There has been considerable discussion about the increasing Higher Education Loan Programme (HELP) debt that students are likely to accrue as a result of changes proposed in the recent Budget. One group of students will not feel the impact of these increased debt levels—those who die before they repay the debt. There are reports that the Government is considering changing this, although it has been denied by the Prime Minister.
Unlike most other debts, including social security or tax debt, HELP debt is extinguished on the death of a debtor. Together with the debts of those who move overseas and are not liable for Australian income tax (and hence HELP repayments), this means an estimated 20 per cent of HELP debt incurred in 2014-15 will not be repaid. With expected higher debt levels and longer repayment periods, this proportion is expected to increase in future years. Of the $30.1 billion outstanding debt at 30 June 2013, it is estimated that $7.1 billion will not be repaid.
When the Higher Education Contribution Scheme (HECS) was introduced in 1989, the Minister for Employment, Education and Training, John Dawkins, stated that the legislation made it quite clear that ‘in the unlikely circumstances of a person dying with an outstanding debt under the Contribution Scheme, the accumulated debt is removed’ [emphasis added]. With increasing debt levels it now appears that this scenario is not that unlikely for many debtors.
The basis of HELP is that debtors should not have to repay their debts until they achieve a reasonable level of income, presumably on the grounds that at that stage they are receiving the benefits of the taxpayers’ investment in their education. However this does mean that some wealthy people may obtain their higher education for free.
For example, one of the groups likely to take an extended time to repay their HELP debt , and may never fully pay it off, are those who take time out of the workforce to undertake child rearing responsibilities, and then return to part-time work or not at all. Andrew Norton, in his report Doubtful debt: The rising cost of student loans, notes:
By the ages of 35 to 50, three-quarters of these lower-income partnered graduates are living with someone who earns more than the threshold. For partnered female graduates earning less than the threshold, 38 per cent have partners who earn more than $100,000 a year.
He goes on to say that the beneficiaries of HELP debt write-offs in these cases are the surviving partner (who is or has been a high income earner) and children, and in most cases the children will be adults.
Their additional inheritance through the HELP write-off will be a windfall gain. There is no obvious public policy purpose in granting this windfall. It is hard to see why the government recovers overpaid social security benefits from deceased estates yet writes off HELP debts.
Another group who will never contribute towards their higher education expenses are retirees whose taxable income is below the repayment threshold, and who are not intending to re-enter the workforce. This may include those receiving high tax-free superannuation pensions. While the numbers are undoubtedly small—there were less than 8,000 higher education students aged over 60 out of a total of over 900,000 students in 2012—it is not clear why they should receive greater taxpayer subsidies for their studies than young people undertaking their initial qualifications.
Norton’s analysis suggests that recovering unpaid HELP debt from estates valued at over $100,000 would recover up to two-thirds the debt that is currently not repaid. Given that most of these estates would already be required to file tax returns, the additional administration could be expected to be minimal. While this would not lead to substantial increased revenue in the short term, the impact on government finances into the future would be significant.
This article was significantly contributed to by Coral Dow of Social Policy Section.