Why lowering the HELP debt repayment threshold isn't such a bad thing

Recent changes to when students have to repay university debts has stirred controversy. Fortunately, it might not be as bad as everyone thinks.
James Davis
James Davis
Team The Uni Guide
Save 

A recent decision by the House of Representatives has resulted in the minimum annual salary at which HECS/HELP repayments are compulsory is being lowered. By July 1st 2019, former and current students making at least $45,800 pa will have to make annual payments totalling 1% of their salary; this rate scales based on income thresholds.

An important thing to note about this is the fact it applies to both former and current students. Regardless of if you’re still studying or not, meeting this income threshold will cause you to become liable for 1% repayments, which at this new minimum salary eligible for repayment works out to $458 per year or about $8.80 a week. Higher tiers of repayment ought to remain as they are. The following thresholds (minus the $45,800 tier) are from the ATO website:

Salary Threshold

Repayment Rate

Average Annual Repayments

$45,800 - $51,956

1.0%

$488.78

$51,957 - $57,729

2.0%

$1,096.86

$57,730 – $64,306

4.0%

$2,440.72

$64,307 – $70,881

4.5%

$3,041.73

$70,882 – $74,607

5.0%

$3,637.22

$74,608 – $80,197

5.5%

$4,257.14

$80,198 – $86,855

6.0%

$5,011.59

$86,856 – $91,425

6.5%

$5,794.13

$91,426 – $100,613

7.0%

$6,721.36

$100,614 – $107,213

7.5%

$7,793.51

$107,214 +

8.0%

$8,577.12 +

The primary objection to this change is, naturally, the fact those who otherwise wouldn’t have to pay anything now do. Federal Education Minister Simon Birmingham told the ABC it is “...a very steady and careful change,” which there is indeed good reason for. "If we're to keep offering one of the world's most generous student loan schemes into the future, we need to make sure it's a sustainable student loans program,” he told ABC Radio Sydney on an entirely different occasion last year. Indeed, the current model is fairly tenuous; the government currently shoulders roughly $52 billion in unpaid student loans, of which much won’t ever be repaid.

This is one of the primary reasons why this isn’t such a bad thing. If the government is able to more readily recoup their loans, they’re able to continue HELP/ HECS programs longer into the future. It’s a short-term sting to the wallet for new graduates, sure, but ultimately it improves the chances future students will have access to interest-free loans. Compare that to what students in the US have to shoulder in addition to substantially higher course fees.

Study level

Interest rate (AUS)

Interest rate (USA)

Undergraduate

0%

5.05%

Postgraduate

0%

6.6%

So let’s say you’re someone who couldn’t care less if HELP is sustainable. All you care about in this hypothetical is your own financial situation. Is the lowering of the repayment threshold still fine? Funnily enough, the answer is still yes.

There used to be a loophole wherein Australian students could simply move and work overseas to dodge their debt repayment obligation, but this is no longer the case. If we assume that this hypothetical person will be earning an income within the repayment threshold eventually, which is fair given the 86.5% undergraduate employment rate in 2017, no matter where they are in the world they will be required to pay off their debt. By beginning to pay it off earlier, at the lowest interest rate threshold no less, the financial burden is distributed across a broader timeframe and thus more easily managed. This might sound somewhat backward given the present value of money, but it’s far easier to manage the repayment of debt when there is more time to do so.

Although you might be paying off debt today where perhaps you wouldn’t have yesterday, that debt is there regardless of who or where you are. Unless you intend to make less than the repayment threshold for the entirety of your life to circumvent the obligation, the lower threshold isn’t such a bad thing given the societal and personal benefits.