Labor's Hecs reduction bill not the fairest way to relieve student debt, economists say

The Guardian

a day ago

Cutting student loans by a flat $5,500 would be a fairer and more effective way of providing relief than Labor's promised 20% reduction to Hecs debts, a leading independent thinktank says.
Anthony Albanese will introduce legislation this week to deliver a key election commitment that helped secure his government a second term.
The fairer deal for students bill will cut a fifth from the outstanding student debt of about 3 million Australians, or provide the equivalent of $16bn in total relief, according to the government.
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While the legislation is not expected to attract any opposition in Canberra, some experts remain critical.
Jack Buckley and Matthew Maltman, economists at the e61 Institute, looked at a 20% cut to student debts in 2012 as a way to assess the potential impact of Labor's plan in 2025.
Maltman and Buckley found that half of the benefits went to those who were in the top third of all income earners a decade later.
Unsurprisingly, the biggest winners were medicine, law and dentistry graduates, who received an average of $10,000 in debt relief. In contrast, recent teaching and nursing graduates would have only received $3,000 to $4,000.
They also found that timing was also a crucial factor in determining the biggest beneficiaries.
Someone finishing studies a year before the hypothetical 2012 debt relief received on average twice as much relief as somebody who graduated in 2007, and two-and-a-half times more than somebody who graduated in 2016.
Maltman and Buckley's final finding was that 80% of Australians with student debt would not have paid off their loans any sooner.
While they recogniseit is 'unrealistic' to expect the government to alter its legislation, they said 'a small tweak' to a flat $5,500 reduction to student loans would 'have the same overall effect on the debt burden of young Australians'.
'But it would help each former student with an outstanding Help debt the same amount, regardless of whether they studied law or teaching. Or whether they graduated in 2023, in 2025 or will graduate in 2027.'
Andrew Norton, a professor of higher education policy at Monash University, said Labor's policy provided a 'windfall' for those with student loans as at 1 June, and that it treated the symptom rather than the cause of graduates' increasingly unaffordable debt obligation.
'Clearly it helped them [Labor] win the election, and it will sail through the parliament. But it is a very expensive and poorly targeted program which delivers huge benefits to those with high debt, while delivering nothing to those starting next year and those who finished earlier,' Norton said.
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'The question is whether that money could be spent on higher return policies. I would have thought dealing with the student contributions issue is more urgent for people still acquiring debt.'
The job-ready graduates scheme, introduced in 2021, was designed to push more students into disciplines that would drive the 'jobs of the future', by lowering the cost of degrees in courses such as computer programming and engineering.
The flipside was that it raised the cost of courses deemed less worthy by the then-Coalition government, led by Scott Morrison, and resulted in more than doubling fees for some degrees, such as humanities.
A University of Melbourne study in late 2023, however, found that the fee changes affected the enrolment decisions of only 1.5% of students, suggesting that the policy had failed to drive the behavioural shift it was designed to achieve.
Norton said breaking the previous link between course fees and future earning capacity for graduates in those fields has left many young Australians saddled with large debts they will struggle to ever pay off.
He said the Coalition changes were 'clearly a policy mistake'.
'Clearly there is an issue here with the job-ready graduates scheme, particularly in humanities, where many will never finish paying off their debt.'
The Albanese government has tasked the newly created Australian Tertiary Education Commission as an independent body to create a 'better and fairer' system that is expected to unwind the Coalition's 2021 changes.
'My concern about that it will be 2027 at the earliest before that happens, and by that time we will have had whole cohorts with their art degrees with large debts,' Norton said.