In an article published earlier today and since withdrawn (‘Modelling shows more students face lifetime debt under deregulated fees’) we stated the proposed changes to higher education funding could result in “saddling some students with debt they cannot pay off in their lifetime.”
This may still become a reality for some students, but the example we gave to illustrate the issue was incorrectly calculated and left readers with the impression that more students would be affected than is the case. We wrote that:
“a student graduating with a $50,000 HECS-HELP debt would have to average about $80,000 a year to pay off his/her debt before retirement. Even then it would take 43 years to do so. This assumes full-time, uninterrupted employment, regular wage growth and a final salary well above $80,000 in order to become debt-free.”
However this was based on a miscalculation of the HECS-HELP repayment rates. This miscalculation had two effects: (i) understating the annual repayment obligation of students; and consequently (ii) overstating the period of time required to pay back a loan.
Using the correct figures, in the scenario above the expected payback period is much lower, at 11 years.
Using the correct calculations a student on an average income of $80,000 would take 16 years to pay back a $75,000 HECS-HELP debt and 22 years for a $100,000 HECS-HELP debt. These numbers are still somewhat concerning, but not quite as significant as we initially calculated.
The incidence of unpaid lifetime debt is therefore considerably less of an issue than the difficulties the proposed system presents for low-income earners, the under-employed or unemployed. Our recommendations remain unchanged. They are that government consider:
- A much lower level of interest on the HECS-HELP loan until the student graduates;
- Suspending interest charges on HECS-HELP loans for specified periods when the former student outside the workforce (such as family or carer responsibilities) and/or situations of unemployment or underemployment;
- Varying the interest rate charged so that it is on a progressive scale - ie. lower rates of interest for graduates on lower incomes and higher rates for those earning higher incomes;
- Forgiving HECS-HELP debt after a certain number of years; and
- Ensuring an equitable distribution of the scholarships created under the proposals.
The report from which these findings were drawn is currently being redrafted and will be made available shortly. We apologise for confusing what is such an important issue with incorrect information. We greatly appreciate how quickly members of The Conversation readership have brought this to our attention.