Earlier debt repayment for Australian graduates

Australian graduates are being forced to start repaying their loans earlier and faster, notwithstanding the government’s frustrated attempt to reduce outstanding student debt.

Under a policy change approved by parliament almost two years ago, the earnings threshold at which student loans must be repaid has been reduced by almost A$4,000 (£2,240) to about A$52,000.

The change, which took effect on Sunday, obliges graduates to repay their debts at a rate of 2 cents of every dollar earned over the threshold. The repayment rate rises to 4 per cent at about A$57,700 and increases progressively to a maximum 8 per cent at about A$107,200.

The new rules are expected to provide the public purse with about A$8m of extra revenue over the next 24 months.

They kick in despite the government’s thwarted attempt to lower the repayment threshold to A$45,000, as part of a range of measures to reduce taxpayer exposure to student debt. It was delayed after a parliamentary logjam prevented last week’s planned vote on the government’s legislation.

Australia’s outstanding student debt load has snowballed recently, reaching A$55.4bn last year. About a quarter of this is not expected to be repaid.

Meanwhile, even with the lowered repayment threshold, Australian students have one of the most generous repayment regimes in the world. UK students with post-2012 loans must repay their loans at a rate of 9 per cent above an earnings threshold of £25,000, as of April, while New Zealand graduates face repayments of 12 per cent for incomes above just NZ$19,448 (£9,996).

Australia’s National Union of Students pointed out that NZ’s punitive repayment regime had motivated the Labour-led government’s recent move to completely phase out tuition fees. NUS president Mark Pace said that in Australia, where free tuition was not on the agenda, a repayment threshold of about A$50,000 was “far too low”.

Mr Pace said that graduates should only pay for the “private benefit” of their studies. “The average Australian wage is about A$80,000,” he said. “Graduates are paying back student loans before they receive any private benefit from their qualifications, when they’re trying to get on their feet and develop a career.

“We have a skill shortage and we need to prioritise young Australians to train. It’s hard to find the justification to study for a degree where you’re repaying student loans on about half the average wage. There doesn’t seem to be much incentive whatsoever.”

The lowered threshold was legislated as part of an “omnibus” bill that included billions of dollars of savings in areas including pensions, parental leave and renewable energy development as well as higher education.

Other measures included transforming student support scholarships into loans, changing the indexation of student support payments and eliminating a debt forgiveness programme for graduates working in various nursing and teaching jobs. These reforms, approved by both sides of politics, collectively saved the government about A$375m over three years.

john.ross@timeshighereducation.com