2003 – The social and economic impact of student debt

Attachment: CAPA Paper

By 30 June 2003 Australian students and graduates will owe more than $9 billion to the Commonwealth Government for the cost of their Higher Education Contribution Scheme (HECS) fees. The higher education reform package, to be released this year by the Federal Minister for Education, Dr Brendan Nelson, is predicted to increase student debt considerably by:

• allowing universities to charge ‘top-up’ fees in addition to HECS fees, increasing student fees by up to 25%;
• doubling the number of full fee paying places at Australian universities; and
• introducing new student loans for ‘top-up’ fees and full fee paying places which will accrue interest at close to market rates.

Student debt affects the capacity of graduates to own a home, have a family, and access private finance such as mortgages, personal loans and credit cards.

In Australia, compulsory student debt repayments delay the capacity of graduates to save a first home deposit and make mortgage repayments. This has influenced the following trends.

• The proportion of 20-24 year olds living at home increased from 42% in 1986 to 47% in 1999, while the proportion of 25-29 year olds living at home increased from 12% to 17% over the same period.
• The median age of first home buyers had risen from 30.2 years in 1988 to 31.8 years in 1996-97.
• The current national level of home ownership is beginning to fall after three decades of remaining stable at 70%.
• Home ownership is predicted to fall to under 60% over the next 30 years, and to become closer to 50% in Sydney over the same period.

Student debt has also meant that Australians are delaying having their first child, and choosing to have fewer children.

• Australia’s fertility rate reached a record low in 2001 with women having an average of 1.73 children, and men an average of 1.67 children. This is significantly lower than the average of 2.1 children per couple needed to replace our current population.
• The median age of Australian mothers at the birth of their first child rose from 24 in 1975 to 29 in 2000.

The proposed changes to student loan schemes in Australia – in particular the decision to charge interest on student loans – will make the Australian loan system more like the New Zealand system. Both countries have an income-contingent repayment scheme, however student loans in New Zealand accrue interest while Australian student debt is adjusted for CPI but is currently interest-free.

The New Zealand student loan scheme has been the subject of intense domestic and international criticism.

• In 1999, economic modelling in New Zealand revealed that it would take the average male university student 17 years to repay a loan of $20,000, while it would take the average female student 51 years to repay a loan of the same size.
• A survey of New Zealand bank managers and loans officers in 2002 found that 51% of those who had received applications from clients with student loans had cited student loans as a contributing factor in declining finance and, of these respondents, mortgages were the most likely to be declined (34%).
• The New Zealand Government has acknowledged that student debt is a “push factor” for increasing emigration, as people with student debt move overseas to avoid repaying their debt, or to earn higher salaries with which to make their debt repayments. Between 1997-1998 and 1999-2000, nearly 4 per cent of the total New Zealand professional workforce emigrated to Australia alone.

In 2000, the number of Australian-born people emigrating from Australia was the highest ever recorded, having doubled since 1995. These people were more likely to be aged 25-34 years, and more likely to be moving to the USA, Singapore and Canada – destinations which indicate that employment was a major motivator for emigration.

Student debt is not just an issue that affects students and their families. As doctors, lawyers, dentists and vets accrue increasing amounts of debt for their degrees, compulsory debt repayments will compel them to increase the fees they charge their clients.

All Australian taxpayers will have to pay the costs associated with an ageing population, as student debt restricts the number of children that families can afford to raise and contributes to more graduates leaving Australia. An ageing population will mean that public spending on health, housing, aged care and superannuation will increase at the same time as the working-age population funding this spending through taxation decreases.

Before student debt is considered as a policy solution for inadequate public investment in higher education, the wider social and economic impact of this debt should be researched and monitored.

CAPA believes that increasing student debt is not an appropriate substitute for public investment in higher education.