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Education and Employment Legislation Committee

COBURN, Mr Damian, Branch Manager, Student Information and Learning Branch, Department of Education and Training

DOYLE, Ms Leonie, Acting Director, HELP Policy and Programs, Department of Education and Training

ENGLISH, Mr Dom, Group Manager, Higher Education Group, Department of Education and Training


ACTING CHAIR: The committee will now resume, and I welcome officials from the Department of Education and Training. I understand that information on the parliamentary privilege and the protection of witnesses and evidence has been provided to you. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or a state shall not be asked to give opinions on matters of policy, and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy, and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer the question must be made by a minister and should be accompanied by a statement setting out the basis of that claim. Do you have a short opening statement?

Mr English : No.

Senator O'NEILL: I want to indicate that we've had some difficulty understanding the impact of individual MYEFO measures from the information provided at MYEFO. Could I ask the department to explain the budget impact of these measures?

Mr English : I would start with the financial impact statement tabled with the bill in the explanatory memorandum, which highlights the changes to the HELP repayment thresholds.

Senator O'NEILL: What page are we on?

Mr English : Page 2 of the explanatory memorandum and the financial impact statement. As that says, the changes to the HELP repayment threshold and indexation produce savings of $346 million in fiscal balance terms and $245 million in underlying cash terms over the forward estimates. The changes to the student financial supplement scheme have a $32 million impact in underlying cash balance terms over the forward estimates. And the combined HELP limit has a cost of $22.9 million in fiscal balance terms over the forward estimates, or a cost of $10 million in underlying cash terms.

Senator O'NEILL: Why in particular are the changes to the loan limit an expense rather than a cost?

Mr English : There are some implementation costs of bringing a loan limit system into place. We need to have some IT changes to make it possible, and we are looking at having a system that gives students real-time information about their consumption of their loan limit, and those costs show pretty immediately in the forward estimates system, whereas the impact of the loan limit takes, in terms of savings to the loans book in the future, some time to be realised, because the limit doesn't hit most students immediately, because their HECS-HELP debts that have already been incurred, for example—have been excluded—so it's a grandfathered arrangement, in effect, so you won't see that limit impact on students for a number of years in those cases. And then there's—

Senator JACINTA COLLINS: So, five years, if you look at the case for a Melbourne university, before that would be realised.

Mr English : Potentially, yes—without having the Melbourne example directly in front of me. But yes, five years, seven years, nine years would be the impact of the limit on a student who doesn't have other debts from previous FEE-HELP studies or VET studies in their history, if you like, so it will take some time for that to come in. And also, to be honest, the way the HELP accounting works is that it doesn't have as big an impact on the underlying cash balance or fiscal balance as direct spending on things like systems development and the like.

Senator O'NEILL: Sorry—could you just say that again?

Mr English : The longstanding accounting of the loan schemes has most of the movement in the value of those loans dealt with through the asset statement of the Commonwealth rather than the typical measures of revenue and expenses that underlying cash and fiscal balance pick up. For example, the change in the value of changing the repayment thresholds is not fully reflected in the dollars that are typically reported in the budget measure, because they happen on the balance sheet of the Commonwealth in changes in the values of the loans that are outstanding. And it's only some of the costs of offering the loans that get reflected in measures like the underlying cash and fiscal balance numbers. So, there's a double whammy, if you like: there's a delay in the way that loan limit comes to bite, and then there's the accounting of changes in the way the loans are done, which is not always fully captured by the way fiscal balance and underlying cash works.

Senator JACINTA COLLINS: Did you say a 'double whammy'?

Mr English : You may have heard that, yes—I could have chosen my words a little better, yes.

Senator JACINTA COLLINS: Well, it is a double whammy for students, then.

Mr English : I meant a double whammy in terms of the costing and the way these things don't always come through.

Senator JACINTA COLLINS: Or, if you look at just one measure, it doesn't fully highlight what the overall cost is.

Mr English : Sure. You could say that about a range of things. I'm not sure where you'd like to go with that question.

Senator O'NEILL: I'll always try to go for clarity and transparency so that people can understand what's going on. That's where we're trying to head. I'll put that on the record.

Mr English : Sure. And I'll put on the record that you asked about the financial impact of these measures, and they are transparently and clearly disclosed in the explanatory memorandum.

Senator O'NEILL: Could I ask about the implementation cost that you mentioned, that was going to two items? Is there anything else? What are the two items, again? What is the cost of each one? And is there anything else that's a cost?

Mr English : The cost of implementing the loan limit—as I said, there will be some system changes required for us in the management of the loans—IT systems, the way we record the fact that we now need to introduce a capacity to have that limit accounted for as students consume it—

Senator O'NEILL: How much is that cost to manage their debt?

Mr English : To break down that costing further I'd need to take it on notice. I don't have the details of the costings that underpin that measure here. There are a range of changes to systems that will be required to make this work. They are fully reflected in that $10 million costing in underlying cash terms, but how each element of our action to implement this measure is reflected I would need to take on notice.

Senator O'NEILL: To help me understand: is $10.3 million the rough cost of the IT and the real-time disclosure to students of their debt?

Mr English : No. I said that the total cost of the measure is 10.3. I would need to deconstruct it, on notice, to give you the elements that you're asking for. That's a level of detail that I do not have with me today.

Senator O'NEILL: I'm happy for you to give me that on notice, but you did mention the IT and the real-time disclosure. I'm sure you've got some rough numbers that you could provide for me today around that.

Mr English : No.

Senator O'NEILL: So, where did the $10.3 million come from?

Mr English : Through the usual costing process through the Department of Finance, and it's disclosed on that page with the explanatory memorandum at the bottom of the fourth paragraph on page 2.

Senator O'NEILL: That's the 10.3.

Mr English : That's the $10.3 million I was referring to.

Senator O'NEILL: So, there's a cost to do this to students that's quite significant. And if you could provide the detailed breakdown of those costs on notice I would appreciate that. How does the government manage the current loan limits for students using the FEE-HELP scheme or the VET student loan scheme?

Ms Doyle : There's a Higher Education Information Management System that interacts with the department and the Australian Taxation Office. So, when a student submits a request for assistance the systems talk to each other and figure out whether the student still has a FEE-HELP balance available.

Senator O'NEILL: How many students are engaged in that system?

Ms Doyle : In the FEE-HELP system?

Senator O'NEILL: Yes.

Ms Doyle : In an average year there are somewhere around 60,000 to 70,000 students receiving FEE-HELP assistance. I can look that up.

Senator O'NEILL: They are the students who are getting the assistance, but, in the system more broadly, there would be more than just the 60,000 to 70,000 getting assistance in that year. Is that what you're saying?

Ms Doyle : That's students receiving FEE-HELP assistance.

Senator O'NEILL: But they're not the only ones who are in the system. There's the VET student loan scheme plus there are all the ones who have already been in the system for a long period of time.

Ms Doyle : That's correct. Every student is in the system.

Senator O'NEILL: I'm trying to get a sense of what the scale is in total.

Mr English : On the higher education side, in 2016 there were 1,034,916 student places. Just to be clear: that's EFTSL places, rather than people. In the system there were 616,196 Commonwealth-supported places; 96,108 domestic fee-paying places; 1,301 domestic non-award-giving student places; 26,618 Research Training Scheme domestic student places; and 294,693 overseas fee-paying student places.

Senator O'NEILL: There was quite a bit of data in there. How many errors have there been in this system over the past 10 years? For example, how many students have borrowed more than they're entitled to borrow?

Mr English : I would have to take that on notice. I certainly don't have data with me now on students, for example, who've exceeded their VET FEE-HELP loan cap or the FEE-HELP loan cap.

Senator O'NEILL: I'm a little surprised you don't have that number, given that the government is asserting that there is an extraordinary number of people eating in the buffet of free education to the tune of hundreds of thousands of dollars.

Mr English : With respect, I think you've conflated some issues. The claim about students who've consumed a large amount of student loans relates to those students who have managed to accumulate several hundred thousand dollars worth of HECS-HELP loans over which there is no cap at the moment. There is no error in those students accumulating that. There is a policy discussion about whether that should be permitted, which we're now engaged in, in terms of issues in a cap to prevent that sort of the accumulation of debt occurring in the future. Those students, to my knowledge, have incurred those debts legitimately, in line with the legal authority currently available to us to run the scheme. The question is, 'Should that situation continue?' There's no question that the top debtor students—however many debtors you want to talk about—have managed to, over the period of the HECS-HELP scheme, accumulate several hundred thousand dollars worth of debt. That was not a mistake or against the legislation. There are no errors there to report.

Senator JACINTA COLLINS: Mr English, you were talking before about the need to have a system that allows students to understand their real-time consumption. What we're attempting to understand is, where there are lifetime limits—and they do currently exist—what has been the issue with their administration to date? Why is there a need to expend additional funds on creating a new system to manage lifetime limits?

Mr English : A much broader range of students will now need to consider the way they consume their access to loans as they progress through higher education. Previously, students who did enrol in full fee-paying degrees obviously engaged with their provider about a range of factors that considered how that cost would build up over time. They could rely on the feedback between us and the provider to alert them, if they were going over their caps, but, because the cost of that is usually a much more front-of-mind decision at the time it is taken, the need for real-time assistance for the student to be able to access information was lower. Now, there is capacity to provide the students with that information. Now, in real time, via the provider, if the provider queries our system, what we're looking to do with this change is give access to a system that will be available to students as a matter of course. Many of them are enrolling in public universities in a way where they will need to think about whether they should begin in a four- or five-year program, knowing that that will have a particular impact on their future choices, and we think that, with the move to this measure, there's an opportunity to provide a more informative set of public information for them to help them make their decisions.

Senator JACINTA COLLINS: We're still, on notice, interested in the extent to which there has been an error rate in the existing lifetime limit. Have we had people who have had loans higher than the current limits, and, if so, in how many cases?

Mr English : I'd have to take that on notice.

Senator JACINTA COLLINS: That's fine.

Mr English : Yes, I understand the question.

Senator O'NEILL: Mr Coburn, do you want to add anything to the record?

Mr English : Yes, we may be able to add a little bit to my answers.

Mr Coburn : The $10 million is driven, I believe, by the accounting. Now, we've got it on notice to explain how the costing works, but I thought it might be useful just to give you a rough idea of the underlying issues, and this goes to the point that the way loans are accounted for is very different to other parts of Commonwealth finances. Normally, the fiscal balance and the underlying cash will be very close to, if not exactly the same as, the actual costs. I also have to say, as well as putting it on notice to get the details, that I'm not an accountant and this is a particularly complicated area of accounting. But there are some factors that come into it—for example, with the cash, that's balanced out by future repayments. So, for example, the underlying cash effect on loans is, generally speaking, the expected nonrepayments. Likewise, I think that, in this particular measure, one of the factors is that it will reduce the amount of loans, which reduces the assets of the Commonwealth, because a loan is a future asset, and that accounts for part of the costs. The actual system costs which are required to add HECS-HELP into the existing cap are in the order of hundreds of thousands of dollars. One thing you might look at in terms of noting the difference, for example, is the expense, in terms of the change in fiscal balance, and underlying cash for HELP loans in total is in the order of about $1 billion, but, if you look at what happens to the nominal value of HELP debt loans, they go up by about $5 billion a year, so there's that difference between netting out of what are the actual dollars that go backwards and forwards and what's accounted for in the Commonwealth's account. So what that means is that, as Mr English was saying, the savings, in terms of the Commonwealth accounts, need to be washed out outside the forward estimates period.

Senator O'NEILL: I want to just go to the evidence we've had from the Grattan Institute. They said that only 10,000 students have debts of more than $100,000. Yet last year there were reports of many students having huge debt. On 12 September 2017 the Herald Sun said that there was a person owing $374,000 to the Commonwealth. My question is: how on earth did this happen?

Mr Coburn : Our number for 30 June 2017 is about 14,000 students with debts over $100,000. But, as Mr English pointed out, these are students who have had HECS-HELP debts, which is not under the cap. So those over-$100,000 debts are not a consequence of errors in the system; they are a consequence of there being no cap for those kinds of loans.

Senator O'NEILL: Do you have any more detailed information that you can provide us about the debts of individual students? Is there a spreadsheet that gives us an indication?

Mr English : Some of that information is difficult for us to hand over on privacy grounds. We could do a precis of the sort of information that was just mentioned and a bit more—

Senator O'NEILL: I'm not looking to find out which local residents in the area I live in have debt, but I am interested in finding out the debt and the frequency at which that number occurs and the scale of where this extraordinary overspend seems to be undertaken by these professional laggard students.

Mr English : Without accepting the premise of your description, Senator—

Senator O'NEILL: I actually don't even believe what I just said. I don't think they're laggards at all. I'm wondering why they're being characterised as such.

Mr English : I don't believe it is characterised in the explanatory memorandum that way.

Senator O'NEILL: No, the language is much more careful in the EM.

Mr English : We certainly can —Mr Coburn can have a look. We think it would be in the distribution of number of debtors over a certain number. A hundred thousand, or some other value in that range might give you a perspective of the number of students that have debts above that amount on the HECS scheme.

Senator O'NEILL: A bit of an indication of at what level those debts are would be good. For example, is there one person with a $300,000 debt?

Senator JACINTA COLLINS: I would be interested in understanding that in terms of the evidence we had from Melbourne university. How many students are going to be negatively impacted by the lifelong limit that would be in a similar situation to that masters of engineering student. Were you here for that case?

Mr English : No, but I have had discussions with people about similar sorts of cases. There is a range of experiences already in the sector. There are a number of courses currently available to people that take them over their FEE-HELP balance of $125,000 for medicine and veterinary and the like or $100,000 for others. They are, in some cases, in universities, both public and private that students voluntarily choose to enrol in those courses knowing that they will not get a public loan to cover the whole cost. Many of those are not affected by the limit because they already are well and truly above the limits that will apply under this measure. There will be some at the margin that will have to make a choice about how much they consume both of public and private higher education against their loan limit in a way that takes account of the availability of that loan.

Senator O'NEILL: That sounds like a formula for a pretty significant disadvantage for people from poorer family backgrounds.

Senator JACINTA COLLINS: They have a choice.

Senator O'NEILL: They can choose to study and use their brains for the benefit of themselves and the nation or they can choose to avoid a debt—that seems like a choice between a rock and a hard place.

ACTING CHAIR: People who choose not to study can still contribute their brains to the nation.

Senator O'NEILL: Not in the fullness of time if they can't get their actual degree because the cost is a preclusive theme.

ACTING CHAIR: I think that is a fairly strong view of people who don't attend higher education.

Senator O'NEILL: Well, in some cases that is exactly what is going on. Mr English, can I have a response?

Mr English : My point for the loan limit is, for the students pursuing education through the public university system, the loan has the capacity to support nine years of full-time higher education, which for most people is two degrees worth of choice or a degree and some future study worth of choice. To go beyond that to participate in full fee paying higher education is frequently a choice made by people who have had the benefit of a publicly supported higher education. The situation we face though is that that loan that we give is not a free good. It does involve cost to the taxpayer to deliver the loan. There has to be some choices at some point in the system about how far you extend the loans to either an individual or in total, and the situation where a student can study full-time for nine years in pursuit of one or two career changes doesn't appear to be an exorbitant limit on their choices. I would note that we always conduct this debate—

Senator O'NEILL: That didn't occur with the evidence we received from the University of Melbourne today about innovation, need for change, collapse of industries, retraining at an extraordinary scale in the current economy.

Senator JACINTA COLLINS: And a six-year program in engineering.

Mr English : And plenty of students around the nation are studying engineering without threatening a loan load that gets near that limit. The opportunity offered by the University of Melbourne is of a particular nature. We are supporting their model as we have always done through the provision of public places and through access to a loan scheme. To say that, because a particular institution wants to create a structure in their degrees and the public purse should fund that ad infinitum, I think, is a luxury that relies on presuming that those loans are free goods, and we know that they're not.

Senator O'NEILL: It was very interesting to describe it as a luxury. I'm sure that the professor has a very different view about what quality education looks like and why they've pursued this particular model, particularly at the encouragement of the current Deputy Leader of the Liberal Party.

Mr Coburn : It might be helpful to look at some specific examples in relation to Melbourne that go to the unique circumstances and why it's not a particularly good model for looking at the sector overall.

Senator O'NEILL: But it is a part of the sector, Mr Coburn, and it's going to get embroiled in this. It's part of a sector that's given us evidence today—Universities Australia, the University of Melbourne—indicating that the degree of consultation with them has been extraordinarily bad in terms of these major systemic changes that have been proposed by the government.

ACTING CHAIR: Before you move onto consultation, Mr Coburn, I'd be interested in the answer that you started.

Mr Coburn : I didn't hear the evidence this morning, but I read the submission and have seen media. I think, in some respects, we might have a slightly different view on the impact of the current arrangements that exist in Melbourne university and also UWA, and the extent to which the issues are created by the new legislation or by the arrangements that already exist at the University of Melbourne. You'll have to forgive me: I had a number of examples of pathways that I printed out this morning and left on my desk, so I'm going to have to work from memory. Broadly speaking, at University of Melbourne, you can split pathways into two kinds, if I remember rightly: social work and some other allied health professions, where the pathway is below the current cap and it will remain below the current cap—that is, once HECS is added, individuals will be able to undertake their bachelors degree prior to undertaking a master's degree and they'll be under the cap.

Senator JACINTA COLLINS: You're not saying social work's a benchmark for this, are you, as a social worker?

Mr Coburn : My partner's a social worker.

Senator JACINTA COLLINS: Yes, but you're not using social work as a postgraduate program as a benchmark for what a sensible model is, surely?

Mr Coburn : I'm not sure I understand the question.

Mr English : Melbourne university has moved almost all of their professional pathways onto this undergrad/postgrad model. Some of them are priced in a particular way—social work being the example that came to mind. There are others that are priced in different ways. In part, you could presume, because they will have missed a pay for those pathways, it's somewhat different.

ACTING CHAIR: Presumably JD's somewhat smaller than a masters in social work.

Mr Coburn : That's what I was about to get to: you've got courses like JD's architecture and I think veterinary science are all around the $108,000 mark, so they're already over the limit. You've got medicine, which, at Melbourne university, is $294,000, so under the current arrangements that means the student has to find $170,000 or thereabouts, and that'll be reduced.

Senator O'NEILL: It's an awful lot of money.

Mr Coburn : It is. The point is that that's under the existing arrangements, and that would not change if this legislation did not proceed.

Mr English : Or it might change to the extent of $30,000 of undergraduate student debt coming about through a bachelor of science on the way to that medicine degree. We don't think the difference between $170,000 and $200,000 in the student's choice set is a basis for making national policy around having a loans scheme that has reasonable parameters for people to make decisions about when they engage and how much is invested in a particular individual's higher education. It is true to say that, in the full-fee market, the pricing discipline is an important factor in the way universities need to instruct their offerings. The loan scheme is clearly able to be shown as diminishing the price impact caused through incentives for students to study. The continual offering of an untapped source of loans into a market that has otherwise lesser price incentives is difficult to sustain as a public policy construct. The student and the institution need to take more account of what is a reasonable price to pay and what the cost of delivery is. That is all this will do. It will say to the institutions, 'If you want to structure a course, how long you offer the course for, the price you offer the course for, now needs to take into account how the student can pay'. In some cases, that will sit alongside Commonwealth supported places that operate quite comfortably within the cap that exists.

Senator JACINTA COLLINS: So then what is the rationale for setting the limit at the level proposed?

Mr Coburn : The—

Senator JACINTA COLLINS: Sorry, Mr Coburn, I didn't mean to have a big crack at you about social work, but I'm sure it's not just, 'This is what the limit would be for a social work program'.

Mr Coburn : No. The limit is set independently. Social work just sprung out of me when I was looking at the University of Melbourne website because my partner is a social worker.

Senator JACINTA COLLINS: But I'm asking what the rationale actually is.

Mr Coburn : The question—

Senator JACINTA COLLINS: I'm sure the government didn't say, 'All right, we'll pick social work as the basis for working out what the limit should be'.

Mr Coburn : That is entirely coincidental. In fact the question came up before, Where does $104,404 come from?'—


Mr Coburn : That is the 2017 rate, plus indexation. So in real terms there is no change from 2017.

Mr English : From the existing limits that apply to the full-fee system.

Senator O'NEILL: Right. But I believe that we heard there was a difference between—I think it was a $23,000 difference for the higher level degrees.

Ms Doyle : Yes. Medicine, dentistry and veterinary science courses.

Senator O'NEILL: And what is the calculation involved in that?

Ms Doyle : It is in recognition of the fact that these courses generally take longer and are therefore more expensive at a typical student contribution rate.

Senator O'NEILL: So is there indexation in there or is it, 'Let's just put a $150,000 out as a number because that sounds fair in the community'?

Ms Doyle : It is roughly a 15 per cent increase.

Senator O'NEILL: Why 15 per cent for that and two per cent for the other?

Mr Coburn : The two per cent is the ongoing indexation for the base rate, and the higher number is an on-balance judgement about what is appropriate, given the higher expenses for higher courses.

Senator O'NEILL: So 'on-balance judgement', based on what? Because that goes to the consultation that we have heard about throughout the course of the afternoon; there has not actually been consultation in any detail about these matters. This has been delivered as a fait accompli from a minister who basically created the impression that he was serious last year and he is serious this year and he is going to do what he has to do to rein the whole thing and keep it all in control. So—

Senator JACINTA COLLINS: 'Manage this crisis.'

Senator O'NEILL: 'Manage the crisis', which we still haven't found exists. What level of consultation did you have, and where did the $150,000 suddenly come from?

Mr English : The $150,000 reflected our analysis of the data we get showing what fees are charged in the full-fee paying market which we have been collecting under the system for some time and the pressure that both the changes in duration of the course in those categories—medicine, dentistry and veterinary science—and the changes in costs will be putting on the limit so that more students could be covered by the loan cap than was currently the case. It also reflects the fact that, if you bring the HECS-HELP elements into bear, there has to be a bit of room created when those courses are already pretty much approaching the fee level implied by the loan cap.

Senator O'NEILL: But why can't you apply that same argument to degrees as they are currently constructed at the University of Newcastle? If that is the reality of the market, why did you arbitrarily only—

Mr English : Because on the disciplines in the general limit, there wasn’t the same evidence of pressure on the ability to take out loans under the FEE-HELP scheme to support studies in those subjects. It is only in those four areas that either the price or the duration of the study was putting pressure on the limit. So there was no apparent need to adjust that lower cap.

ACTING CHAIR: Were you were here earlier for the Grattan Institute's evidence?

Mr English : No, but we are familiar with the Grattan submission.

ACTING CHAIR: Mr Norton reiterated his support in his previous work for linking loan repayments to household income and for recovering debts from deceased estates. Are there any plans to revisit either of those ideas?

Mr English : The government has made no decision to pursue those policy directions.

Senator O'NEILL: At this point.

Mr English : I have nothing further to add to my answer.

ACTING CHAIR: The Regional Universities Network, in their submission, suggested that aviation needed to be included in the higher threshold with medicine. Is that something that you are considering?

Mr English : It is not a proposition that has been put for us to investigate at this point in time. I think the duration over which the scheme will come into play would allow us to have a look at a few outliers like that to see if it was warranted. The pressure being put on the loan there by flight training fees is an issue about which I guess I would have a more open question about whether they are part of a higher education funding model or not. Examples like that will, I think, need policy review over time as the system gets bedded in.

ACTING CHAIR: Obviously in discussion of costings we've noted that there is an up-front cost to implementing these measures. Presumably, though, the benefits to taxpayers come over the medium and long term by a reduced amount of loans that are not going to be repaid. What are the consequences of not proceeding with this legislation to those long-term figures on how many people are going to repay their loans?

Mr English : The most important impact of these measures is on the amount of debt not expected to be repaid that applies to new debts being issued, which, in the current scheme, stands at about 25 per cent across the Higher Education Loan Program. As a result of the changes proposed in the legislation we expect that to reduce to about 17 per cent over the Higher Education Loan Program.


Mr English : From 25 per cent.

ACTING CHAIR: You might be aware of the Grattan Institute's concerns that the changes to the middle-level income rate of repayment wouldn't be sufficiently quick and consequently we might not realise as many savings as might have otherwise been the case. Is that the department's view?

Mr English : Mr Coburn will correct me if I get this wrong, because he has had more direct discussions with Mr Norton, but I think Mr Norton has posited a particular model that would cover more than what's in the current legislation. We've stuck with a model based on a progressive increase in the thresholds over time. The previous proposition from the government was built around, for every six per cent increase in income a half a per cent increase in repayments through the loans scheme. That is the model that will apply from the $52,000 threshold. Between $45,000 and $52,000 is just a one per cent repayment rate without change. That is to try to address a problem in the repayments model that applies now, which is fairly large first rates of repayment for people who come into the Higher Education Loan Program repayment system. At the moment, before the previous changes were legislated, we're talking about four per cent of income at $55,000 or thereabouts.

Ms Doyle : $55,874.

Mr English : So $55,874. That results in about $2,000 worth of repayments in a year, which is a substantial step from zero.

ACTING CHAIR: Is this about trying to manage the effect on the marginal rate of taxation if you include this, say, as a form of taxation?

Mr English : It is trying to smooth out that impact, so that the incentives to avoid work, delay promotion and the like are not influenced by the loan repayment scheme. The view we have is that starting small with progressive and steady increases is the better way to even out those incentives for people.

ACTING CHAIR: So, to summarise, they start the repayments earlier but at a slower rate so that more people are making repayments but not at a discouragingly high level?

Mr English : That's right, and then to build the repayment rate over time in a simple, predictable, progressive way. The previous system had a number of steps in it, through historical decision-making, that jumped people to rates of repayment in fairly dramatic fashion. You can see—from chart 2, I believe from memory, on our submission—the clustering of income reported amongst debt holders just below that initial threshold at $55,000.

ACTING CHAIR: Yes, I was just about to ask about that, because obviously it makes logical sense that people would seek to avoid it if possible by managing how often they work, their hours of work or, as you mention, promotions. But there's empirical evidence that there are people who are structuring their affairs to avoid entering that repayment phase. Is that right?

Mr English : There's certainly evidence that there's a clustering of people at income levels just below the first HELP repayment threshold currently. I wouldn't take that to the point of saying that I have direct evidence about the way people have achieved that.

ACTING CHAIR: Sure. I'm only suggesting.

Mr English : It's certainly reasonably clear that that's a disincentive in the system that we're trying to smooth out. Mr Norton has a range of models about how that could be done. There's as much validity about the way you construct that slope and taper in his models as there is in the way we've come up with this model that we've put in the table. What we're trying to do is get a simple, progressive system. His collects a bit more in middle income levels. Ours collects a bit more, I think, at upper income levels. There is a judgement as to what's a reasonable approach to bring that in. The clear benefit of what we've put on the—

Senator O'NEILL: Can I just ask a question there. You've consulted quite closely with Mr Grattan on these models.

ACTING CHAIR: Mr Norton, I think.

Senator O'NEILL: Sorry, Mr Norton from the Grattan Institute. How would you say the detail of your conversations with Universities Australia or other leading universities is by comparison to the conversations with Mr Norton?

Mr English : I'd say the difference between those discussions is that Mr Norton came to us with an alternative model, and we have interrogated his logic in that model. We've had many discussions with UA and with many universities over the last couple of years about various higher education reforms.

Senator O'NEILL: Did you advise him to submit a model for this occasion when you were advancing one?

Mr English : They were invited to make submissions at a number of steps throughout the last three years worth of higher education policy development. Mr Norton typically doesn't wait for an invitation; he's pretty forthcoming—if not to us then certainly in public discussion. He puts forward many pieces of analysis and many models, and we take his analysis seriously, as we do that of any other contributor to the debate around higher education who will bring their evidence and analysis to the mix. I don't think I would characterise Mr Norton as having had a special run at discussion with us in the last year. For anybody who's had a proposition to put, we're very happy to discuss it with them.

Senator O'NEILL: On notice, how many propositions have you had put to you from other leading voices across the sector?

Mr English : I suspect the answer is one, but I'll verify that.

ACTING CHAIR: I just have one final question. One of the focuses of the evidence today and in submissions is on the lifetime cap and whether or not, for example, it could be reset if someone has paid it off in full or substantially. Is that something that the department has looked at?

Mr English : It's certainly part of the consideration we made about the policy design. The government's decision was to go with a lifetime limit as described. For me, there are a couple of considerations as to whether that would be a reasonable policy step. The first one is that administering that sort of scheme will be complex. The great value of the Higher Education Loan Program—and I know this from many, many other countries that come to visit us to talk about our experience—is the simplicity of our scheme and the transparency of the way students accumulate their debt and then repay it. The simplicity of administration for the tax system for both the taxpayer and the tax office is its great strength. Having an on-and-off system would, at least, add complexity to that. I'm not saying that can't be administered; I'm just saying it would be additional complexity.

The other reality is that just because a loan has been paid back doesn't mean that the next loan comes as a costless exercise. Every loan has a cost to the Commonwealth in terms of the potential for that debt not to be repaid or the opportunity cost of the money that we have to source through the Commonwealth budget process to fund the loans. I think, at this point, the proposition is to make that a one lifetime limit and index that one lifetime limit, and that's the policy.

Senator JACINTA COLLINS: While we're on this area—and I can't recall if it was Professor Chapman or Mr Norton this morning—they indicated from their reading of the explanatory memorandum that the Commonwealth had obviously done some further modelling in relation to effective marginal tax rates or the interface between the tax and the social security system of these measures. Is that the case?

Mr English : I don't know how they've reached that conclusion. We do not have in the department the capacity to do the sort of marginal tax rate analysis that the Treasury or the social security portfolio do, or other bodies like NATSEM and the like. We're not in a position to have the full range of information that you would need to make that modelling effective or meaningful, so I don't know the basis of the earlier evidence. We do not have marginal tax rate modelling to offer.

Senator JACINTA COLLINS: So the figures in the explanatory memorandum are not informed by such analysis, to your knowledge?

Mr English : I'm not sure which figures you mean.

Senator JACINTA COLLINS: Neither do I—I'm responding to their suggestion this morning. I haven't had a chance to review the explanatory memorandum and concur with their impression. I mean: did Treasury or Finance do any EMTR modelling?

Mr English : You would have to ask Treasury what modelling they've done. I know that they are continuously doing work around the interaction between the tax system and other welfare policies and, in this case, the education system. However, I don't have access to their tax modelling; I cannot answer that.

Senator O'NEILL: But you're not aware that they have done any modelling with regard to the proposal that is to come before the Senate in this legislation?

Mr English : I do not have modelling from the Treasury on this specific proposal, no.

Senator JACINTA COLLINS: The question isn't whether you have it or not; the question is: has government undertaken such modelling, and does it inform the explanatory memorandum? If, in inquiries like this, we have to invite Treasury to get an answer to a question like that, Senate processes are going to be doubling in time.

Mr English : Sure. I do not know if the Treasury has modelled these policies explicitly in their tax analysis. It's not inconceivable that they might've, but I don't have access to it and it wasn't part of forming our submission or the explanatory memorandum. I don't know why they've said what they said, Senator—I'm sorry.

Senator JACINTA COLLINS: To your knowledge, there is no additional modelling that has been undertaken to assess how the repayment scheme interacts with the tax and social security systems?

Mr English : There's one statement in here—I just want to check to see if it's the one I think they might be referring to. The only thing I can think of that might have triggered the line of statements this morning is the reference we make to the Medicare levy protections that exist.

Senator JACINTA COLLINS: Where is that—what page?

Mr English : This is on page 7, where, under the current Higher Education Loan Program—and this remains the case going forward—a person who is receiving the benefit of a Medicare levy exemption is also exempt from making repayments under the loan scheme. That is a particular question about the way a person's circumstances interact between the tax and the loan program. We can certainly do 'what if' type scenarios about particular people in certain circumstances and the interaction between the Medicare levy exemption and the need to make repayments under the loan scheme, but that's a long way removed from what we would typically make.

Senator JACINTA COLLINS: The sort of thing that we were talking about?

Mr English : Yes. That's the only reference I can think of that would have triggered their suggestion to you this morning.

Mr Coburn : What that means, for example, is that a single parent with two dependent children would be exempt from HELP repayments up to around $55,000 or thereabouts. But that's not interaction with the other systems.

Senator JACINTA COLLINS: No, but in terms of their aspiration that we look at that type of modelling when making decisions such as this, that hasn't happened, to your knowledge?

Mr English : No, we haven't done that modelling.

Senator JACINTA COLLINS: My remaining question is in relation to OS-HELP. How is that impacted by these agreements?

Ms Doyle : It is not impacted at all. The amounts of OS-HELP are set independently.

Senator JACINTA COLLINS: So they're not impacted by any new limits?

Ms Doyle : No.

Mr English : There are existing limits in place that are sufficient. It's a reasonably tightly controlled benefit—the number of times you can access it and the amount you can access.

Senator O'NEILL: My question goes to consultation. It's clear from your evidence that you've have had considerable conversations with Mr Norton from the Grattan Institute. You indicated that there was one other participant in some discussions around modelling?

Mr English : I meant that I think there's only one concrete proposition that's been put to us that's not the model we've put on the table, and that was Mr Norton's. I don't know that anybody else has put a developed model like that before us, but I will check.

Mr Coburn : I think I should clarify that Mr Norton has made a number of submissions over time, but, for the most recent modelling that he's done in relation to his submission, he dropped into my office last week and we spent half an hour talking about it as a sort of show and tell before they put the submission in.

Senator O'NEILL: That does actually sound like consultation, as opposed to other sorts of communications that I understand may have been happening with Universities Australia and other leading educational institutions across the country. Across the entire sector, today's evidence shows that there hasn't been detailed consultation about what's proposed in this legislation. It's just arrived, sight unseen. Could you provide me with an overview of what you consider has been the consultation that the department has undertaken in relation to the measures in the bill?

Mr English : I think that the minister's evidence to the Senate committee on Thursday night last week is probably the best summary I can offer you. When the government declared its proposed policy changes in 2014, it had a process of consultation at that point. In 2016, the minister issued a discussion paper that had a range of possible changes to the higher education system, including to the loan program. That was the subject of various consultation processes. In the following year there was legislation about proposed changes to higher education arrangements, including the higher education loan program, and that had, again, various consultation processes, including the opportunity to appear and have a similar discussion with most of the people here today in Wodonga. So I would defer to my minister's description that he gave last Thursday of the consultation process.

Senator O'NEILL: It sounds likes his consultation style is the same as his speech system. He's been characterised today as, 'I wasn't bluffing last year; I'm not bluffing this year.' And this consultation style is: 'This is what we're going to, and, if you don't like it, I'm not going to tell you what I'm planning. I'm just going to deliver it; drop it on you. It's the third largest export industry in the county, and I'm just going to drop it on you when I decide, without proper consultation. Consultation, to me, actually means that you put a proposal together and go to the key leading agencies—Universities Australia is a pretty big peak body. You would think, if you were having conversations with the Grattan Institute, that Universities Australia would be a natural participant in a fulsome conversation where details are disclosed and discussed in the formation of careful policy-making for the nation. But what you've described, echoing the minister's comments the other day, I don't think anyone could call consultation.

Mr English : I'm not sure there was a question there.

ACTING CHAIR: Perhaps, Mr English—

Senator O'NEILL: But can you call it consultation when you deliver policy as a matter of fact without having a conversation with the participants whom it affects? Do you call that consultation?

Mr English : We participate in consultation in a large variety of modes and opportunities and times. As I think the minister said, just because we don't always take forward somebody's suggestion that's come to us in a public or private discussion doesn't mean that wasn't meaningful consultation or consultation that had impact. I've got nothing further to add.

Senator O'NEILL: I guess it's the listening part of consultation that's the problem, clearly.

ACTING CHAIR: Thank you, Mr English. We're right on 4 pm. Thank you, Senator. Just to close, is there anything stopping Universities Australia or any other body from putting forward a proposal like Mr Norton of the Grattan Institute has?

Mr English : No, we would gratefully receive and interrogate their suggestions in the same way we have Mr Norton's suggestions.

Senator O'NEILL: Maybe you should have told them that before Christmas so they could have put the proper energy into delivering you something detailed, rather than dropping this on them at the last minute. It's disgraceful.

ACTING CHAIR: Thanks, Senator O'Neill. Clearly, Mr Norton didn't need to be told. It'd be surprising if Universities Australia need to be told. That concludes today's proceedings. I thank all witnesses who've given evidence to the committee today. Thanks also to broadcasting, Hansard and the secretariat. I declare the hearing adjourned.

Committee adjourned at 16:01