Issues Surrounding Student Debt Reduction

Commentary

Running a “small target” strategy to win an election may lead to being in government without real power if there is no clear agenda. Prime Minister Anthony Albanese, who won with a small target, is now following Uncle Joe Biden’s strategies in the US to address this issue.

One of the latest moves in this direction is modifying how the HECS-HELP debt is calculated, a $3 billion equivalent to the US administration’s cancelation of over US$1.4 trillion in student debt.

While President Biden aims to retain young voters through such policies, it remains uncertain if Albo’s beneficiaries will even notice the benefits.

The HECS scheme, famous for its unique approach, allows the cost of education to be repaid through a higher tax rate without charging interest on the student debt. This helps students and institutions alike.

How the HECS Scheme Works

Unlike traditional loans, student debt under the HECS scheme is indexed to inflation, ensuring the real value is maintained with no additional return for the government. Repayments start once the income reaches a certain threshold and increase as the income rises, benefiting those who earn enough to repay the loan.

However, Albanese’s decision to add $3 billion to the government’s cost is viewed as a questionable investment both politically and economically.

The notion that education leads to economic benefits and hence should be free is debated, overlooking the contribution of non-university workers who pay for graduates’ education through taxes.

The Problem is, Uni Students Won’t Notice a Difference

Students benefiting from these policies may not realize the actual impact due to the unchanged repayment process. The headline could lead to increased expectations from other groups for similar benefits.

The treasurer should have maintained his stand to save every possible dollar, preventing further demands for special considerations and tax breaks.

If anything, efforts should be focused on reducing the country’s education expenses and preventing an over-investment in tertiary education, a trend that may not be beneficial for the nation in the long run.

Enabling More Students to Go to Uni is Not the Answer

Adopting a different repayment strategy could foster more economical choices and discourage unnecessary university enrolments without appropriate cost signals.

While it is crucial to acknowledge the importance of education, the current approach of funding tertiary education may lead to oversupply of graduates without proper job prospects, further affecting the economy.

What Will This Do to Inflation?

Loose budgetary decisions based on empathy may unintentionally worsen issues like inflation and housing affordability, creating challenges for first home buyers.

Although the direct impact of these measures on inflation may be minimal, the overall message sent to other sectors seeking similar benefits can have a detrimental effect on the economy.

Considering the potential consequences and lack of noticeable benefits, it is essential to reevaluate such decisions to ensure long-term economic stability.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.