Jun 16, 2014

Skewed workforce and a tepid economy: lessons from the US on higher ed debt

The US experience tells us imposing greater higher education debt on graduates can have significant effects on their consumption, their career choices, even when they get married, Bernard Keane and Glenn Dyer write.

The dramatic expansion of levels of student loan debt as a result of the Coalition’s higher education reform proposals may have significant negative macro-economic impacts, evidence from the United States shows.

Data from Universities Australia suggests students will take on, on average, a 29% higher debt to pay for higher education as the government slashes its funding of courses by 20% and deregulates tertiary fees. Combined with higher levels of interest, this means graduates will face debt increases of between 50% and 200% or more on what they currently face. Even conservative scenarios have graduates repaying twice as much for their HELP loans as would under current arrangements.

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9 thoughts on “Skewed workforce and a tepid economy: lessons from the US on higher ed debt

  1. Andrew Norton

    While HELP doubtful debt is a problem, the issue is expense to taxpayers and not defaults that affect the credit rating of debtors. In the Australian system loan repayment is income contingent via the tax system rather than fixed instalment (as it typically is in the US), meaning that here is no such thing as student loan default.

    HELP debt may however occasionally contribute to individuals being unable to pay their tax liabilities by the due date, especially if they are outside the PAYG system(where deductions should be made by employers) and miscalculate their overall debt to the ATO. But that is true under the current system. Higher student debts in themselves have no effect on annual repayment obligations under the HELP system. Instead, they extend the number of years of repayment.

  2. A.Blot

    This current government problem is the long term consequences of what they do is not consider. The short term is what will keep then in power and that’s only what interests them. If it goes to pot to quickly, just blame someone else and hope they are believed by the voters. Worked this time!

  3. AR

    Maybe it’s a generational thing – the next Tide of MPs that Time washes into Parliament may rediscover the amazing new idea of free education, pre-school, primary, secondary, tertiary.
    Talk about a guaranteed blue chip investment for future national prosperity that would be!

  4. Ben Gray

    The problem with your comparison is that there is little similarity between the Australian and American system. In America, you do take out the equivalent of a home loan for your degree – but even if degree’s did shoot up to $100k, you would only be paying an extra 2% tax each year when you earn more than $50k.
    The bigger problem for students, young people and the economy in general is the lack of jobs AFTER uni. Education is only an investment if there is a change you’ll use it.

  5. Gavin Moodie

    I agree that these comparisons with the US are not informative because of the different types of loans. Also, HELP debts are not extinguished by bankruptcy.

    Graduates’ employment rates are still rather better than non graduates.

  6. The Pav

    The Govt says it is pro families yet the study shows a reduced liklielihood of marriage.

    Perhaps they should legalise same sex marriage just to keep the number of marriages up.

    Bad luck if you are in the wedding industry

  7. Damien McBain

    First, most tertiary education is really vocational training so why should users not pay?
    Second, universities are incredibly high overhead operations. There are more modern, lower cost methods of vocational education that blend in-person contact with internet based information delivery.
    Understanding there is unaddressed an overlap in some fields, I’m in favour of publicly funding research & higher thinking (ie academinc pursuits) more heavily and requiring the engineers, lawyers, doctors and IT boffins to pay their own way.

  8. maxcelcat

    I left uni in 1998 with $24,000 in debt. Took me nearly eight years to pay it off, during which time I was unable to save.

  9. Ben Gray

    Maxcelcat – Assuming an equal payment every week for those 8 years, you were paying $68 a week or $3500 a year.
    The maximum repayment rate was 6% pa of your taxable income, meaning you were earning a minimum average of $58k.
    Yep, you couldn’t save a thing…

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