Welfare payments - Student income support

Budget Review 2009-10 Index

Budget 2009 10:Welfare payments

Student income support

Michael Klapdor and Dr Matthew Thomas

Concerns over the adequacy of student income support and the equity and efficiency of the higher education student income support system have been mounting for some time. For a number of years, students, student representative bodies, universities and the Australian Vice–Chancellors’ Committee (now Universities Australia) have been calling for more generous support for students, and for changes to the income support system that would reflect changing higher education student profiles.[1]

In 2005, the Senate Employment, Workplace Relations and Education References Committee tabled the report of its inquiry into student support measures.[2] In this report, the Committee was critical of the inadequacy of student income support. Among other things, it found fault with the harshness of Youth Allowance eligibility criteria relating to the age of independence and the parental income test threshold. These failings, the Committee argued, both penalised those students who were most in need of financial assistance and had a detrimental impact on these students’ academic participation rates and success.  

The Committee’s findings found support in the Review of Australian Higher Education (the Bradley Review), released in December 2008.[3] The main conclusion of the Bradley Review was that there is a need for an increased number of people with high-level skills in order to ensure Australia’s competitiveness into the future. If this goal is to be achieved and progress made towards the goal of a just and equitable society, the Review argued, then this necessitates the increased participation in higher education of people from disadvantaged groups, including Indigenous people, people with low socio-economic status and those from regional and remote areas.[4] These people are currently under-represented in Australia’s higher education system. A significant barrier to the higher education participation and success of people from disadvantaged groups is these people’s economic circumstances. While government income support for students in higher education is currently available in the form of Youth Allowance, Austudy, ABSTUDY and various Commonwealth scholarships, the level of support provided through these programs has been criticised as insufficient and the eligibility requirements for some support too restrictive.

The student income support measures contained in the Budget may be interpreted as seeking to address some of these issues and to provide increased support for those students most in need.

Key measures

Reducing the age of independence

The age of independence is the age at which young people are automatically considered to be financially independent from their parents for the purpose of determining income support payment rates. The current age of independence is 25 years. Young people can be considered independent at an earlier age if they meet certain criteria establishing that they should not be considered to be dependent upon or able to receive assistance from their parents. Under this measure, young income support recipients will automatically be considered independent if they are aged 24 years in 2010, 23 years in 2011 and 22 years from 2012 onwards. The changes are expected to benefit around 24 000 new and existing recipients over the next four years.[5]

Parental income test

The parental income test threshold will be increased to match that of Family Tax Benefit A (FTB-A). The parental income test is applied to all students receiving Youth Allowance or ABSTUDY who are not considered independent. The income test threshold (the parental income amount that can be reached before payment is affected) will be increased from the current rate of $32 800 to $42 559. This represents a considerable increase of almost 30 per cent. Under the current arrangement, the parental income test threshold is increased for each additional child. The new arrangements will simplify this system by instituting a single threshold, but one that has a lower taper rate. The taper rate at which the income support payment is reduced will be lowered from 25 cents to 20 cents for every dollar that is earned over the threshold.

According to the Government’s estimates, around $507 million of the $1.07 billion cost of the parental income test measures over four years will come from the redirection of funding that would otherwise have gone towards FTB-A payments. It is estimated that as a result of the changes an additional 67 800 young people will be able to access income support and that 34 600 existing income support recipients will have their payments increased.[6]

Personal income test

Under current arrangements, personal income above $236 per fortnight result in 50 cents in the dollar being deducted from Youth Allowance and ABSTUDY payments, and amounts earned over $316 result in 60 cents in the dollar being deducted. Over the three years from 2010–2011 to 2012–2013, the personal income test free area for students will increase from $236 per fortnight to $400 per fortnight. The first $80 earned over $400 will incur a reduction in students’ income support payments of 50 cents in every dollar. Any amount earned over $480 will result in 60 cents in every dollar being deducted. Thus, this measure will enable students to earn much more from work to supplement their Youth Allowance and ABSTUDY payments. 

Abolishing two of the workforce participation criterion for early independence

A key finding of the Bradley Review was that student income support was being paid to students living in high income households. Forty-nine per cent of Youth Allowance recipients who are living at home are living in households with incomes over $80 000.[7] Under the current work participation requirements for independence, a person must have:

  • worked full-time (at least 30 hours a week) for at least 18 months in the previous 2 years, or
  • worked part-time (at least 15 hours a week) for at least 2 years since leaving school, or
  • have been out of school for at least 18 months and earned at least 75 per cent of the maximum rate of pay under Wage Level A of the Australian Pay and Classification Scale (that is, $19 532 in 2009) in an 18 month period.

Under this measure, the second and third of the above criteria will be abolished, preventing many young people who previously took ‘gap’ years or who were employed after finishing school from claiming independence and escaping the parental income test on their payments. Young people will still be able to claim independent status after working 30 hours a week for at least 18 months in a two year period, or if they meet any of the other non-work related criteria. The Government estimates that around 30 700 of current prospective recipients will be affected by this measure, and that it will save $1.8 billion over four years.[8] Generally speaking, the measure will result in some prospective recipients receiving a lower amount of income support than they would have received under the current arrangements. Other prospective recipients will lose their entitlement to Youth Allowance at an independent rate, altogether.

Student start-up scholarship

A new start-up scholarship has been introduced for all university students in receipt of student income support. The scholarship, which is to commence from 1 January 2010, will be paid at a rate of $2254 in 2010, and then adjusted on an annual basis by the Consumer Price Index (CPI). The Government has allocated $1.3 billion towards this measure over the forward estimates period.


The rate of Youth Allowance has not changed (apart from indexation increases) since it was introduced in 1998. The decision not to increase the rate of Youth Allowance as a part of the Budget means that many students will be obliged to continue to balance work with study in order to make ends meet. Given that the highest rate of payment that can be attained by singles on Youth Allowance ($371.40 per fortnight) currently falls well short of Newstart Allowance for singles ($453.30 per fortnight), it may be argued that this discrepancy provides a disincentive for young people (and especially disadvantaged people) to participate in higher education rather than seeking full-time employment.

A Universities Australia survey conducted in 2006 indicated that the average undergraduate student receives $2170 a year in income support.[9] Thus, while the student start-up scholarships will make a considerable difference to these students’ total income, the level of support provided to students nevertheless falls short of that provided under other benefits.

The changes to the eligibility criteria for proof of independence for the purposes of determining income support will have major implications for many prospective students.[10] Although the measure is primarily aimed at reducing access to income support for those living in high income households, it will also affect many students from families on middle incomes and students who move away from home in order to study. Students may delay tertiary study for at least 18 months in order to meet the full-time work criterion for independence. This could prove to be a difficult task in what is a highly competitive job-market for low-skilled workers. Others may be forced to remain at home in order to reduce costs for their families, and this could limit their study opportunities, especially in the case of young people in rural and regional areas. A large number of students currently taking a ‘gap’ year in order to meet the criteria for independence face an uncertain future and potentially difficult choices; they need to determine how they are going to support themselves whilst studying, whether or not to delay their studies and whether or not they wish to, or are able to, remain dependent on their families. These disincentives to pursue tertiary studies would appear to run counter to the stated aims of the Government in increasing participation in higher education.

Overall, the measures will help to provide greater assistance to those students who are most in need through more progressive targeting of those students who require support. The measures will also allow students to supplement their student income support payments with more income from work, and the new scholarships will be especially welcomed. There is, however, a large pool of students from middle income families who will be negatively affected by the independence requirements. The measure will affect this group in terms of their ability to demonstrate independence from their families, their freedom to move away from home in order to study the course of their choice and their being forced to compete in the job market so as to qualify as independent for the purposes of income support, when they decide to study.

It is worth noting that it is unclear just how the new ‘Jobs and Training Compact with Young Australians’ measure will interact with the student income support measures.[11] Under the compact, those students who choose to delay tertiary study and compete in the job market will no longer be entitled to Youth Allowance whilst they are unemployed. The stricter independence requirements will also mean that many of those who take up one of the training places being offered under the compact will remain dependent on their families for support.

[1].    Students are coming from increasingly diverse social backgrounds and are working more hours than was previously the case.

[2].    Senate Employment, Workplace Relations and Education References Committee, Student Income Support, Commonwealth of Australia, Canberra, June 2005.

[3].    Department of Education, Employment and Workplace Relations (DEEWR), Review of Australia higher education: final report, D Bradley (chair), DEEWR, 2008, pp. xi–xii.

[4].    DEEWR, Review of Australia higher education: final report.

[5].    DEEWR, Student income support – age of independence, fact sheet, DEEWR, viewed 14 May 2009, http://www.deewr.gov.au/HigherEducation/Documents/PDF/Pages%20from%20A09-303%20Budget%20Fact%20Sheets-16_webaw.pdf. It is worth noting that the Bradley Review estimated that 64 000 new and existing Youth Allowance recipients would benefit in the first year if the age of independence was lowered to 22 immediately rather than gradually. The reason for the discrepancy between the Government’s and the Bradley Review’s figures is not clear. DEEWR, Review of Australia higher education: final report, p. 247.

[6].    DEEWR, Student income support – parental income test, fact sheet, DEEWR, viewed 14 May 2009, http://www.deewr.gov.au/HigherEducation/Documents/PDF/Pages%20from%20A09-303%20Budget%20Fact%20Sheets-15_webaw.pdf

[7].    DEEWR, Review of Australia higher education: final report, p. 53.

[8].    DEEWR, Student income support – workforce participation criterion, fact sheet, DEEWR, viewed 14 May 2009, http://www.deewr.gov.au/HigherEducation/Documents/PDF/Pages%20from%20A09-303%20Budget%20Fact%20Sheets-22_webaw.pdf; Australian Government, Budget measures: budget paper no. 2: 2009–10, p. 159.

[9].    Universities Australia, Australian university student finances 2006, Universities Australia, August 2007, p. 5, viewed 15 May 2009, http://www.universitiesaustralia.edu.au/documents/publications/policy/survey/AUSF-Final-Report-2006.pdf

[10]. Those most obviously affected are the estimated 30 700 people who deferred a place at university this year in order to meet the existing independence criteria. These people will not have qualified before the January 2010 cut-off date. Senator Gary Humphries is reported as having called on the Government to delay the commencement date of the measure until July 2010 to ensure that those people currently taking a ‘gap’ year will not be adversely affected. Based on a report of Minister Julia Gillard’s response to such a request in the Canberra Times of 15 May, it would appear that the Government is reluctant to do so. Minister Gillard is reported as having stated that ‘many of the students who would have gained eligibility through the old independence criterion will automatically be eligible as a result of the increases to the parental income test’. E Macdonald, ‘Youth Allowance concern mounts’, Canberra Times, 15 May 2009, p. 5.

[11]. See Council of Australian Governments, Communiqué, Hobart, 30 April 2009, p. 3, viewed 15 May 2009, http://www.coag.gov.au/coag_meeting_outcomes/2009-04-30/docs/20090430_communique.pdf