Chasing unpaid student loans could save government $800m

Retrieving unpaid student loans from deceased and abroad students would help bring the cost of student debt down. Shutterstock

The government could save A$800 million a year by recovering unpaid student loan debts from deceased estates and students who have moved overseas, a new report from the Grattan Institute has found.

“Doubtful Debt: The rising cost of student loans” found the Higher Education Loan Program (HELP) lends students more than $6 billion a year, and the total doubtful debt – loans that are not expected to be repaid – could reach $13 billion by 2017.

While the HELP model has been successful for the past 25 years, an increase in student numbers has placed a burden on the system that is getting too expensive, report author Andrew Norton said in a press release.

The report found graduates of performing arts and visual arts are the least likely to repay their debts, but once popularity of courses was taken in to account, it was found graduates of commerce, education, nursing, science and humanities contribute most to doubtful debt.

Higher Education Policy Adviser Gwilym Croucher said the HELP scheme was one of the greatest achievements of Australian Higher Education, but the challenges for the government were in the real cost of maintaining it in an uncapped system.

He said the uncapped system was another great achievement of Australian Higher Education, providing wide access to university education, contributing to national wealth through meeting labour market skills demand, and allowing greater choice for students, and these benefits outweighed the costs outlined in the report.

“But,” he said, “the government has to be careful. Before introducing a levy on overseas debtors or playing around with indexation, more work needs to be done to ensure that it will deliver sufficient revenue to justify the effort.”

Report writer Andrew Norton said there could be some difficulty in enforcing the recommendations, namely collecting debt from people overseas.

Australia decided against the English system of maintaining income contingency for overseas debtors, largely because of the risks of “reward for effort”, Norton said.

“It is very complex for both students and the government. There are different thresholds for each country, precise repayment amounts have to be calculated, and debtors have to provide evidence of how much they earn, which then has to be verified,” he said.

Under the system proposed in the report there would be one flat fee payable each year. It could be paid online with minimal efforts on both sides, Norton said.

Enforcement could still be difficult, he continued, but because a majority of people want to return to Australia eventually, it is expected many of them would want to keep a clean record.

For others, it is proposed debt collectors and possibly agreements with other countries could be used to help find them. There is already an in-principle agreement with New Zealand.

“For deceased estates, the potential rewards are very large so benefits will significantly exceed costs,” Norton said.

“Many estates will have to interact with the ATO anyway to deal with income and capital gains taxes for the last year of life, and so this would be just one more step in that process.”

Higher Education Policy expert Geoff Sharrock said the report highlights problems associated with expanding higher education enrolments and extended application in areas such as vocational education.

“The report frames these issues well from both a policy aim and a government spending perspective,” he said,

“With accumulated HELP debts projected to rise from $30bn in 2013 to $55bn in 2017, the Commonwealth will need to provide for $13bn of ‘doubtful debt’ in 2017.

"The challenge here is to protect the purposes of the scheme while optimising the design.”

Sharrock said the proposed measures make good sense, but there are potential issues with plans to chase up overseas and deceased graduates as this would involve a retrospective change to the deal that existing graduates signed up for with their HECS or HELP loans.

“While it has always been clear to students that moving overseas doesn’t dispense with your HELP loan, it has never been clear that moving overseas dispenses with your income threshold as a HELP loan repayment trigger,” he said,

“And as the Grattan report notes, until recently loan information booklets have said explicitly that HELP debts are written off when you die. Whether they’re seen as a contract, which can’t be varied unilaterally, or a statement of statutory rights and obligations, which can, will probably be one for the courts.”

Overall however, he said these recommendations are preferable cost saving measures to recapping the demand-driven system.