or working at the local supermarket – to sit up and take their financial obligations more seriously? Or will it quite simply deter high school students from considering a higher education, as is increasingly becoming the case in countries with more burdensome repayment schemes, like the United States.
Until now, Aussie students have enjoyed a relatively stress-free repayment scheme. Two years ago, the repayment threshold was $56,000, and in 2018 it was lowered again to $52,000. Today the repayment amount is capped at $135,000 a year, with those earning this figure or above only required to pay 10 per cent of their earnings annually, and repayment amounts for those earning around $75,000 equated to just $3,375 a year or $65 a week. Still not bad, eh?
It’s no wonder the Tax Office is kicking itself into gear at last – Australia is renowned for running one of the most generous student loan programs in the world. Premised on an income-contingent loan approach which saves people earning lower salaries from needing to begin repayments, in cases of extreme financial hardship Australia’s scheme allows the deferment of repayment obligations altogether and at the same time saves students from accruing any interest on repayments. While it can’t quite compete with its Nordic counterparts, which charge little or no tuition fees in countries such as Sweden, Finland and Norway, Australia’s higher education repayment scheme ranks among the most generous in the world.
It trumps the United States by a long shot, where concerns about the rising cost of higher education and the $1.4 trillion stacked up in student debt across the country have garnered global attention. Earlier this week, Californian Senator Kamala Harris unveiled a proposed program for student loan debt forgiveness which would forgive debts for Pell Grant recipients in particular who start a business that “operates for three years in disadvantaged communities”. Could it pave the way for a more humane and understanding approach to the handling of student loans across the country? Let’s hope so because enough is, quite frankly, enough. We can’t have an entire generation of starters under financial distress before they have even begun because of the inability of the U.S. government and its educational institutions to balance a budget. That being said, we have seen multiple attempts by the government to address the student debt crisis: a $1.6 trillion plan recently announced by Bernie Sanders to forgive all student loans, a $640 billion loan forgiveness scheme for public school teachers, the list goes on…
In fact there already exists a loan repayment program in the States that forgives the student debt of those who can prove a decade of service working in government or nonprofit jobs. But the public service loan program, which was signed into law by President Bush in 2007, has to date been a whopping failure. In the 18 months following the signing of this bill, 99.3 per cent of those U.S. citizens who applied for the benefit were rejected. Wait… what?
We all look to Sweden for answers, since it is often regarded as boasting one of the best student loan repayment schemes in the world. But its students actually end up borrowing money for college just as often as those in the States, graduating with around $20,000 in debt on average. It is in Germany, where the expected cost of an undergraduate degree is a mere $2,160, where we arguably see the best model for higher education. But does it teach its students the right values? That of obligation, financial responsibility and the ability to budget? Your guess is as good as mine.
Perhaps no country has developed the right model yet. Perhaps we need better guidance from government finance institutions or financial experts such as Learn Bonds that offers advice for bad credit and how it could affect securing a loan for those who want to pursue higher education. Perhaps things need to get worse before they get better. Whatever the case, I just hope Australia figures it all out before my own kids are enrolling at university and that we never find ourselves experiencing a crisis as crippling as the student debt crisis in the U.S.