Shared interest: A universal loan fee for HELP

Abstract

A 15 per cent loan fee on all new tertiary education lending could save the Commonwealth $700 million a year and make the Higher Education Loan Program more affordable for government. The fee would help to offset the government’s interest costs, while being fair to all students and preserving the loan program’s social goals.

Interest subsidies are the difference between the interest rate the government charges students – CPI – and the cost of government borrowing on the commercial market.

HELP’s potential interest costs are masked by current low interest rates. Interest costs would increase substantially if real interest rates returned to their average level over the last ten years.

Since its introduction in 1989, HELP has greatly expanded access to tertiary education. But with $52 billion of HELP debt outstanding, the government has to find ways to control its costs.

A 15 per cent universal loan fee would replace the existing fees – of 25 and 20 per cent respectively – paid by full-fee undergraduate and vocational education students. Postgraduate and government-supported students currently pay no loan fee. Charging some students high loan fees and other students no loan fees is unfair and has no policy rationale.

As now, there would be no upfront charges with a universal loan fee. The loan fee would be added to the student’s total debt. The fee would only affect graduates at the end of their repayment periods when their incomes are generally higher.

And because of HELP’s income contingent repayment system, students and graduates on low incomes would not have to repay their loan fee.

But loan fees would encourage students who can afford to pay upfront to do so.

Loan fees are both fair and necessary. Without change, HELP’s costs will escalate, risking damaging cuts to other education programs.