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Farrago talks higher ed: What’s happening to HECS?

Tuesday, 3 June, 2014

 

Commonwealth support made towards courses students undertaken at university will be reduced, if the 2014-15 Budget passes. These changes will take effect from 1 January 2016. The HECS-HELP system means students have the option of paying nothing upfront. They are required to pay a contribution to their studies when they graduate—never the entirety of their studies. Students currently pay 40 per cent of their university studies, with 60 per cent paid for by the government. Student contribution is predicted to increase by approximately 20 per cent, due to these changes in HECS-HELP debt regulation.

The changes include regulation of HECS-HELP debts by a 10-year Treasury bond rate rather than the consumer price index (CPI), the current form of regulation.

 

Man, that’s confusing. What do these things mean?

The Treasury bond rate, determined by the Reserve Bank of Australia, is a long-term debt security with a fixed interest rate. It currently sits at 3.76%. Investors tend to choose treasury bonds because they provide a stable income from the government. The fixed interest rate is called the Coupon Interest Rate. This rate is payed every six months. Once six months have passed since the bond is first issued (the maturity date), the CIR and the Face Value amount of the Treasury bond are paid to the bond holder. Treasury bonds are favoured by large investors as they are secure way to earn interest. So if HECS-HELP debts are regulated by the Treasury bond rate, they won’t fluctuate the way they do with the CPI.

The CPI measures changes in the cost of a basket of goods and services made by the average consumer in any Australian capital city. The government uses the CPI to evaluate inflation levels and to adjust the value of fixed payments such as contracts and pensions. While the Reserve Bank determines Treasury bond rates, the CPI is calculated every quarter by field officers who gather the prices of around 100,000 goods and services that represent the average consumer. The changes in prices of the goods and services are collected with expenditure data of households to find the average price change in the quarter.

Currently student repayment is regulated by consumer behaviour, which takes wages and cost of living into account. The CPI rose by 2.9 per cent from the March quarter 2013 to the March quarter 2014, which shows an increase in the overall changes of the price of goods and services. On a smaller scale, the CPI rose by 0.6 per cent in the March 2014 quarter (December 2013-March 2014). HECS-HELP debts are currently regulated with the CPI in consideration, which means regulation of debts are frequently assessed (i.e. every quarter). Thus debts are modified to reflect the cost of living.

 

Is this good or bad?

The Study Assist website explains that by indexing HECS-HELP debts by Treasury bonds, the government lends money at the same interest rate it borrows money. However many argue that changing HECS-HELP debt regulation to Treasury bond rates will lead to increases in debt regulation, as bond rates do not take cost of living into account and can increase to a maximum of six percent per annum.

However, undergraduate students and non-research postgraduate students who are currently enrolled in a Commonwealth supported place (CSP) will continue to be charged under existing regulation. For these students, proposed amendments will take effect on 31 December 2020 or whenever they finish their current studies.

Graduates will be required to repay their HECS-HELP debt once they earn more than an estimated $50,638. This will take effect from 1 July 2016.