10 January 2014
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Dr Coral Dow
This Quick Guide provides an overview of higher education student loans that are provided through the Higher Education Loan Program (HELP). It includes:
– VET FEE-HELP
Higher Education Loan Program (HELP) provides loans to Commonwealth-supported tertiary students. The scheme allows students to defer the costs of tuition until their taxable income reaches a certain level at which repayments commence.
HELP is regulated by provisions in the Higher Education Support Act 2003 and administered by the Department of Education. HELP debts and repayments are managed by the Australian Taxation Office (ATO).
A brief chronology
- The Higher Education Contribution scheme (HECS), as it was first known, was introduced in 1989, and the scheme is still commonly referred to as ‘HECS’ and debts as ‘HECS debts’.
- In 2003, there were major reforms to higher education, including significant changes to HECS. These reforms were legislated by the Higher Education Support Act 2003 and came into effect in 2005. Additional loan types were added and the program was renamed the Higher Education Loan Program (HELP). HECS was absorbed into HELP and is now referred to as HECS-HELP. The Government also extended the income contingent loan schemes to domestic students paying full fees (FEE-HELP) and for those studying overseas for one or two semesters (OS-HELP).
- In 2007, the Government introduced VET FEE-HELP for students studying higher level vocational education and training (VET) courses.
- In 2011, the Government introduced SA-HELP to assist students to pay student services and amenities fees.
Types of loans
- Assists eligible Commonwealth-supported students pay their student contribution amounts. Before 2005, known as HECS.
- The student contribution amount must be for a Commonwealth-supported place (this applies to most domestic undergraduate students studying at Australian public universities).
- The student contribution amount is calculated on the number of units the student studies, the Equivalent Full-Time Student Load (EFTSL) of each unit, and the price band the unit belongs to (there are three student contribution bands).
- A student can elect to pay the student contribution upfront rather than deferring the amount as a HELP loan. In 2013, a 10% discount for paying upfront was available. At the time of writing there is legislation before the Parliament to abolish this discount.
- In 2012–13, the number of Commonwealth-supported places for which HECS-HELP loans were paid was 450,314, up from 395,177 in 2010–11.
- Assists domestic fee-paying students pay their tuition fees. These students are usually studying through private providers or undertaking postgraduate courses for which there is no Commonwealth-supported place.
- There is a 25% loan fee, which is added to the balance of the loan. For example, if a student borrows $10,000, a FEE-HELP debt of $12,500 would be recorded. Note: the loan fee only applies to undergraduate students and courses; full-fee postgraduates and research students do not pay it.
- There is a lifetime limit on FEE-HELP debt. For 2013, this is $116,507 for students studying medicine, dentistry and veterinary science and $93,204 for all other students.
- In 2012–13, the number of places for which FEE-HELP loans were paid was 75,388, up from 64,766 in 2010–11.
- Assists eligible undergraduate Commonwealth-supported students undertaking part of their studies overseas. An OS-HELP loan can be used for airfares, accommodation and other costs of overseas study.
- OS-HELP loans are paid by the Australian provider to the student. The provider is then reimbursed by the Government and a HELP debt created.
- Changes to OS-HELP will come into effect from 1 January 2014. Eligibility will be broadened to postgraduate students in Commonwealth-supported places. The requirement that a student be enrolled at an overseas higher education institution will be removed, thus allowing clinical placements and other overseas study as part of an Australian based course. The maximum loan amount for students undertaking study in Asia will be increased by $1,250 and an additional loan of $1,000 to pay for intensive Asian language training as part of students’ study abroad will also be available.
- In 2012–13, the number of OS-HELP loans paid was 5,675.
- Assists eligible students pay for all or part of their student services and amenities fee.
- A capped student amenities fee can be charged by a higher education provider and can be made compulsory. In 2013, the maximum student amenities fee that a higher education provider can charge is $273.
- Students can borrow this amount along with their other HELP loans or borrow only this amount.
- In 2012–13, the number of SA-HELP loans paid was 307,339.
- Helps students enrolled in higher level VET courses pay their fees.
- Available for Diploma level and above only (Diploma, Advanced Diploma, vocational Graduate Certificate; vocational Graduate Diploma); not Certificate level courses.
- Used to pay for a student’s tuition fees only.
- Must be studying at a VET provider approved to offer VET FEE-HELP (there are about 130 approved providers).
- Students can borrow up to the FEE-HELP limit. In 2013, this ranges from $93,204 to $116,507 depending on the courses undertaken.
- There is a 20 % loan fee, which is added to the balance of the loan.
- In 2012–13, the number of places for which VET FEE-HELP loans were paid was 37,700, up from 20,108 in 2010–11.
From 1989 to 1997, all students were charged a flat rate regardless of their course of study. In 1997 a differential system of ‘bands’ was introduced to reflect both different cost structures of disciplines and different earning potential of graduates. The Study Assist website lists the 2013 bands and their student contribution rates.
Upfront payment discount
Students can elect to pay their student contribution at enrolment each semester rather than defer the payment and take a HELP loan. Subject to legislation not yet enacted, if they pay upfront, they receive a discount, which was 10% in 2013. In 2010, less than 17% of students paid upfront (taking advantage of the then 20% discount), 80% took out a HECS-HELP loan, and 3% paid upfront and were not eligible for the discount (for example because they were New Zealand citizens).
The discount on up-front payments was a feature of HECS when it was introduced in 1989. Originally set at 15% the discount was increased to 25% in 1993, reduced to 20% in 2005 and reduced to 10% from 1 January 2012.
When the bonus was increased to 25% in 1993, the percentage of students paying up-front also increased from 20.3% in 1990 to 28.5% in 1997. However, for those from disadvantage backgrounds the proportions were much lower, with only 13.4% of Aboriginal and Torres Strait Islander students and 20.3% of students from a low socio-economic status (SES) background paying upfront. The low upfront payment rate amongst disadvantaged groups was used as a justification by the Labor Government to reduce the bonus to 10% in 2012.
Repayment of debts
HELP provides interest-free loans, but the outstanding amount is indexed annually by the Consumer Price Index (CPI).
All HELP debts are managed by the ATO. An individual commences repaying their HELP debt when their taxable income reaches the repayment threshold. For the 2013–14 income year, the compulsory repayment threshold is $51,309.
The rate at which the HELP debt is repaid rises according to taxable income. A person earning $50,000 per annum will pay 4% (or $2,000) while a person earning $80,000 will pay 7 % (or $5,600). This amount is calculated by the ATO and added to the income tax assessment.
In 1995, the Government introduced a bonus for voluntary repayment ($500 or more) of HECS debt. The voluntary repayment bonus was initially set at 15, reduced to 10% in 2005 and reduced again to 5% from 1 January 2012. Legislation to abolish this discount is currently before Parliament.
The main source of statistics on the HELP can be found in the annual Higher Education Reports. According to the 2010 Report (the latest available), as at 30 June 2010:
- around 2.5 million students had been able to access higher education opportunities through Government funded loans since 1989. Over $27.9 billion (excluding indexation) has been loaned to those students.
- Approximately 1.1 million people have repaid their debt in full, and the average repayment time was 7.9 years.
- There were around 1.5 million people with a HELP debt.
The HELP debt
The 2013–14 Budget estimated that that the average HELP debt is $16,000 and the average time taken to repay HELP debt is 8.4 years.
It also estimated the value of the total HELP debt at around $22.3 billion at 30 June 2013 and that it would grow from around $26.2 billion in 2013–14 to $42.1 billion by the end of the forward estimates in 2016–17.
HELP debt repayment is income contingent. Loan repayment is a matter for the individual, his or her employer and the ATO.
According to the ATO’s annual report, just over $1.6 billion in HELP and Student Financial Supplement Scheme revenue was collected in 2012–13.
A significant proportion (approximately 17 % of new loans) of HELP debt is regarded as ‘doubtful debt’ and unlikely to be repaid. This includes the debt of those who live overseas, who are bankrupt or who die. A proportion of the doubtful debt is written off each year.
Budget treatment of HELP
The estimated $22.3 billion HELP debt is considered a Government asset, not an expense. In the budget papers funds loaned to students under HELP are shown under ‘Advances paid’.
However, there is a cost to Government in providing the program. The expenditure covers: discounts to students for early payment; concessions to study particular courses (such as nursing); exemptions, such as those for students in Commonwealth-supported places undertaking enabling subjects; and administration. This expenditure is estimated at $2.0 billion for 2013–14.
Because the loans are indexed to the CPI rather than the bond rate (which is generally higher), there is a notional cost to government through lost interest that is not reported in the budget papers. The Grattan Institute has estimated that for 2011–12 this net interest loss was $623 million.
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