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The end of HECS as we know it

In 2013, Education Minister Christopher Pyne announced that the wave of asset sales the Abbott government was embarking on – aimed at making Australia “open for business” – would not include the $26.3 billion of secured loans the government owns in the form of HECS debt.

If you were a student, past, present or future, this might have come as a relief. But anybody who honestly believes this is the Coalition’s last word on HECS reform is sadly mistaken.

While a formal proposal to privatise HECS in the future was only hinted at, the lack of clear direction on education reform didn’t prevent commentators from weighing in on the merits of such an initiative. ANU professor Glenn Withers, who was the founding chief executive of Universities Australia (UniAus), came out in principled support of a securitising HECS, per ABC Radio’s PM.

“It means that at time of fiscal restraint for the government, essentially the private sector would provide more money up front, conditional on the repayment of the debt down the track when the economy and the budget are in better shape,” Withers said.

For every person who criticised the Coalition on the grounds that privatising HECS would negatively impact students, there was someone from the other side of the aisle arguing that privatising an asset doesn’t necessarily mean reforms to education policy. While this is technically correct, the report by ACIL Allen Consulting for Universities Australia on the merits of HECS privatisation concluded that the sell-off would probably not be in the interest of the government’s bottom line since “it will receive an amount for the debt which will be too low”.

Estimates put the market value of HECS debt at $11 billion – $16 billion – around half of it’s present value. The low value of the asset is due precisely to the structure of the current HECS scheme. If you’re a private investor, you’re not going to look favourably on debt that only rises according to the Consumer Price Index (CPI). An artificial 0% interest rate and a repayment threshold of $51,309 in 2013 – allowing unemployed graduates to live indefinitely without servicing their debt or alternatively, to leave the country and shirk on their loans entirely – does not appeal either. Due to these factors, the Grattan Institute estimates that a whopping $6.2 billion of total HECS debt is “bad debt” that will never be repaid.

So if the potential pay-off of HECS is so low that it wouldn’t be in the government’s interest to sell the asset, why is privatising HECS being talked about at all? It is due almost entirely to policy. Framing the issue in this way allows the Coalition to signal its intention to cut student welfare and wind back the assistance it provides to universities—$6 billion in the form of subsidies every year—without having to suffer the political blowback that would result from openly advocating such reforms.

Kim Carr, the former Minister for Higher Education, sees talks of privatising HECS as a clear pretext for auditing the current HECS scheme itself. Unsurprisingly, a Commission of Audit concluded that the current scheme will become increasingly unsustainable in the coming years. According to its findings, HECS debt is expected to grow to $42 billion in four years and more in 2016–17 than in the first 20 years of the scheme’s existence.

Carr has taken particular issue with the inclusion of former Coalition minister Amanda Vanstone on the committee. Ms Vanstone has expressed her opinion that the HECS repayment threshold should be reduced from $51,309 – it’s current level – to the salary of an award rate earner. It’s a view that should, in the absence of clear policy, be taken as reflective of the attitude of the Coalition as a whole.

Ms Vanstone’s comments reflect a deep ideological disconnect between the Coalition and young Australians on matters concerning higher education, something which a statement given by The National Union of Students (NUS) to Tharunka makes perfectly clear:

“Privatising HECS debt will inevitably lead to moves, as we’ve seen in the UK, to increase fees, raise interest rates, and lower debt repayment thresholds. It would represent a step further towards a university system that only benefits the rich and that can only be accessed by the rich because it will entrench the ‘user pays’ university model which has been expanding in Australia since HECS was introduced.”

Granted, lowering the HECS repayment threshold from $51,309 to the award rate would make the asset significantly more attractive to investors, but it would also remove the current incentive on the government’s part to actively subsidise universities. Owning student debt gives governments a direct incentive to subsidise public universities, effectively increasingly the rate that students repay their HECS debt. The current repayment threshold encourages the government to create the conditions that would allow students to earn salaries in excess of $51,309 straight out of University.

For all of the number-crunching that selling-owned government assets invites, it would be misguided to look at privatising HECS solely in terms of fiscal policy. The majority of Australians discuss the issue of student welfare in ideological terms, of entitlement and personal responsibility.

Warnings that HECS will one day have to be privatised rarefies and gives an example of what Treasurer Joe Hockey meant when he said on Feb 4 that ‘the age of entitlement is over, and the age of personal responsibility has begun’.

HECS debt privatisation fits into this narrative of entitlement perfectly. It is easy to accuse young Australians of feeling entitled, since they, and not the Boomers, grew up during what economist Ross Garnaut calls ‘the longest period of economic expansion unbroken by recession of any developed country ever’. The stereotypical Gen Y student is often portrayed as ‘entitled’, using University as a post-natal womb, learning disciplines that are arcane and generalised, and sheltering themselves from a job market they view as destructive to their Western-democratic notions of freedom and individuality.

HECS may be safe for now, but whether it will remain unmolested ultimately depends on how Australia fares in the next economic downturn. As The Drum contributor Alan Kohler writes, Australia’s lack of infrastructure no less than a looming “national emergency” , while economist Harry Dent, author of the New York Times bestselling book ‘The Great Depression Ahead’ and successful predictor of the 2008 financial crisis, has singled Australia out, saying that in the next few years, we will experience “the next Great Depression”, with property markets plunging “at least 30 per cent” with “50 per cent down the road” being “even more likely”. In the coming years, Australia’s top-heavy, mineral-export-based economy will be highly exposed to lower growth in Asia, magnifying the deficit considerably, making calls for HECS reform increasingly difficult for the Opposition to oppose.

Matthew Bugden