Archival tape – Eleanor:

“Okay, I am logging into my myGov account at the moment. Ok HECS debts…I can see on my page that I have about $45,000 in HECS at the moment, which is not excellent.”

Archival tape – Bianca:

“So I went to university in 2009. I did a bachelor of architecture and masters of architecture. The concept of borrowing $40,000, at the time, wasn't framed as a financial decision. It was just framed as something that you had to do to get your degree and get a job.”

Archival tape – Ezra:

“So I am a final year nursing student, so I am finishing my studies November this year. All up my debts probably in the $50k mark at the moment. I try not to check it very often because it does surprise me every single time I check it.”

Archival tape – Bianca:

“I feel stressed. It's crazy. It's just crazy. There's just this, like, amount of money in the background that is growing and growing and growing.”

Archival tape – Eleanor:

“It makes me feel, honestly, sick to my stomach. It’s pretty demoralising.”

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RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

Stories like the ones you’ve just heard are becoming more common, and the impact could be felt for years to come.

There are now 300,000 people carrying HECS into their 50s, which is six times higher than what it was just over 15 years ago.

And this June, HECS debts are set to rise again at a historic pace.

Today, senior reporter for The Saturday Paper Rick Morton, on how HECS went from a promise of opportunity, to threatening a generation with a debt spiral.

It’s Wednesday, May 3.

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RUBY:

Rick, many people who have a HECS debt, which is most people who went to university, have received a bit of a nasty shock about that debt recently. It's set to increase and significantly. I thought to begin with though, we could talk about what the promise and the point of HECS is. When it was introduced and what it was actually supposed to do.

RICK:

HECS was kind of like the thing they introduced to tell us that free university was over but we can have this nice new toy instead. Because uni used to be free, under Whitlam, and it was great. But as more and more people went to university, it became apparent to the successive federal governments that it was costing a lot of money and they worried about whether it was sustainable, right?

So fast forward to the late eighties and Bob Hawke was extremely passionate about education.

Archival tape – Bob Hawke:

“I think that one of the monstrosities of the Australian society is this fact. The child of a low income parent, simply because of that fact that he is the child of a low-income parent, has, in this country, a significantly lesser chance of having the opportunity of an education.”

RICK:

But something needed to be done as the costs were blowing out. So Hawke introduced HECS in 1988, the Higher Education Contribution Scheme, and the promise was this: It would be a way that working class kids could go to university, but it would be a user pays model.

Archival tape – Rear vision:

“Study now, pay later. That’s the advice from a committee headed by Neville Wran, which was asked by the Hawke government to report on ways to fund more places in Australian universities.”

RICK:

So HECS debts would mean no money upfront. It's an interest free loan from the government to you for your education, but you will pay it back once you've had that education and you've got a good paying job and you can finally afford to start making a contribution back to the government for that upfront funding.

So basically we see in HECS this system that was supposed to help people, in fact they’re now called HELP debts, go to university, help people get into university, and it was sold as a no-interest loan which it still is. But we've seen this, kind of, slow slide into inequality with changes around the edges of this student loan system being made, that actually make it tougher and harder for people to get rid of those debts later on in life. And we see, increasingly now, stories of people who are becoming trapped by their student debt, which was not the way this whole scheme was envisaged in the first place, when Bob Hawke called it a monstrosity that kids couldn't get into uni.

RUBY:

So you've got people, usually young people, being told that this is this interest free loan that you only have to pay back when you're actually earning enough money. So it seems like this low risk, and pretty good, way of paying for an education, if you have to pay. That is, until now. So tell me about what has happened, why are HECS debts suddenly going up?

RICK:

Look, HECS debts have always gone up. Now the way they do that is tied to the consumer price index. There's a complicated formula, it involves looking at the previous quarter of a common goods basket under the consumer price index from two years ago, over one year ago. And we just got the latest quarter results out, the March quarter results for 2023, which essentially guarantees that the government will say on June one, this year we will be indexing your HECS debt by about 7.1%. So $74 billion worth of current outstanding student debt will rise to almost $80 billion. That's a jump of between $5 and $6 billion. And it means that not only is the total pool growing, but individuals themselves owe more than ever. Because this isn't people enrolling in an extra degree or an extra couple of subjects. This is just the value of the debt they already had. And it's suddenly going up. So last financial year, for instance, 72% of people with Higher Education Loan Program, HELP debts, owed more than $10,000. Just seven years earlier, so we're still talking in the 2000s, 2005, 2006, that figure was 47.5%. So it's jumped up 15-16 percentage points in that time, in just six years. And it means today that a person with an average student debt, which is around about, by the way, $23,000, earning around $60,000 a year, will actually be making compulsory repayments of about $1,500 this year. But their debt total will actually grow by $1,645. So the net growth of their debt will be $145, even after they make their compulsory payments through the tax office. And so that's where we're really starting to see this inflationary impact on the debt value tinkering and changes to the minimum repayment thresholds, under the former government, as well as some broader changes to universities themselves, which basically says you're paying more for less.

RUBY:

Okay. So is what you're saying, Rick, that a person could be making their compulsory tax payments, paying back their loan the way that they have been doing for, you know, years potentially since they went to university. But in this coming year those payments might not actually be enough in, in real terms, to make a dent in their student debt, that that debt might actually continue to increase even as they're paying it off.

RICK:

Correct. And that would be true for a lot of people in the particularly low income earners. And Treasurer Jim Chalmers has actually asked this exact question last week when he, you know, a reporter said to him, you know, do young people have any hope of paying off their HECS debts?

Archival tape – Jim Chalmers:

“Of course they do and one of the good things about the HECS system is it means people only begin to pay back a sliver, a portion, of their education costs when they earn a certain amount of money.”

RICK:

Which is, you know, it's true. Of course they've got some hope of paying off their HECS debts. But the nuance there is that it's just not as guaranteed anymore.

Archival tape – Jim Chalmers:

Obviously this inflation in our economy has a lot of consequences. It means payments are indexed so people can try and keep up, but it also means there are other aspects which are indexed as well. This is the normal way the budget works.

RICK:

In fact, the National Tertiary Education Union calls HECS now a tax for life for some people, and it means that you hold on to this debt for longer throughout your life. In fact, the average repayment time for debts has gone from 7.3 years in 2005/06, to just under a decade.

RUBY:

So, Rick, what that means is that people who went to university, they might now be carrying that HECS HELP debt that they got, maybe in their twenties, for much longer for, you know, ten years, 20 years, they could still have it when they're in their fifties. And if so, what does that mean for the kinds of decisions they can make about their financial future?

RICK:

Look, I mean, if you just look at the over fifties with student debt, they used to be 58,000 people over the age of 50 with student debt. And that was just in 2005/06 when all of this data begins. Now, there are more than 300,000 people who are over 50. Some of them will be mature age students, so they haven't been carrying debt for 30 years. But some of them have had that since they were at university. They might never have earned enough to pay it back, or only earned a little bit here and there, and have never really made a dent in it. But again, these debts tend to hover, particularly for people who are not in consistent employment, for people who are not earning a lot of money. But the debts don't just hover invisibly in the background. They have a real impact on your credit score or, you know, things that banks take into account when they're assessing you on a home loan, for instance. And of course, we know that the housing crisis has never been more acute in this country. And the intergenerational effects of not being able to buy a home impact almost every other element of your life, including how you get the aged pension and whether you can afford to live on the age pension when you retire. All of these things are important. They might not feel like it when you are 30, but they are.

So the jeopardy that this puts people in is enough on its own, I think, to warrant serious consideration about how we tinker with these policies. But also, there's the flip side of the equation, which is, you know, what governments are actually doing to universities in the first place to make them places where you get value for money, where you're learning something and getting real knowledge at an academy that is meant to volt you into your career. And that's not necessarily the case.

RUBY:

We’ll be back after this.

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RUBY:

Rick, you’ve been looking into why it is that HECS debts are rising. People are paying more than ever for their degrees, essentially because many years ago the federal government decided to tie the indexation of student debts to inflation. You wanted to look at how that impacts people studying at university today. What did you find out?

RICK:

I wanted to know what people were paying for and whether they're getting what they're paying for. Because I've covered some of the most recent reforms to the university sector, and they have been controversial and the universities themselves have been cutting, I know the casualisation of the workforce, the cutting of staff, the complete insecurity of the job promise to academics, not just casual teachers, but full time academics at universities has never been poorer. And so we’re seeing this mass exodus of talented people who are the very heart and soul of the university, and at the same time, we've got students paying more than ever studying for those degrees. And I'm like, what on earth is the value proposition here? And it turns out, you might not be surprised, but students are getting a pretty raw deal. So universities are actually getting less money in their funding envelope because the agreements that were signed by the former coalition government actually just kind of plucked a low inflation figure out of thin air for the government funding. And so the total, what they call the maximum basic grant amount paid by the Commonwealth to almost every single university in the country, bar a few really key examples, is only rising by a maximum of 3%, in some cases. So we've got student loan debt going up by almost 8%, but government funding to the total pool for university, each university, is actually shrinking. It's going backwards in real dollar terms. So Griffith University, it's a really big university, Queensland, it's losing almost $15 million over three years, going from $258 million, in terms of the total pool, to $243 million. Curtin’s going from 275.5 million to 255 million. Now, why are these figures not in the legislation? These were literally just chosen by the government. They're in agreements with the universities, but there's no legislative force behind them. In fact, the government volunteered to choose this amount, back in a low inflationary environment. And of course now we've got this perverse situation where students will be paying more, while universities are getting less from the government.

RUBY:

Okay. So basically, Rick, the government uses similar market based measures for university funding that they do for HECS debts. Except that when it comes to HECS debts for students, that money is subject to inflation, which means that ultimately when inflation goes up, students have to pay more. But when it comes to the funding the government provides to universities, the cap stays the same. And so the government gets to pay less.

RICK:

You remember what your parents used to yell at you like, do as I say, not as I do. That's exactly what that is. And it creates this situation that is, some government funding for some courses, goes up. But the total pool, as I said, the maximum basic grant amount, is restricted and that is going down. So what that does, is it says to the universities if you want to get the maximum amount of money in terms of profit, but we also don't want to hit our cap too quickly, because then we won't get as much student contributions. Because remember, under the previous coalition reforms, student contributions also went up. So what universities are now doing, ironically, is looking at humanities degrees and social science degrees and those, what they call, band one degrees, where the coalition had hoped by jacking up the price of the degrees and enforcing higher student contributions and lowering the government funding for those places, would deter people from studying them. But what we're seeing now is that the universities are actually saying, well, actually if we offer more of those and we do them cheaply, that's going to be our new cash cow, because we're not going to hit our cap. So it’s this merry go round of tomfoolery in higher education that has seen this change in dynamic. So this is all part of a series of interlinked, I would say, changes, which makes this a story not just about student debt. It's a story about, you know, what are we asking students to incur debt for?

RUBY:

Right, and so if we allow this to continue, Rick, it sounds like we're going to end up with a higher education system which, although it was originally envisioned to lift people up, becoming something that actually traps people in a cycle of debt and poverty. So, why does the government continue to run the HECS system this way, given the circumstances for people carrying these debts?

RICK:

Yeah. I mean, they could pause indexation right now and would get broad support for it, I would have thought. But there was a bill put up by Greens Senator Mehreen Faruqi, spokesperson for this in the Greens, and the bill was rejected by the Labour-led committee because they were worried about the financial cost, which would be $2 billion upfront. This is the financial cost of completely axing indexation, and then $9 billion over the longer term. But in terms of just a pause, which is what a lot of people are asking for, just for the two years that inflation is ridiculously high, let's just not be unfair.

And this is not a dig at the current government, but at all governments. You can't look at these things in isolation. Student debt does have a bearing on your ability to enter the real estate market. Why is it so hard to enter the housing market to buy a single home for you to live in? You and your family, not just young people, but people in their thirties and forties with kids and young families, in professional careers who suddenly can't afford to live where their jobs are. Why is that? Because the government, successively, over many years, has been missing in action on key reform.

And if you're one of the people from the equity groups that we've been trying to get into universities ever since the Bradley review of higher education, people from rural and remote areas, people who are disabled, First nations, people who non-English speaking backgrounds, this is all the more hard for you, because student debt is cultural as much as anything else, because you have to work while you're at university, while you're studying, just to survive. So, all of these things combined with the changing university landscape, and I would argue the degradation of the university landscape in the last two decades, it’s an extra layer of, I guess, holding you back.

RUBY:

Yeah. And it's certainly a long way from Bob Hawke’s dream, in the eighties, of university education being accessible to everyone.

RICK:

It's demoralising, particularly in a cost of living scenario where everything has gone through the roof.

Now, Bob Hawke made a lot of promises. He also didn't want any kids to live in poverty by the 1990s. And that didn't happen. But HECS was a real thing that did improve access. But to have that student debt hanging over your head. We're creeping away from that fairness objective. And the reason we ever depart from fairness, I think, in any theatre of society, is because we let little bits happen here and there, and then eventually you find out you've jumped a long way from where you began. And that's a problem that has only just come into real resolution with the inflationary environment we're in now, because we can see not just the incremental increase to debt, but it's a huge jump. And that's unfair.

RUBY:

Rick, thank you so much for your time.

RICK:

Thanks, Ruby.

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RUBY:

Also in the news today…

Interest rates have been raised yet again, putting an end to the brief halt in rises we experienced last month.

The 11th rate rise since May last year, means that for someone owing $500,000 on their mortgage, their repayments will have risen by around $1,058 a month, since the RBA started hiking rates.

And,

The British government wants to use old cruise ships, barges and ferries to hold Asylum Seekers as it continues its effort to mimic Australia’s ‘stop the boats’ policy.

In documents obtained by the British edition of the Guardian, the UK’s home office says it wants to repurpose 10 ships, so that it can hold asylum seekers docked in ports around the country.

I’m Ruby Jones, this is 7am. See you tomorrow.

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