House of Representatives

Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018

Second Reading Speech

Mrs ANDREWS (McPherson-Assistant Minister for Vocational Education and Skills)

I move:

That this bill be now read a second time.

The Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 amends education and other legislation that underpins student loans, in particular the Higher Education Loan Program (HELP) and the Student Financial Supplement Scheme (SFSS).

It introduces a revised new set of repayment thresholds for student loans, changes indexation arrangements for repayment thresholds, amends the order of repayment of some student loan debts, and introduces a combined lifetime loan limit for HELP.

On 18 December last year, the Turnbull government released its Mid-Year Economic and Fiscal Outlook (MYEFO), including legislative measures affecting higher education that are the subject of this bill.

The policy measures announced in MYEFO will ensure that Australia's world-leading, income-contingent student loan system can continue to be available to future generations of students.

Australia must face up to the task of putting our higher education system on a more sustainable, responsible path for the future. The measures in this bill are proportionate and they help achieve that goal.

The government will not proceed with the previous legislative proposals from the 2017-18 budget.

Instead, the measures in this bill:

set a new schedule of repayment thresholds for HELP from 1 July 2018, with a lower minimum repayment threshold of $45,000 at a one per cent repayment rate, with smaller incremental rises in thresholds and repayment rates, up to a top threshold of $131,989 at which ten per cent of income is repayable;
align the indexation of the repayment thresholds to the consumer price index (CPI);
from 1 July 2019, bring repayment thresholds for the Student Financial Supplement Scheme-managed by the Social Services portfolio-into line with HELP repayment thresholds, and make corresponding changes to the order of repayment of student loan debts; and
introduce a new combined loan limit on how much students can borrow under HELP to cover their tuition fees. The combined limit is $150,000 for students studying medicine, dentistry and veterinary science courses, and $104,440 for other students. While the loan limit is not new, it will now apply to Commonwealth supported students borrowing through HECS-HELP as well as fee-paying students accessing FEE-HELP, VET FEE-HELP and VET student loans.

The case for change

HELP lending has grown rapidly with the expansion of the demand driven system-the amount of HELP loans accessed has increased from $3 billion in 2009 to nearly $7 billion in 2016.

Since 2009 funding for Commonwealth supported places has grown at twice the rate of the economy. There has been no limit on how many degrees a student could undertake, as long as they undertook this study in a Commonwealth supported place.

A small number of people have treated this as a blank cheque to a lifetime of university education, rather than as a stepping stone into a fulfilling career. The objective of public investment is to assist people to actively participate in the workforce, earning an income that enables them to pay back their debts. It's not to take their fellow taxpayer for a ride.

Some individuals have amassed hundreds of thousands of dollars of HELP debt-more than they will ever be able to repay in their lifetime. This is an unintended consequence of taxpayers' generosity.

This bill extends the lifetime loan limit that is already in place for fee-paying students accessing FEE-HELP, VET FEE-HELP or VET student loans to Commonwealth supported students receiving HECS-HELP assistance.

HELP debt is not limited to the higher education system.

The expansion of HELP to the VET sector in 2008 led to VET FEE-HELP loan debt escalating to over $1 billion by 2016.

The Turnbull government shut down the runaway VET FEE-HELP loan scheme at the end of 2016 and replaced it with VET student loans. This is a much more tightly controlled scheme, with caps on tuition amounts and extensive safeguards against rorting by unethical providers.

However, damage was done, both to the reputation of our student loan schemes and to the budget bottom line, in terms of overall outstanding debt.

As at 30 June 2017, outstanding HELP debt was $55.4 billion and the 'fair value' of HELP-the amount we may expect to be eventually repaid by borrowers-was valued by the actuary at $35.9 billion.

The fiscal challenge for the government is that HELP repayments have not kept pace with HELP lending growth. From 2010-11 to 2016-17, the level of new debt not expected to be repaid increased from 16 per cent to 25 per cent.

It is no longer possible to ignore the long-term burden of this debt on the taxpayer.

And so, the measures in this bill, in a number of sound, evidence-based ways, will achieve a more sustainable future for student loans.

Schedule 1 of the bill proposes a new set of repayment thresholds commencing from 1 July this year.

There is a new minimum repayment income of $45,000 at which one per cent of income is repayable. The second threshold is $51,957 with a two per cent repayment rate.

Each progressive threshold increases by six per cent income amounts and by 0.5 per cent increments in repayment rates, which smooths repayment obligations. Importantly, this new schedule of thresholds will also reduce incentive for debtors to 'cluster' below thresholds to avoid repayments as they do now.

There are increased repayment rates for those earning the highest incomes, who are best placed to repay their debts sooner-with those earning $131,989 or more paying at 10 per cent of their income.

From 2019-20, the revised HELP thresholds will also apply to Student Financial Supplement Scheme debts under the Social Security Act 1991 and the Student Assistance Act 1973. Currently, these debts are repaid concurrently with HELP debts but according to a subset of just three thresholds.

To improve rates of repayment of SFSS debts, and to achieve consistency in debt administration, the current three-tier threshold approach applied to SFSS repayments will be replaced with the full range of HELP thresholds. There will be a transitional year in 2018-19 that maintains the three-tier threshold arrangement while systems changes are implemented, and to allow these debtors additional time for transition.

Schedule 1 of the bill also implements new indexation arrangements for the HELP repayment thresholds, which are currently indexed according to average weekly earnings.

For a number of years now, the HELP repayment thresholds have been rising relative to earnings. The higher growth in average weekly earnings has meant that people have dropped from a higher repayment threshold to a lower one, or have dropped out of the repayment stream altogether as the thresholds rise faster than their income growth.

This bill provides that the minimum and all subsequent thresholds will be indexed using the consumer price index. This will ensure repayment requirements are adjusted in line with the cost of living. It also streamlines indexation factors used throughout the Higher Education Support Act 2003, as all amounts will be indexed in the same way.

This amendment also reflects the National Commission of Audit's 2014 recommendation to improve the sustainability of HELP in part by indexing using this method.

Schedule 2 of the bill amends the order of repayment of student loan debts by loan type.

Currently, student debts under the Social Security Act 1991 and the Student Assistance Act 1993 are repaid concurrently with HELP debts.

From 2019-20, when the full threshold of HELP thresholds will start to apply, old debts from SFSS will be repaid after HELP debts are discharged rather than concurrently. This will avoid debtors under both schemes facing excessive repayment liabilities.

Student start-up loans will be repaid after HELP and Student Financial Supplement Scheme liabilities are extinguished.

Trade support loans will be repaid after all other student loan debt liabilities.

That is, from 2019-20, a person is not liable to repay their trade support loan debt if they have repayment obligations under HECS-HELP, FEE-HELP, VET FEE-HELP, VET Student Loans, the Student Financial Supplement Scheme or student start-up loans.

To put it in the simplest terms, this schedule of the bill establishes that HELP debt takes priority over other student loan debts.

Schedule 3 of the bill provides for the expansion of the lifetime loan limit to all HELP loans for which a student can defer their tuition fees.

Tertiary education students accessing FEE-HELP, VET FEE-HELP and VET Student Loans have always been subject to a lifetime limit on the amount they can borrow.

This schedule of the bill:

sets new loan limits from 1 January 2019 onwards, including an increased loan limit for higher education students enrolled in medicine, dentistry or veterinary science courses;
applies the loan limit to Commonwealth supported students accessing HECS-HELP loans for the first time, meaning all new borrowing after 1 January 2019 will reduce a student's available HELP balance;
makes a number of consequential amendments to the act to broaden the application of the existing FEE-HELP limit and FEE-HELP balance to include HECS-HELP loans.

New loan limits

The new $150,000 loan limit for students undertaking medicine, dentistry and veterinary science courses as defined in the act is an increase on the estimated FEE-HELP limit of $130,552 for 2019. Students in these courses who had previously reached their FEE-HELP limit will, from 2019, have access to additional funds up to the new $150,000 limit. The new limit is considered more than sufficient to cover the government's subsidised tuition fees for these longer and, therefore, more expensive courses.

Apart from annual indexation increases, the loan limit applying to students in other courses remains the same, with a base amount of $104,440 in 2019.

The combined lifetime loan limit is unlikely to present a financial obstacle for the vast majority of tertiary students, even if they undertake more than one course of study or undertake studies in both vocational education and higher education.

This is because, with the recently introduced VET Student Loans program, the Turnbull government put in place loan caps on the amount of financial assistance available to be borrowed each year up from $5,075 to a maximum of $15,225, depending on the course, for a year of full-time study in the 2018 academic year.

VET courses are typically shorter in duration than higher education courses and the amounts borrowed will tend to be lower.

Similarly, student contribution amounts under HECS-HELP are capped and will continue to be capped, up from $6,444 to a maximum of $10,754, depending on the student contribution band, for a year of full-time study in 2018.

The new combined HELP tuition limit, up from $104,444 to $150,000, is more than adequate. In fact, it is sufficient to cover almost nine years of full-time study as a Commonwealth supported student in higher education, even in the most expensive courses. The loan limit is also sufficient to cover students who choose to undertake a mix of Commonwealth supported and fee-paying courses.

It is reasonable and fair that there is a limit on how much any one person can borrow from the taxpayer for their tertiary education.

Commonwealth financial assistance through the HELP scheme is there to support students through their tertiary education. It exists to help them acquire the educational foundation for their working lives by removing the barrier of up-front tuition fees.

It was never meant to be a lifelong buffet for all you can study.

To be clear, all new HECS-HELP borrowing will reduce a student's HELP balance-the amount that they can still borrow within the new lifetime loan limit. Previously accumulated HECS-HELP debt will not be counted, but any new amounts deferred through a HECS-HELP loan from 1 January 2019 will count against a person's HELP balance.

Any FEE-HELP, VET-FEE-HELP or VET student loan debits already accrued under the existing FEE-HELP limit will be transferred to the new HELP tuition limit for that student. A person will only be able to borrow up to the new loan limit.

A person's accumulated HELP debt will still, of course, need to be repaid in the same way as it is currently-through the taxation system-including if they go overseas for a substantial period of time.

These reforms ensure our high-quality higher education system can grow while meeting the global challenges it will increasingly face. It ensures that eligible students will continue to be able to access higher education and vocational education irrespective of their background or financial means. The focus of our higher education system is where it should be: on our students both now and in the future.

I commend the bill to the House.

Debate adjourned.