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Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018



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BILLS DIGEST NO. 96, 2017-18 26 MARCH 2018

Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 Dr Hazel Ferguson Social Policy Section

Contents

Purpose of the Bill ............................................................... 3

Background ......................................................................... 3

Income contingent student loan programs ............................. 3

Higher Education Loan Program............................................ 3

Figure 1: Total outstanding Higher Education Loan Program debt, 2010-11 to 2015-16 ($m) ............................. 5

Figure 2: Higher Education Loan Program total estimated outstanding debt, 2016-17 to 2020-21 ($m) ...... 6

Figure 3: Higher Education Loan Program proportion of debtors by size of debt, 2011-12 to 2015-16 ....................... 7

Student Start-up Loans .......................................................... 7

Trade Support Loans ............................................................. 8

Student Financial Supplement Scheme ................................. 8

Figure 4: SFSS total estimated outstanding debt, 2016- 17 to 2020-21, at 2017-18 Budget ($m) .............................. 9

The sustainability of student loan programs ........................... 9

Committee consideration .................................................. 11

Senate Education and Employment Legislation Committee ............................................................................. 11

Senate Standing Committee for the Scrutiny of Bills ............ 11

Policy position of non-government parties/independents ... 11

Position of major interest groups ....................................... 12

The HELP minimum repayment threshold ............................ 12

The lifetime HELP borrowing limit ......................................... 12

Other issues ........................................................................... 13

Financial implications ........................................................ 13

Date introduced: 14 February 2018

House: House of Representatives

Portfolio: Education and Training

Commencement: At various dates, as set out in the digest.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at

March 2018.

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Statement of Compatibility with Human Rights .................. 13

Parliamentary Joint Committee on Human Rights ................ 13

Key issues and provisions................................................... 14

Changes to repayment thresholds and indexation ............... 14

Changes to repayment thresholds and rates under HESA .................................................................................... 15

Changes to SFSS repayment thresholds .............................. 18

Table 2: 2017-18 repayment income thresholds and rates for SFSS and proposed transitional arrangements for 2018-19 ......................................................................... 18

Changes to indexation under HESA ..................................... 18

Changes to order of repayment of debts .............................. 19

Introduction of a combined HELP loan limit .......................... 19

Concluding comments ....................................................... 21

Appendix 1: Average Weekly Earnings (AWOTE), HELP repayment rates and thresholds: 1988-89 to 2016-17 ........ 22

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Purpose of the Bill The purpose of the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 (the Bill) is to amend the Higher Education Support Act 2003 (HESA), to:

• revise the Higher Education Loan Program (HELP) repayment thresholds and rates, including introducing a lower minimum repayment threshold of $45,000 per annum with a repayment rate of one per cent

• introduce a combined lifetime HELP loan limit, across all HELP loans for course fees, of $150,000 for students studying medicine, dentistry and veterinary science courses, or $104,440 for all other students that is indexed to the Consumer Price Index (CPI) and

• change the indexation factor for HELP repayment thresholds from Average Weekly Earnings (AWE) to the CPI.1

The Bill also:

• proposes to amend the Social Security Act 1991, Student Assistance Act 1973 and Trade Support Loans Act 2014 to add Student Financial Supplement Scheme (SFSS) debts to the repayment arrangements already in place for other student loan programs, ensuring SFSS debts are no longer repaid concurrently with HELP, Student Start-up Loan (SSL) and Trade Support Loan (TSL) debts, and a single, shared set of repayment thresholds and rates are applied across the four programs and

• proposes consequential amendments to the VET Student Loans Act 2016 to include Vocational Education and Training (VET) Student Loans in the HELP loan limit.2

Background Income contingent student loan programs Student loan programs have proliferated since their introduction in the form of the Higher Education Contribution Scheme (HECS) in 1989, and are now administered in the Education and Training, Human Services, and Social Services portfolios.

While these programs are all income contingent, meaning they are repaid through the Australian Taxation Office (ATO) only when a debtor’s income is more than the minimum repayment threshold, they are distinguished by their purpose, repayment arrangements, and the fees, discounts and caps applied under some programs. This section briefly sets out these key features for each student loan program.

Higher Education Loan Program The largest of the student loan programs, HELP, in the Education and Training portfolio, is comprised of four sub-schemes and VET Student Loans, which replaced VET FEE-HELP from 1 January 2017.3 HELP debt is repaid first if debtors owe under multiple programs, and a four per cent minimum repayment rate applies from the minimum repayment threshold of $55,874 in 2017-18 (see Table 1 below for the full list of current repayment thresholds and rates).4 From 1 July 2018, a lower repayment rate of two per cent will apply at a new minimum repayment threshold of $51,957.5

HECS-HELP, which replaced HECS in 2005, is available for Commonwealth supported higher education students (typically domestic undergraduate students studying at Australian public universities) to pay their student contribution amounts—the part of the course fee not paid by the Commonwealth.6 According to the

1. Explanatory Memorandum, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, p. 1. 2. Ibid.

3. A more detailed outline of the HELP loans is available from C Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, Research paper series, 2016-17, Parliamentary Library, Canberra 2017. 4. Australian Tax Office (ATO), ‘HELP, SSL, ABSTUDY SSL, TSL and SFSS repayment thresholds and rates’, ATO website, last modified 9 May 2017. 5. See Schedule 1 of the Budget Savings (Omnibus) Act 2016. This Act also discontinued the HECS-HELP benefit, which reduced HELP repayments

for graduates of particular courses who chose to take up related occupations or work in specific locations, from 1 July 2017 (Schedule 3). Both of these measures were in the 2014-15 Budget. Australia Government, Portfolio budget statements 2014-15: budget related paper no. 1.5: Education Portfolio, p. 23. 6. Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, op. cit., p. 2.

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Department of Education and Training (DET), ‘[i]n 2015 and 2016, 88 per cent of Commonwealth supported students deferred their payment through HECS-HELP.7

FEE-HELP is available for domestic full fee-paying higher education students to pay course fees up to a lifetime FEE-HELP borrowing limit of $127,992 for medicine, dentistry and veterinary science students and $102,392 for other students.8 In 2016, 77,778 FEE-HELP loans were issued.9 A 25 per cent loan fee is added to the balance of the loan when FEE-HELP is used for undergraduate study.10 In 2016, the equivalent of approximately 28,050 full-time students deferred tuition costs through FEE-HELP for courses where the loan fee would apply.11

SA-HELP is available to students wishing to defer payment of the student services and amenities fee, which higher education providers charge for non-academic student services and amenities such as counselling services.12 The 2018 fee is capped at $298 per student, with those studying part-time charged up to 75 per cent of the full-time fee.13 483,803 SA-HELP loans were issued in 2016.14

OS-HELP is available for eligible Commonwealth-supported higher education students undertaking part of their course overseas. Unlike other HELP loans, OS-HELP is paid to the student (rather than the higher education provider, which is the case for the other schemes) and can be used for living costs, including airfares and accommodation.15 Students must be approved for the loan by their higher education provider, may take out only two OS-HELP loans—each to be expended for a six-month study period—over the course of their studies, and can borrow only up to a set cap, which is $6,665 (if not studying in Asia) or $7,998 (if studying in Asia) in 2018.16 14,861 OS-HELP loans were issued in 2016.17 OS-HELP was introduced with a 20 per cent fee, however this was removed in 2009.18

Introduced in 2007 for study from 2008, VET FEE-HELP was replaced by VET Student Loans from 1 January 2017.19 VET Student Loans are available to VET students studying an approved course at an approved training provider, to defer their course costs.20 The FEE-HELP lifetime borrowing limit also applies to and includes VET Student Loans, meaning borrowings under both loans contribute to the total available balance.21 Like FEE-HELP, a loan fee also applies to VET Student Loans—a 20 per cent fee is applied unless the student is enrolled in a place that is subsidised by their state or territory government.22 Although the lifetime borrowing limit and loan fee applied to borrowings under VET FEE-HELP, the introduction of VET Student Loans also saw the introduction of course borrowing limits in response to rapidly increasing debt.23 In 2017, course borrowing limits

7. Department of Education and Training (DET), Annual report 2016-17: opportunity through learning, DET, [Canberra], 2017, p. 45. 8. DET, ‘FEE-HELP’, StudyAssist website. 9. DET, Annual Report 2016-17, op. cit., p. 53. 10. DET, ‘FEE-HELP’, op.cit. The fee does not contribute to debts under the cap, or apply to postgraduate study, including higher degrees by

research, enabling courses, courses undertaken through Open Universities Australia, or bridging study for overseas-trained professionals. 11. DET, ‘2016 liability status categories’, Table 5.1: actual student load (EFTSL) for all students by liability status and broad level of course, full year 2016, DET website, 11 September 2017. 28,050 EFTSL includes all undergraduate student load under ‘deferred all or part of award or

enabling course tuition fee’, except that for enabling courses. This may be a slight over-estimation as it may include Open Universities Australia or bridging study students. 12. Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, op. cit., p. 3. 13. The fee is capped and indexed each year. DET, ‘Student services and amenities fee’, DET website. 14. DET, Annual Report 2016-17, op. cit., p. 53. 15. Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, op. cit., pp. 2-3. 16. DET, ‘OS-HELP loans and overseas study’, StudyAssist website. 17. DET, Annual Report 2016-17, op. cit., p. 53. 18. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2009-10, p. 152. See ‘An Innovation and Higher

Education System for the 21st Century—remove the loan fee on OS-HELP loans’. 19. Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, op. cit., p. 3. 20. DET, ‘VET student loans’, DET website, last modified 18 December 2017. Approved courses are only from higher-level VET qualifications,

including diploma, advanced diploma, graduate certificate or graduate diploma, according to DET, ‘VET student loans’, StudyAssist website. 21. DET, ‘VET student loans’, StudyAssist website. 22. DET, VET student loans: information for students applying for VET student loans, June 2017, p. 19. Under the National Partnership Agreement

on Skills Reform, the states and territories agree to pay half of the debt not expected to be repaid and half of the concessional loan cost for VET-FEE HELP loans (now VET student loans) for subsidised students. This is ‘paid annually in arrears based on actuarial assessments undertaken by the Commonwealth’ (Schedule 4). These arrangements were established as an alternative to applying a loan fee to state and territory Government subsidised VET courses. The lack of loan fee charge for these purposes is established under part 3 of the VET Student Loans Rules 2016, for the purposes of paragraph 137-19(2)(b) of HESA. 23. This is discussed in further detail in J Griffiths, VET Student Loans Bill 2016 [and] VET Student Loans (Charges) Bill 2016 [and] VET Student

Loans (Consequential Amendments and Transitional Provisions) Bill 2016, Bills digest, 41, 2016-17, Parliamentary Library, Canberra, 2016.

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of $5,000, $10,000 and $15,000 applied depending on the course, with a $75,000 limit available for specified aviation courses.24

The size of the HELP loan portfolio has grown substantially in recent years (Figure 1 below). The most recent available forward estimates for HELP, shown in Figure 2 below, project the total HELP debt owing will reach approximately $75 billion by 2020-21.25 At 30 June 2017, the estimated the proportion of debt not expected to be repaid (DNER) was 25 per cent.26 However, this estimate drops to 18 per cent if VET loans are not included.27

Figure 1: Total outstanding Higher Education Loan Program debt, 2010-11 to 2015-16 ($m)

Source: Australian Tax Office (ATO), Taxation Statistics 2014-15, ‘Summary - Table 5’, 2017.

According to DET, a ‘Review of the VET student loans approved course list and loan caps methodology’ was undertaken in 2017, finding ‘[t]here was no compelling evidence to warrant significant change to the loan cap amounts at this early stage of the program.’ The most recent available data on VET Student Loan uptake is available from DET, VET student loans: six-monthly report: 1 July 2017 to 31 December 2017, DET website. 24. Under the VET Student Loans (Courses and Loan Caps) Determination 2016, these amounts are indexed each year from 2018. 25. The size of the HELP loan portfolio can be estimated in two ways: the nominal value and the fair value. The nominal value is the total face

value of outstanding HELP loans, which increases as new loans are issued and indexation is applied, and decreases as loans are repaid. The fair value accounts for ‘losses’— that is, debt not expected to be repaid and the difference between the indexation applied to the loan and market interest rates. Therefore, while the fair value is lower than the total amount of outstanding debt, it is considered to more accurately reflect its future impact on Government cash flows. See Parliamentary Budget Office (PBO), Higher Education Loan Programme: Impact on the Budget, Report no. 2, 2016, p. 5 for more information. 26. DET, Annual Report 2016-17, op. cit., p. 45. 27. Ibid.

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Figure 2: Higher Education Loan Program total estimated outstanding debt, 2016-17 to 2020-21 ($m)

Source: Australian Government, ‘Statement 10: Australian Government financial budget statements’, 2017-18 Budget: Budget paper no. 1: 2017-18, p. 29.

Notes: 2017-18 Budget forward estimates were based on policy settings at May 2017, which included measures from the Higher Education Support Legislation Amendment (A More Sustainable, Responsive and Transparent Higher Education System) Bill 2017, which have since been replaced by the 2017-18 mid-year economic and fiscal outlook ‘Higher Education Reforms—revised implementation’ measure. 28

Growth in the overall size of the HELP loan portfolio is also reflected in the rising average outstanding debt ($20,300 in 2016-17) and time to repay (8.9 years in 2016-17).29 However, as shown in Figure 3 below, the proportion of debtors owing above $30,000 is, while rising, still below 20 per cent.

28. Relevant to HELP estimates, the Higher Education Support Legislation Amendment (A More Sustainable, Responsive and Transparent Higher Education System) Bill 2017 included: from 2018, increased student contributions of 7.5 per cent, to be phased in through an annual 1.8 per cent increase over four years from 2018; an efficiency dividend of 2.5 per cent applied to the Commonwealth Grant Scheme (CGS) in 2018 and 2019; a new set of HELP repayment thresholds from 1 July 2018, including a minimum repayment threshold on annual income in 2018-19 of $42,000 with a one per cent repayment rate, and a maximum income threshold of $119,882 with a repayment rate of ten per cent; from 1 July 2019 onwards, all HELP thresholds indexed by the Consumer Price Index (CPI), instead of Average Weekly Earnings (AWE). 29. DET, Annual Report 2016-17, op. cit., p. 45.

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Figure 3: Higher Education Loan Program proportion of debtors by size of debt, 2011-12 to 2015-16

Source: Australian Tax Office (ATO), Taxation Statistics 2014-15, ‘Summary - Table 5’, op. cit.

Student Start-up Loans The SSL, administered in the Human Services portfolio, replaced the Student Start-up Scholarship from 1 July 2017.30 According to the Department of Social Services (DSS), ‘[t]he SSL aims to increase participation in higher education by assisting students with the costs of commencing study, including the purchase of text books, computers and internet access.’31 The SSL is available to eligible higher education students receiving Youth Allowance (student), Austudy or ABSTUDY Living Allowance in addition to their income support payments.32 At 1 January 2018, $1,055 can be paid to approved students twice per year, generally at the beginning of each semester.33 For SSL debtors who also have debt under other programs, SSL debt is repaid second (after HELP is fully repaid), and shares the same repayment threshold and rates as HELP (see Table 1 below for the full list of current repayment thresholds and rates).34

30. DSS, ‘5.1.7.45 Student start-up scholarship - current rate’, Guide to Social Security Law, 20 March 2018. 31. DSS, ‘1.2.7.165 Student start-up loan (SSL) - description’, Guide to Social Security Law, 20 March 2018. 32. Department of Human Services (DHS), ‘Student start-up loan’, DHS website, last updated 27 October 2017. 33. Ibid.

34. DSS, ‘6.9 SSL repayment arrangements’, Guide to Social Security Law, 20 March 2018.

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Trade Support Loans According to DET, ‘[t]he Trade Support Loans (TSL) program, which commenced in July 2014, aims to increase completion rates among Australian Apprentices in priority areas by providing financial support to assist them with the costs of living and learning while undertaking an apprenticeship.’35 Similar to the SSL and OS-HELP, the TSL is paid directly to the apprentice, and can be spent on everyday costs.36 The TSL provides up to a $20,420 lifetime limit (indexed annually on 1 July) for eligible apprentices completing a qualification on the Trade Support Loans Priority List 2014.37 Apprentices opt in for six monthly periods, and receive monthly payments. The amount available in each six-monthly period decreases over the four-year term of a typical apprenticeship, from up to $8,168 in the first year, to up to $2,042 in the fourth year. Once the apprenticeship is complete, a 20% discount is applied to the outstanding TSL debt. Repayments are made according to the same arrangements as HELP and the SSL, outlined in Table 1 below, and TSL debt repaid third if debtors owe under the other programs.38 The first evaluation of the TSL is due to be completed in 2017-18.39

Student Financial Supplement Scheme The SFSS was first introduced in January 1993 as the AUSTUDY/ABSTUDY Supplement, and operated under that name until the introduction of Youth Allowance in July 1998, at which time it moved from the education portfolio into the then Department of Family and Community Services, and renamed the SFSS. 40 The SFSS operated until 31 December 2003, and outstanding debts continue to be administered in the Social Services portfolio and collected through the tax system under arrangements similar to that for HELP, SSL and TSL.41 Under the SFSS scheme as it operated just before its closure, eligible tertiary students could trade in all or part of their student income support payment for twice the amount in the form of a loan.42

For example, a student trading in $100 of their income support payment would receive $200 for everyday expenses, and $200 would be recorded as an SFSS debt. In explaining the scheme’s closure, then Minister for Children and Youth Affairs, Larry Anthony, said the loan was a ‘debt trap’, which had resulted in high levels of debt among the poorest students, and high rates of debt not expected to be repaid (DNER).43 At the time, an unpublished report from the Australian Government Actuary (AGA) put SFSS DNER at fifty per cent.44 Unlike other student loan debts, SFSS has specific repayment thresholds and rates, and is repaid concurrently with other loans listed above, as outlined in Table 2 below.

According to the 2017-18 Budget papers, total estimated outstanding SFSS debt in 2016-17 was $367 million, but projected to be less than half this in 2020-21 (Figure 4 below).

35. DET, Annual Report 2016-17, op. cit., p. 65. 36. Unless otherwise indicated, information in this paragraph is from DET, ‘Trade support loans’, Australian Apprenticeships website. 37. DET, ‘Trade support loans priority list’, Australian Apprenticeships website. 38. Trade Support Loans Act 2014 subsection 46(1). 39. DET, Annual Report 2016-17, op. cit., p. 65. 40. D Daniels, Family and Community Services (Closure of Student Financial Supplement Scheme) Bill 2003, Bills Digest 27, 2003-04, Department

of the Parliamentary Library, Canberra, 2003, p. 1. 41. ATO, ‘PAYG withholding: explanations’, ATO website, last modified 30 June 2017. 42. DSS, ‘1.2.7.40 Student financial supplement scheme (SFSS) - description’, Guide to Social Security Law, 20 March 2018. 43. L Anthony (Minister for Children and Youth Affairs), Student Financial Supplement Scheme will close, media release, 9 December 2003. 44. Daniels, Family and Community Services (Closure of Student Financial Supplement Scheme) Bill 2003, op. cit., p. 3.

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Figure 4: SFSS total estimated outstanding debt, 2016-17 to 2020-21, at 2017-18 Budget ($m)

Source: Australian Government, ‘Statement 10: Australian Government financial budget statements’, op. cit., pp. 10-29.

The sustainability of student loan programs The key measures in this Bill (the lower minimum HELP repayment threshold and rate, and HELP borrowing limit) were announced in the Mid-year Economic and Fiscal Outlook 2017-18 (MYEFO).45 The MYEFO ‘Higher Education Reforms—revised implementation’ measure replaces the previous unlegislated higher education reform measures from the 2017-18 Budget, which had been brought forward in the Higher Education Support Legislation Amendment (A More Sustainable, Responsive and Transparent Higher Education System) Bill 2017 (the HESLA Bill).46 In turn, the HESLA Bill was a post- consultation replacement for the unsuccessful Higher Education and Research Reform Bill 2014, an amended version of the Higher Education and Research Reform Amendment Bill 2014, which proposed to legislate the far-reaching 2014-15 Budget higher education reform announcements, including the deregulation of undergraduate higher education fees, an average 20 per cent cut to funding through the Commonwealth Grant Scheme (CGS), a real interest rate for HELP debts and a lower income threshold for repayment.47

This Bill is more narrowly focused than its predecessors partly because the other key elements of the MYEFO higher education reform announcements, that CGS funding for 2018 and 2019 would be frozen at 2017 levels, and future funding growth from 2020 would be linked to performance targets, could be achieved without legislation.48 However, it continues the framing of higher education funding in terms of sustainability. One DET fact sheet about the current reform package explains:

These reforms are necessary to ensure Australia’s generous, income-contingent loan system remains sustainable so future generations of Australians, regardless of their background or their financial means, can continue to access higher education without upfront fees.

45. Australian Government, Mid-year Economic and Fiscal Outlook 2017-18, Commonwealth of Australia, pp. 143-4. 46. For further information see Carol Ey, Higher Education Support Legislation Amendment (A More Sustainable, Responsive and Transparent Higher Education System) Bill 2017, Bills digest, 121, 2016-17, Parliamentary Library, Canberra, 2017. 47. The Budget Savings (Omnibus) Act 2016 gave effect to three 2014-15 Budget higher education reform announcements (the lower HELP

repayment threshold and rate, replacement of the Higher Education Grants Index (HEGI) with the Consumer Price Index (CPI) for the purpose of HESA grants, and discontinuation of the HECS-HELP benefit, which reduced the HECS-HELP payable for graduates from certain fields if they took up work in specified locations or occupations). 48. Australian Government, Mid-year Economic and Fiscal Outlook 2017-18, op. cit., pp. 143-4.

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Outstanding HELP loans now total more than $50 billion, and if reform is not pursued around a quarter of new debts are not expected to be repaid. Some students have borrowed excessively against the student loan schemes and amassed more debt than can be repaid during their working life. 49

While there is no agreed definition of ‘sustainability’ in respect to student loans, according to DET’s performance criteria, HELP loans should be ‘affordable for both students and the community’.50 For the community (via the Commonwealth), outstanding HELP debt is a financial asset on the balance sheet which incurs costs in two ways:

• as there is no interest paid on the debt and the debt is indexed to inflation (which is usually lower than the Commonwealth’s borrowing costs) there is an implicit subsidy consisting of the difference between borrowing costs and what the debtor pays and

• some ‘doubtful’ HELP debt is never repaid due to death of the debtor or the income threshold for repayment not being met.51

The key consideration in proposals to improve the sustainability of HELP is therefore balancing measures to recover or avoid these costs with the expectations of students, prospective students, their parents, and higher education providers, who are concerned with access to education and repayment affordability.

Some lending costs are currently recovered through the FEE-HELP, VET FEE-HELP, and VET Student Loans loan fees discussed in the previous section. Analysis in a higher education context suggests that when individual HELP debt levels are low, as is the case for most HECS-HELP debt where fees are capped, then the subsidy is low, but

when individual debt levels are high, such as in the upper limits of FEE-HELP debt, then taxpayer subsidies range from 20 to 30 per cent—hence the fees are applied to loans which risk higher subsidies, rather than across all HELP loans.52 The 2008 Review of Australian Higher Education chaired by Professor Bradley (the Bradley review) reiterated that the FEE-HELP loan fee was ‘intended to recover some of the costs to the Commonwealth associated with the repayment subsidies.’53

However, because the design of HELP does not include any credit risk management akin to commercial credit arrangements, loan fees essentially transfer the risk of non-payment from government to the individuals who do repay their debt. Mark Warburton, Honorary Senior Fellow at the LH Martin Institute, argues:

There is a policy intention/objective that some people will not be required to repay their loan. This is in stark contrast to the usual arrangements of lending financial institutions where the objective is that all of a loan and all of its interest is repaid. 54

When a student has a combined debt in different categories, targeted cost recovery through existing loan fees also appears to be less appropriate:

Students who go onto FEE-HELP courses while they still have a HECS-HELP debt will have larger overall HELP debts than students who just do one undergraduate FEE-HELP course… the surcharge should be adjusted to the total existing HELP debt, rather than being based on undergraduate/postgraduate distinctions that entrench unfair anomalies in the system.

55

Additionally, since borrowing for each course paid for through VET Student Loans is capped, the modelling of subsidies based on the FEE-HELP borrowing limit is less likely to apply to newer borrowers undertaking VET qualifications.

However, alternatives such as the proposal in the unsuccessful Higher Education and Research Reform Amendment Bill 2014 to abolish the FEE-HELP loan fee and change HELP debt indexation from CPI to the 10-year

49. DET, ‘Instituting a combined loan limit for HECS-HELP, FEE-HELP, VET FEE-HELP and VET student loans’, DET website, 18 December 2017, p. 1. 50. DET, Annual Report 2016-17, op. cit., p. 42. 51. A Norton, Doubtful debt: the rising cost of student loans, Grattan Institute, April 2014; PBO, Higher Education Loan Programme Impact on the Budget, op. cit.

52. B Chapman and K Lounkaew, ‘HECS loses its way’, Campus review, 15 January 2008, pp. 10-12. 53. D Bradley, P Noonan, H Nugent and B Scales, Review of Australian higher education: final report, [Bradley Review], Department of Education, Employment and Workplace Relations (DEEWR), Canberra, December 2008, p. 168. 54. M Warburton, Resourcing Australia’s tertiary education sector, LH Martin Institute, October 2016, p. 34. 55. A Norton, ‘Our incoherent HELP loan scheme’, Andrew Norton, blog, 10 February 2010.

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government bond rate, capped at six per cent, also have inequitable outcomes.56 Analysis of the 2014 bond rate proposal suggested a higher indexation rate would have a disproportionate impact on lower income professions such as teaching and nursing, and would have a greater impact on women across all professions, with debts continuing to grow in real terms during times outside the workforce.57

To resolve these tensions, the Grattan Institute’s Andrew Norton and Ittima Cherastidtham have proposed a 15 per cent loan fee across all HELP loans to equalise government cost recovery across loan schemes.58 Bruce Chapman, one of the designers of HECS, has also supported this proposal.59

Nevertheless, recently legislated changes to improve the sustainability of HELP have focused on reducing the amount of unpaid HELP debt. Recent changes include the lower repayment rate of two per cent and minimum repayment threshold of $51,957 due to commence from 1 July 2018, and HELP repayments for overseas debtors which commenced 1 July 2017.60 The question of how best to recover the lending costs associated with HELP is not directly addressed in this Bill.

Committee consideration Senate Education and Employment Legislation Committee The Bill was referred to the Senate Education and Employment Legislation Committee. The Committee reported on 16 March 2018, recommending that the Government ‘consider amending schedule 3 of the [B]ill to introduce a cap on outstanding HELP debts, rather than a lifetime loan limit’, but otherwise pass the Bill.61

Details of the inquiry are available from the inquiry homepage.

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.62

Policy position of non-government parties/independents The Labor Senators' Dissenting Report in the Senate Education and Employment Legislation Committee report on the Bill recommends the Bill not be supported, and states ‘Labor Senators oppose the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018… Labor believes the changes to HELP repayment thresholds are simply driven by budget cuts.’63

During her speech to the Universities Australia (UA) conference on 1 March 2018, Labor’s Shadow Minister for Education and Training, Tanya Plibersek, spoke against the higher education savings measures announced in MYEFO.64 The speech also detailed plans for National Inquiry into the architecture of post-secondary education to inform policy approaches, if Labor is elected to government.65

The Nick Xenophon Team (NXT) welcomed the announcement of the proposed National Inquiry, which reflects the NXT commitment to a ‘comprehensive review [of post-secondary education], akin to the Gonski-led review of education.’66

The Greens’ higher education spokesperson, Senator Sarah Hanson-Young, also responded to the MYEFO announcements by focusing on the impact of the funding freeze on Commonwealth supported places (which did

56. Parliament of Australia, ‘Higher Education and Research Reform Amendment Bill 2014 homepage’, Australian Parliament website. 57. B Phillips, ‘HECS upon you: NATSEM models the real impact of higher uni fees’, The Conversation, 25 June 2014. 58. A Norton and I Cherastidtham, Shared interest: a universal loan fee for HELP, Grattan Institute, December 2016. 59. B Chapman, ‘The case for a fixed 15% fee on all student loans’, The Conversation, 9 December 2016. 60. Parliament of Australia, Education Legislation Amendment (Overseas Debt Recovery) Bill 2015 homepage, Australian Parliament website;

Schedule 1 of the Budget Savings (Omnibus) Act 2016. 61. Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], 16 March 2018, p. vii. 62. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, 2018, The Senate, Canberra, 2018, p. 14. 63. Senate Education and Employment Legislation Committee, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill

2018 [provisions], op. cit., pp. 31-2. 64. T Plibersek (Shadow Minister for Education and Training), Address to the Universities Australia Conference, Canberra, speech, 1 March 2018, p. 6. 65. Ibid., p. 10. 66. Nick Xenophon Team, 'Thanks for listening!’ NXT welcomes commitment for inquiry into higher education, media release.

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not need to be legislated) stating ‘the Government must guarantee that all students offered a place at university will have their study funded, following billions of dollars in cuts that puts at risk 10,000 places this year alone, according to Universities Australia.’67 The Australian Greens Senators' Dissenting Report also recommends the

Senate oppose the Bill.68

Position of major interest groups The HELP minimum repayment threshold A number of submissions to the Senate Committee Inquiry raise concerns about the possible impact of a lower HELP minimum repayment threshold on access to higher education and graduate living conditions. 69 The National Union of Students and Council of Australian Postgraduate Associations have collaborated on a campaign called Bury the Bill to oppose the Bill, stating it ‘condemns lower-earning graduates to pay back their student loans when barely earning minimum wage.’70

UA argues that HELP repayment should begin at around average earnings.71 The Australian Council of Deans of Arts, Social Sciences and Humanities (DASSH) argues the measure will have a disproportionate impact on graduates of humanities, arts and social science courses, who often take longer to establish their careers and are more likely to be women, resulting in periods of lower earnings.72

In contrast, the Grattan Institute argues that HELP repayment arrangements should be more closely aligned with protections in place to prevent and alleviate poverty, rather than average wages:

Although the high threshold was politically understandable in the late 1980s, it is anomalous within the broader Australian income protection system. A lower initial threshold would bring HELP more into line with other forms of income protection for working-age adults …

Using the Household, Income and Labour Dynamics in Australia (HILDA) survey, Grattan previously estimated the effect of lowering the initial threshold from about $56,000 to $42,000 and found that about half of debtors who would start repaying have a partner. Nearly a third of those with a partner have a combined disposable household income of at least $100,000 and nearly three quarters have household disposable incomes of at least $80,000.

73

The lifetime HELP borrowing limit The possible impacts of the combined lifetime HELP borrowing limit are addressed in a number of submissions. The University of Canberra stated it:

… strongly supports the encouragement of lifelong learning in order to meet the changing demands of the world of work. The university does not agree that there should be a limit on student loans for education. 74

EPHEA suggests the limit ‘may impact negatively on students who incurred a VET student debt as a pathway to higher education. In addition, the method of determining the loan limit is not explained, and may have

67. S Hanson-Young, Students worked hard for university, the Government must work for them, media release, 17 January 2018. 68. Senate Education and Employment Legislation Committee, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], op. cit., p. 40. 69. Equity Practitioners in Higher Education Australasia (EPHEA), Submission to Senate Education and Employment Legislation Committee, Inquiry

into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 8], 27 February 2018, p. 3. 70. National Union of Students and Council of Australian Postgraduate Associations, Bury the bill: students collaborate to stop Government's changes to HELP, media release, 13 March 2018. 71. Universities Australia (UA), Equity Practitioners in Higher Education Australasia (EPHEA), Submission to Senate Education and Employment

Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 34], 5 March 2018, pp. 1-2. 72. Australian Council of Deans of Arts, Social Sciences and Humanities (DASSH), Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions],

27 February 2018, [submission no. 20], p. 1. 73. A Norton and I Cherastidtham, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 11], February 2018, p. 3. 74. University of Canberra, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support

Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 9], 27 February 2018.

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implications for students accessing Start-up loans.’75 Likewise, Science and Technology Australia raises concerns about the impact on those entering university from VET pathways and then undertaking further training to become teachers, especially in science, technology, engineering and mathematics.76

Bond University (Bond), a private not-for-profit institution whose domestic students would generally be eligible to defer their course costs through FEE-HELP but not HECS-HELP, is particularly concerned about the impact of the limit:

Bond University strongly advocates for a system which supports life-long learning. We also understand the need for policy settings that are fiscally responsible and sustainable, and we accept that cap on the total loan value provides a viable way of mitigating the risk of ballooning debt. We propose a refreshable loan as a responsible balance between these two objectives. Students who have accessed HELP loans repaid their debt, in part or in full, should be able to access the scheme again to fund further study so long as their outstanding debt does not exceed the loan cap.

77

The University of Melbourne, which under the ‘Melbourne model’ offers more generalist undergraduate degrees with professional specialisations at postgraduate level, likewise recommends against the limit, and proposes if adopted the Senate consider amendments including a higher borrowing limit, exceptions for long term unemployed or primary carers of children returning to work, and the option of refreshing the limit by making debt repayments.78

Other issues Bond also raises the issue of loans fees, which as discussed earlier in this digest only apply to some loans under the FEE-HELP and VET Student Loans (and previously VET FEE-HELP) loans. Bond argues ‘[t]he harmonisation of HELP schemes proposed by this legislation needs to go one step further to set equal terms for the student borrowers by introducing a consistent approach to loan fees’.79

Financial implications According to the Explanatory Memorandum to the Bill:

• changes to HELP repayment thresholds and indexation will deliver savings of $345.8 million from 2017-18 to 2020-21

• changes to SFSS repayment thresholds and order of repayment of debts will have nil fiscal balance impact and

• the introduction of the combined HELP loan limit will cost $22.9 million from 2017-18 to 2020-21.80

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.81

Parliamentary Joint Committee on Human Rights At the time of writing, the Bill had not been considered by the Parliamentary Joint Committee on Human Rights.

75. Equity Practitioners in Higher Education Australasia (EPHEA), Submission, op. cit., p. 1. 76. Science and Technology Australia, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 10], 27 February 2018, p. 4. 77. Bond University, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support

Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 7], 26 February 2018, p. 2-3. 78. University of Melbourne, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 12], 27 February 2018, p. 4. 79. Bond University, Submission to Senate Education and Employment Legislation Committee, op. cit., p. 3. 80. Explanatory Memorandum, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, p. 2. 81. The Statement of Compatibility with Human Rights can be found at pages 3-7 of the Explanatory Memorandum to the Bill.

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Key issues and provisions Changes to repayment thresholds and indexation As discussed above, for the 2017-18 financial year, HELP, SSL, TSL and SFSS debtors must begin making repayments through the tax system once their income reaches $55,874 per annum, although apart from this commonality, SFSS-specific repayment thresholds and rates currently apply. New HELP, SSL and TSL thresholds and repayment rates, due to commence 1 July 2018 for the 2018-19 financial year, were given effect by the Budget Savings (Omnibus) Act 2016.

Schedule 1 proposes changes to repayment thresholds and rates for all four loan programs including a lower minimum repayment threshold of $45,000 per annum with a repayment rate of one per cent, commencing 1 July 2018 for the 2018-19 income year, with SFSS repayment arrangements proposed to come under HESA from 2019-20. It also proposes to change how the repayment thresholds are indexed.

While the appropriate level for repayments to begin is in some respects always open to debate, one consequence of the proliferation of loans programs is a debtor population with weaker earnings potential than was anticipated in the original design of HECS, meaning higher repayment thresholds pose a greater risk of unpaid debt.82

In particular, in light of the introduction and expansion of VET FEE-HELP, now VET Student Loans, the Australian literature on educational attainment and earnings consistently shows higher lifetime earnings among higher education graduates compared with those with vocational post-school qualifications. For example, a report prepared by National Centre for Social and Economic Modelling (NATSEM) using data from the 2009-10 Australian Bureau of Statistics (ABS), Survey of Income and Housing Confidentialised Unit Record File shows a Bachelor degree holder was likely to earn around $2.9 million over their lifetime (in 2010 dollars) compared with $2.1 million for a person with Year 12 or Certificate qualifications, and $2.4 million for someone with a Diploma.83 According to the ABS, in 2017, median weekly earnings stood at $1,035 for people with a Certificate III or IV, $1,026 for people with an Advanced Diploma or Diploma, and $1,280 for those with a bachelor degree.84 However, the tighter controls on lending introduced with VET Student Loans may already be going some way toward addressing the higher risk of HELP loans for VET qualifications.85

The latest graduate employment outcomes from DET’s Quality Indicators for Learning and Teaching (QILT) shows that in 2017, 71.8 per cent of undergraduate, 80.4 percent of postgraduate research graduates, and 86.1 per cent of postgraduate coursework graduates were in full-time employment four months after completing their degree.86 19.7 per cent of undergraduates were in part time employment and seeking more hours, although the majority of these were seeking more hours because they were still studying. 87 The median starting salary for the full-time employed graduates was 60,000 for undergraduates, 81,000 for postgraduate coursework graduates, and 87,800 for postgraduate research graduates.88

Despite this, even among bachelor degree holders the lifetime earnings premium varies by gender and field of education. Medicine, law and dentistry graduates achieve substantially higher earnings premiums than those with humanities, agriculture and performing arts degrees.89 Meanwhile, a median male bachelor degree holder has lifetime additional earnings of $1.4 million, compared with $1 million for the median female bachelor-degree holder.90 While there is limited research on the labour market outcomes of graduates from

82. A Norton, HELP for the future: fairer repayment of student debt, Grattan Institute, March 2016. The Higher Education Support Legislation Amendment (A More Sustainable, Responsive and Transparent Higher Education System) Bill 2017, which was replaced by the current proposal, proposed to add a one per cent repayment rate at $42,000 increasing the rate by increments of 0.5 per cent approximately every $3,000 to a maximum of 10 per cent at $119,882. 83. NATSEM, Smart Australians: education and innovation in Australia, AMP NATSEM Income and Wealth Report, 32, October 2012. 84. Australian Bureau of Statistics (ABS), Characteristics of Employment, Australia, cat. no. 6333.0, ABS, Canberra, 2017. See Table 6.1 EMPLOYEES

(excluding OMIEs) IN MAIN JOB: Median weekly earnings in main job—Industry and occupation of main job—By level of highest non-school qualification. 85. K Andrews (Assistant Minister for Vocational Education and Skills), Completion rates on the rise under VET Student Loans, media release, 13 February, 2018. 86. Social Research Centre, ‘2017 Graduate outcomes survey: national report’, QILT website, January 2018, pp. ii-iii. 87. Ibid., p. v. 88. Ibid., p. vi. 89. A Norton, Mapping Australian higher education 2016, Grattan Institute, August 2016, p. 82. 90. Ibid., pp. 80-1.

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disadvantaged backgrounds in Australia, available analysis suggests that for some groups—namely graduates from non-English speaking backgrounds and female graduates in science, technology, engineering and mathematics fields—disadvantages persist in the labour market.91

As such, since introduction of HECS, efforts to recover government costs by increasing students’ costs—either by increasing fees or changing repayment arrangements—have been a recurring concern. However, the evidence that students are dissuaded from study by less generous payment arrangements is mixed.

In 2002, Chapman and Ryan surveyed the research literature and analysed data from the Youth in Transition Survey, and concluded that the introduction of HECS (which introduced student contributions where government had previously paid the full cost) did not adversely affect participation.92 For students from low socio-economic (SES) backgrounds, 2009 research suggested factors relating to leveraging school performance for university entry may be of more consequence and ‘policy interventions that rectify the credit constraint problem that faces individuals at the time they make university entrance decisions are not sufficient to equalize university participation across social groups’.93

However, 2011 analysis by Deloitte Access Economics for the then Department of Education, Employment and Workplace Relations found modest reductions in demand, measured by number of applications, among low SES students, and people aged 21 and over, directly following some previous HECS/HELP policy changes, as well as some inconsistent effects by field of education.94 However, participation rates have continued to increase over the longer term, suggesting these effects may be relatively short lived.95

If the overriding policy aim of HELP is to increase access to tertiary education, debt write-down is a necessary feature to achieve the social policy goals of the program. However, if reducing government costs is the overriding concern, then it is notable that payment arrangements for HELP are much more generous than those applied in some other social policy areas. Andrew Norton outlines:

If risk management is HELP’s core function, fairness considerations suggest that a lower threshold is needed. Students should expect to repay their debts, except when they experience financial hardship. The threshold should not be set with reference to average weekly earnings, but should instead use benchmarks of low income. While some social security benefits are arguably too low, threshold reform should aim for greater alignment among government income protection programs.

96

Changes to repayment thresholds and rates under HESA As set out in Table 1 below, part 1, item 1 proposes to replace the minimum repayment income at paragraph 154-10(a) of the HESA with an amount of $44,999 for the 2018-19 income year. Item 2 proposes to repeal and replace the table at section 154-20 of HESA, which sets out repayment income thresholds and rates.

As can be seen in the table, the new arrangements add to those due to commence 1 July 2018 to create a more gradual transition from nil to four per cent repayments, requiring repayments to begin at lower incomes and avoiding the ‘cliff’ currently in place at four per cent, where someone earning $55,874 in 2017-18 makes no repayment, but someone earning $55,875 pays four per cent of their total income, or $2,235, unless they qualify for an exemption. The DET submission to the Senate Committee Inquiry into the Bill makes the point that under these arrangements there appears to be ‘a group of debtors with their reported income just below the current

91. Higher education equity programs funded through the Education and Training portfolio recognise the following groups: people from low socioeconomic backgrounds; people with disability; Aboriginal and Torres Strait Islander people; people from rural and remote areas; people from a non-English speaking background and; women in non-traditional areas of study. I Li, S Mahuteau, A Dockery, P Junankar and K Mavromaras, Labour market outcomes of Australian university graduates from equity groups, Report submitted to the National Centre for Student Equity in Higher Education (NCSEHE), Curtin University, Perth, 2016. 92. B Chapman and C Ryan, Income-contingent financing of student charges for higher education: assessing the Australian innovation, Discussion

paper, 449, Centre for Economic Policy Research, May 2002. 93. B Cardak and C Ryan, Why are high ability individuals from poor backgrounds under-represented at university?, Discussion paper No. A06.04, La Trobe University, School of Economics, June 2006. 94. Deloitte Access Economics, The impact of changes to student contribution levels and repayment thresholds on the demand for higher

education, DEEWR, Canberra, August 2011. 95. DET, ‘2016 Appendix 2 - Equity groups’, Higher Education Statistics, DET website, last modified 30 November 2017; ABS, Education and work, Australia, cat. no. 6227.0, ‘Table 29 Highest non-school qualification: Bachelor Degree level or above, By age and sex, 1982 to 2017’, ABS,

Canberra, 2017. 96. Norton, HELP for the future: fairer repayment of student debt, op. cit., p. 23.

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minimum repayment threshold. This suggests that the current repayment rates create incentives for some debtors to minimise their reported HELP repayment income to deliberately avoid repayments.’97

However, in recent years the CPI indexation rate applied to outstanding HELP, SSL, TSL and SFSS debts that are at least 11 months old on 1 June each year has varied between 3.0 per cent and 1.5 per cent.98 This means repayments at the lower end of the proposed rates are likely to fall below indexation growth, with debtors continuing to see their HELP balance grow even as they make repayments.

Additionally, the proposed changes would see some repaying debtors move between repayment rates. Currently, someone earning $60,000, the median starting salary for a full-time employed graduate from an undergraduate degree in 2017, would repay 4.0 per cent in 2017-18, and remain at that rate in 2018-19.99 Under the proposed changes, they would move down to a 3.0 per cent repayment rate in 2018-19.

At higher incomes, a number of new thresholds apply. In 2017-18, an eight per cent repayment rate applies to incomes of $103,766 and above. In 2018-19, the eight per cent rate will apply to incomes of $107,214 and above. Under the proposed changes, eight per cent will apply from $104,548 to $110,820, with new rates at 0.5 per cent increments up to 10 per cent for incomes of $131,989 and above.

However, at a minimum repayment threshold of $45,000 for 2018-19, exemptions under section 154-1 of HESA, which exempts debtors from making repayments if, under section 8 of the Medicare Levy Act 1986, they do not have to pay the full Medicare Levy, would likely apply to more people.100 According to the ATO:

In 2016-17 your Medicare levy is reduced if your family taxable income is equal to or less than $45,676 ($59,587 if you are entitled to the seniors and pensioners tax offset) plus $4,195 for each dependent child you have. 101

Therefore, under current arrangements and at 2016-17 rates, a family with three children (and not entitled to the seniors and pensioners tax offset) would not make HELP repayments until their family taxable income was above $58,261. Using the available 2016-17 rates for Medicare Levy exemption from the ATO, a family with one child (and not entitled to the seniors and pensioners tax offset) would be exempt up to a family taxable income of up to $49,871 per annum.102

Table 1: 2017-18 and 2018-19 repayment income thresholds and rates for HELP, SSL, and TSL and proposed new arrangements

Repayment income thresholds 2017-18

Repayment rates 2017- 18

Repayment income thresholds 2018-19

Repayment rates 2018- 19

Repayment income thresholds 2018-19 as proposed in the Bill

Repayment rates 2018- 19 as proposed in the Bill

Below

$44,999

Nil

Below

$51,956

Nil $45,000 -

$51,956

1%

97. DET, Submission, Senate Education and Employment Legislation Committee, Inquiry into the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 [provisions], [submission no. 32], p. 7. 98. ATO, ‘HELP, SSL, ABSTUDY SSL, TSL and Financial Supplement indexation rates’, ATO website, 9 May 2017. 99. Social Research Centre, ‘2017 Graduate outcomes survey: national report’, op. cit., pp. ii-iii. 100. This is further discussed in M Warburton, ‘Five things senators (and everyone else) should know about changes to HELP debts’, The

Conversation, 9 October 2017. 101. ATO, ‘Medicare levy reduction—family income’, ATO website, last modified 29 June 2017. 102. ATO, ‘Medicare levy reduction—family income’, ATO website, op. cit. This is further discussed in M Warburton, ‘Five things senators (and

everyone else) should know about changes to HELP debts’, op. cit. Additionally, in instances of serious financial hardship (when payment would leave a debtor unable to provide food, accommodation, clothing, medical treatment, education or other necessities for themselves, their family or other people that they are responsible for) or other special reasons (for example natural disasters, death or serious illness in the family requiring travel), HELP debtors can apply to the ATO to defer a compulsory repayment or the levy paid by overseas debtors. ATO, ‘Deferring your compulsory repayment or overseas levy’, ATO website, 1 July 2017.

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Repayment income thresholds 2017-18

Repayment rates 2017- 18

Repayment income thresholds 2018-19

Repayment rates 2018- 19

Repayment income thresholds 2018-19 as proposed in the Bill

Repayment rates 2018- 19 as proposed in the Bill

Below $55,874

Nil $51,956 -

$57,729

2% $51,957 -

$55,073

2%

$55,874 - $62,238

4% $57,730 -

$64,306

4% $55,074 -

$58,378

2.5%

$62,239 - $68,602

4.5% $64,307 -

$70,881

4.5% $58,379 -

$61,881

3%

$68,603 - $72,207

5% $70,882 -

$74,607

5% $61,882 -

$65,594

3.5%

$72,208 - $77,618

5.5% $74,608 -

$80,197

5.5% $65,595 -

$69,529

4%

$77,619 - $84,062

6% $80,198 -

$86,855

6% $69,530 -

$73,701

4.5%

$84,063 - $88,486

6.5% $86,856 -

$91,425

6.5% $73,702 -

$78,123

5%

$88,487 - $97,377

7% $91,426 -

$100,613

7% $78,124 -

$82,811

5.5%

$97,378 - $103,765

7.5% $100,614 -

$107,213

7.5% $82,812 -

$87,779

6%

$103,766 and above

8% $107,214 and above

8% $87,780 -

$93,046

6.5%

$93,047 -

$98,629

7%

$98,630 -

$104,547

7.5%

$104,548 -

$110,820

8%

$110,821 -

$117,469

8.5%

$117,470 -

$124,517

9%

$124,518 -

$131,988

9.5%

$131,989 and

above

10%

Source: Recreated from ATO, ‘HELP, SSL, ABSTUDY SSL, TSL and SFSS repayment thresholds and rates’, op. cit.; Schedule 1 of the Budget Savings (Omnibus) Act 2016; Parliament of Australia, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 homepage, item 2 of Schedule 1.

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Changes to SFSS repayment thresholds Part 1, items 3 to 5 of Schedule 1 to the Bill propose to amend the Social Security Act 1991 to repeal current Section 1061ZZFD, which sets out the SFSS-specific repayment thresholds and rates, and replace it with proposed section 1061ZZFD to apply the repayment thresholds and rates under section 154-20 of the HESA from 2019-20, and establish transitional SFSS repayment rates and thresholds for 2018-19, as set out in Table 2 below. Proposed section 12ZLC of the Student Assistance Act 1973, at item 6, has the same effect.

Table 2: 2017-18 repayment income thresholds and rates for SFSS and proposed transitional arrangements for 2018-19

Repayment income thresholds 2017-18 Repayment rates 2017-18

Proposed transitional repayment income thresholds 2018-19

Proposed transitional rates 2018-19

Below $55,874 Nil Below $57,730 Nil

$55,874 - $68,602 2% $57,731 - $70,881 2%

$68,603 - $97,377 3% $70,882 - $100,613 3%

$97,378 and above 4% $100,614 or more 4%

Source: Recreated from ATO, ‘HELP, SSL, ABSTUDY SSL, TSL and SFSS repayment thresholds and rates’, op. cit.; Item 3, Parliament of Australia, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 homepage, Australian Parliament website.

Changes to indexation under HESA Part 2 of Schedule 1 to the Bill proposes amendments to change the indexation of repayment thresholds under HESA from AWE to CPI. The application provisions in Part 3 propose to give effect to these changes from the 2019-20 income year.

Currently, the repayment income thresholds are indexed by the change in AWE for that income year under section 154-25 of the HESA. Items 8 and 9 propose to repeal and replace the AWE indexation formula in this section with the change in the index number for the income year.

Index number is currently defined in clause 1 of the Dictionary at Schedule 1 to the HESA, as having, for the purposes of Part 4-1 of HESA, the meaning given by section 140-15 and for the purposes of Part 5-6, the meaning given by section 198-20. Item 14 proposes to amend this definition by providing that for the purposes of Parts 4-1 and 4-2 of HESA, index number has the meaning given by proposed clause 2 of Schedule 1 to HESA, which is inserted by item 16 of Schedule 1 to the Bill.103 Proposed clause 2 provides that, for the purposes of Parts 4-1 and 4-2, ‘the index number for a quarter is the All Groups Consumer Price Index number, being the weighted average of the 8 capital cities, published by the Australian Statistician in respect of that quarter’. This mirrors the definition of index number in section 198-20 of the HESA.

The effect of these changes is that the same indexation formula currently applied to other HESA funding under Part 5-6 would apply to the loan repayment thresholds.104

As can be seen in the table at Appendix 1: Average Weekly Earnings (AWOTE), HELP repayment rates and thresholds: 1988-89 to 2016-17, the minimum repayment threshold has generally remained around Average Weekly Ordinary Time Earnings (AWOTE). Under section 154-25 of HESA, the repayment thresholds are subject to indexation each year by the increase in average weekly earnings.105 As a consequence, the thresholds have tended to increase over time in real terms until lower thresholds have been legislated. Andrew Norton, Higher Education Program Director for the Grattan Institute, has recommended a shift to CPI indexation of the thresholds to avoid this tension. 106 However, it is important to note that during periods of slow wage growth

103. Section 154-25 is in Part 4-2 of HESA. 104. For example, the student services and amenities fee in section 19-37, the FEE-HELP limit currently in section 104-20 (which this Bill would repeal and replace with the HELP limit), and the OS-HELP borrowing limits under sections 121-5 and 121-15. 105. Different methods of indexation are used for the indexing of accumulated HELP debts under sections 140-10 and 140-15, and for the

indexing of HELP repayment thresholds under section 154-25. 106. Norton, HELP for the future: fairer repayment of student debt, op. cit., p. 7.

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below CPI, such a change would see HELP repayment thresholds increase more quickly than wages, creating more generous repayment arrangements over time—the opposite to the intended effect.

Changes to order of repayment of debts As discussed above, debtors with borrowings under both SFSS and other student loan schemes are currently required to make SFSS repayments concurrently with the other student loan repayments once their income reaches the minimum repayment threshold.

Referring to Table 1 and Table 2 above, this would mean a debtor with SFSS and HELP borrowings and an income of $60,000 per annum in 2017-18 would make HELP repayments of 4.0 per cent at the same time as SFSS repayments of 2.0 per cent, bringing their repayment responsibilities up to the 6.0 per cent level that would otherwise only apply to HELP debtors with an income at least $17,619 higher—between $77,619 and $84,062.

Schedule 2 proposes amendments to the Social Security Act 1991, Student Assistance Act 1973, and Trade Support Loans Act 2014 to specify SFSS debts are to be paid after HELP, followed by SSL, ABSTUDY SSL, and TSL. The application provisions contained in Part 2 of Schedule 2 specify that the amendments are to apply from the 2019-20 financial year. This commencement would be at the same time as the proposed change to bring SFSS debts under the HELP repayment thresholds and rates in HESA.

Item 1 proposes amendments to the Social Security Act 1991 to repeal and replace subsection 1061ZVHA(1), which sets out the compulsory SSL repayment liability. Under current subsection 1061ZVHA(1), compulsory repayments must be made once a person’s income reaches the minimum repayment threshold and the person has finished repaying any accumulated HELP debts. Proposed subsection 1061ZVHA(1) adds accumulated SFSS debt, meaning SSL debt would be repaid after HELP and SFSS, but before ABSTUDY SSL and TSL, if a person owes under all programs.

Item 2 proposes amendments to the Student Assistance Act 1973 to repeal and replace subjection 10F(1), which sets out the compulsory ABSTUDY SSL repayment liability. Under current subjection 10F(1), compulsory repayments must be made once a person’s income reaches the minimum repayment threshold and the person has finished repaying any accumulated HELP and SSL debt. Proposed subsection 10F(1) adds accumulated SFSS debt, meaning ABSTUDY SSL debts would be repaid after HELP and SSL debts, but before TSL, if a person owes under all programs.

Item 3 proposes amendments to the Trade Support Loans Act 2014 to repeal and replace subsection 46(1), which sets out the compulsory TSL repayment liability. Under current subsection 46(1), compulsory repayments must be made once a person’s income reaches the minimum repayment threshold and the person has finished repaying any accumulated HELP, SSL, or ABSTUDY SSL debt. Proposed subsection 46(1) adds accumulated SFSS debt, meaning TSL debts would be repaid last if a person owes under all student loan programs.

Each of the proposed replacement subsections include debts under section 154-16 of HESA as HELP debts. This means HELP repayments charged as a levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015 are treated as HELP repayments for the purposes of repayment order.107

Introduction of a combined HELP loan limit As discussed above, under section 104-20 of HESA, a lifetime borrowing limit, the FEE-HELP limit, currently applies to FEE-HELP, VET FEE-HELP and Vet Student Loans. In comparison, no borrowing limits currently apply for HECS-HELP, although a limit on the length of Commonwealth supported study time available applied between 2005 and 2011.108 In 2018, the FEE-HELP lifetime borrowing limit is $127,992 for medicine, dentistry and veterinary science students and $102,392 for all other students.109

107. Overseas debtor arrangements for HELP and TSL commenced from 1 July 2017. More information about current arrangements is available at ATO, ‘HELP and TSL overseas obligations’, ATO website, last modified 12 February 2018. The introduction of these arrangements is discussed in more detail in J Griffiths, Education Legislation Amendment (Overseas Debt Recovery) Bill 2015 [and] Student Loans (Overseas Debtors Repayment Levy) Bill 2015, Bills digest, 43, 2015-16, Parliamentary Library, Canberra, 2015. 108. A Student Learning Entitlement (SLE) was introduced in HESA in January 2005, limiting access to Commonwealth supported places to seven

years of full-time or equivalent study. Higher Education Support Act 2003, ‘Part 3-1—Student learning entitlement’. The SLE limit was removed in January 2012 in the Higher Education Support Amendment (Demand Driven Funding System and Other Measures) Act 2011. 109. DET, ‘FEE-HELP’, StudyAssist website.

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Schedule 3 of the Bill proposes amendments to extend the FEE-HELP limit, which would be renamed the ‘HELP limit’ to include all HELP loans, and increase the loan limit for students undertaking medicine, dentistry or veterinary science to $150,000. The application provisions outlined in Part 2 of Schedule 3 mean amendments would apply from 1 January 2019. No changes are proposed to indexation of the loan limits, which are currently indexed by CPI under Part 5-6 of HESA. The note to proposed section 128-20 (at item 54 of Schedule 3) confirms that loan limits are indexed.

Currently, a student who undertakes a Commonwealth supported undergraduate degree and then continues their education by enrolling in a postgraduate full fee-paying course only begins accruing debt towards the FEE-HELP balance (and hence, borrowing limit) when they start using FEE-HELP, or, if undertaking a VET qualification, VET Student Loans. The effect of the proposed changes is that the HELP loan most often taken out by domestic undergraduate students at public universities (HECS-HELP) will count towards the loan limit, leaving a reduced HELP balance available for any further study.

According to Peter Dawkins, Vice-Chancellor of Victoria University, income contingent loan caps ‘have a similar effect to a fee cap.’110 An effective cap limits fees in a deregulated market (such as currently exists for domestic students studying postgraduate higher education courses, most courses at non-university higher education providers, and many VET courses) as the majority of students will be unable to pay above the set limit.

According to DET’s fact sheet on this measure ‘[t]he limits are reasonable and sufficient, in most cases, to cover almost nine years of study as a Commonwealth supported student.111 However, while Commonwealth supported fees are capped, some deregulated postgraduate university course fees are already above the FEE-HELP loan limit, meaning this assessment cannot be extended to the entire HELP portfolio. For example, Macquarie University’s newly launched ‘Macquarie MD’ has an indicative annual fee of $64,000 for domestic students (who, under this program, are not eligible for a subsidised ‘Commonwealth Supported Place’ or HECS-HELP), totalling approximately $256,000 over the course of the four-year program.112 However, this is at the upper end of fees charged by Australian universities. By comparison, the Australian National University Master of Laws annual indicative fee for domestic students is $30,096, and consists of one year full-time study.113

Item 54 of Schedule 3 inserts proposed Part 3-6 at the end of chapter 3 of HESA, to specify how the HELP balance is to be worked out. Proposed section 128-15 sets out that a person’s HELP balance is comprised of the HECS-HELP, FEE-HELP, VET FEE-HELP and VET student loans assistance provided to the person. OS-HELP and SA-HELP are not included, although as discussed above spending under these sub-schemes is already separately capped. The transitional provisions set out at subitem 144(2) in Part 2 of Schedule 3 mean that HECS-HELP assistance would not be applied to the HELP balance if the census date for the unit is before 1 January 2019. Proposed subsection 125-15(2) specifies that for the purpose of working out the HELP balance, it is immaterial whether the amounts provided have been repaid.

Proposed section 128-20 specifies that the HELP loan limit is $150,000 for students studying medicine, dentistry and veterinary science courses, or $104,440 for all other students, and that the HELP loan limit is indexed under Part 5-6.

Proposed section 93-20 at item 5 sets out the limits of HECS-HELP, FEE-HELP, and VET FEE-HELP assistance that may be provided. Proposed subsection 93-20(2) specifies that if the sum of the amounts to which the student would be entitled would exceed the student’s available HELP balance on the census date, then the total amount of assistance provided can only be up to the HELP balance.114 This means a student enrolling in a unit, or units with the same census date, which cost more than the available HELP balance, would be liable to pay the outstanding amount to the provider. Proposed subsection 93-20(3) specifies that if a student is enrolled in units with more than one higher education or VET provider, the student must notify each provider of the proportion of the HECS-HELP, FEE-HELP, and VET FEE-HELP that is to be payable for the units.

110. P Dawkins, ‘Can the government realistically cut funding by 20% for each student in higher education?’ Mitchell Institute, 13 July 2016. 111. DET, ‘Instituting a combined loan limit for HECS-HELP, FEE-HELP, VET FEE-HELP and VET student loans’, DET website, 18 December 2017, p. 1. 112. Macquarie University, ‘Fees and scholarships’, Macquarie University website. A number of examples of other courses with fees above the cap are provided in Senate Education and Employment Legislation Committee, Higher Education Support Legislation Amendment (Student Loan

Sustainability) Bill 2018 [provisions], Answers to Questions on Notice, Education and Training Portfolio, Committee Inquiries 2017-18, Question SQ18-000024, March 2018, p. 3. 113. Australian National University (ANU), ‘Master of Laws’, ANU website. 114. The Census date is part-way through the study period and is the point at which the student is charged for the unit of study.

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Item 6 will insert proposed Division 97, which sets out the circumstances in which a person’s HELP balance is to be re-credited in relation to HECS-HELP assistance. Currently under HESA, providers must repay HELP loan amounts in certain circumstances, to avoid the student incurring a debt improperly.115 These proposed amendments apply the conditions currently in place for re-crediting the FEE-HELP balance in relation to FEE-HELP and VET FEE-HELP, in light of the proposal to apply the borrowing limit currently in place for these loans to HECS-HELP.

• Proposed subsection 97-25(2) specifies that the provider must re-credit the HECS-HELP assistance if special circumstances apply.

• Proposed section 97-30 defines special circumstances for the purposes of the Division, consistent with the definition currently at section 36-21 of HESA.

• Currently under section 193-5 of HESA, a person is not entitled to HECS-HELP assistance if they do not have a tax file number. Proposed section 97-27 specifies that if a person’s enrolment is cancelled consistent with the provisions of section 193-5, the HELP balance must be re-credited by the provider.

• Proposed section 97-35 specifies that the student’s application for re-crediting must be made within 12 months of the student’s withdrawal from the unit, or if that does not apply, within 12 months of when the student undertook, or was to undertake, the unit. Proposed section 97-40 specifies that the provider can waive the requirement for the application to be made within the 12 month period if it was not possible for the application to the made during that time.

• Proposed section 97-42 specifies that a person’s eligible HELP balance must be re-credited if the provider ceases to provide the course of which the unit is a part.

• Proposed subsections 97-25(3), 97-27(2) and 97-42(2) specify that the Secretary of the relevant Department (currently DET) may act if the provider is unable to re-credit the balance in the circumstances outlined in sections 97-25, 97-27 and 97-42.

The Bill does not contain any proposal to alter the OS-HELP semester borrowing limit of $6,665 (if not studying in Asia) or $7,998 (if studying in Asia), which can be expended twice during a course of study, or the VET Student Loans course borrowing limits of $5,000, $10,000, $15,000 and $75,000.

Items 122 to 143 of Schedule 3 deal with consequential amendments to the VET Student Loans Act 2016 to include VET Student Loans in the HELP loan limit—changes largely consist of replacing ‘FEE-HELP balance’ with ‘HELP balance’. The exception is item 123, which repeals the definition of FEE-HELP balance as it is no longer needed, and item 124, which inserts at section 6 the definition of HELP balance, specifying that it ‘has the same meaning as in the Higher Education Support Act 2003’.

Concluding comments This Bill presents a set of more narrowly focused higher education reforms aimed to improve the sustainability of HELP. The lower minimum repayment threshold and rate continues efforts to reduce the amount of unpaid HELP debt, and the HELP loan limit extends arrangements currently in place for VET Student Loans (previously VET FEE-HELP) and FEE-HELP to Commonwealth supported students, returning domestic undergraduate students to limited allocation similar to what was in place prior to the introduction of the demand driven system. However, as Mark Warburton, Honorary Senior Fellow at the LH Martin Institute, states:

There will always be a policy question about the appropriate income level at which repayments should commence... Regardless of where the repayment threshold is set, there will always be an amount of debt that is ‘expected’ not to be repaid. 116

In this way, these proposals, coupled with the other 2017-18 MYEFO higher education reform announcements, raise questions about the future of the demand driven funding system and the role of HELP in increasing access and participation in tertiary education.

115. Re-crediting is dealt with in HESA under sections 104-25, 104-27, 104-42, 104-43 or 104-44 for FEE-HELP, and clause 46, 46A, 47, or 51 of Schedule 1A to HESA for VET FEE-HELP. 116. Warburton, Resourcing Australia’s tertiary education sector, op. cit., pp. 33-4.

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Appendix 1: Average Weekly Earnings (AWOTE), HELP repayment rates and thresholds: 1988-89 to 2016-17

1988-89 to 2003-04

Income year AWOTE ($ pa)(a) Repayment rate and repayment threshold ($ pa)(b)

Nil 1% 2% 3% 3.5% 4% 4.5% 5% 5.5% 6%

1988-89(c) 26 057 21 999 24 999 34 999 35 000+

1989-90 27 318 23 582 26 798 37 518 37 519+

1990-91 29 026 25 468 28 941 40 519 40 520+

1991-92 30 319 27 097 30 793 43 112 43 113+

1992-93 30 800 27 747 31 532 44 146 44 147+

1993-94 31 764 26 402 30 004 42 005 42 006+

1994-95 33 236 26 852 30 516 42 722 42 723+

1995-96 34 710 (d)19 999 27 674 31 449 44 029 44 030+

1996-97(e) 35 942 (d)20 593 28 494 30 049 32 381 37 563 43 335 47 718 51 293 51 294

1997-98(e) 37 344 20 700 21 830 23 524 27 288 32 934 34 665 37 262 37 263

1998-99(e) 38 922 21 333 22 498 24 244 28 123 33 942 35 726 38 402 38 403

1999-00(f) 40 037 21 983 23 183 24 982 28 980 34 976 36 814 39 572 39 573

2000-01(f) 42 039 22 345 23 565 25 393 29 456 35 551 37 420 40 223 40 224

2001-02(f) 44 270 23 241 24 510 26 412 30 638 36 977 38 921 41 837 41 838

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2002-03(f) 46 667 24 364 25 694 27 688 32 118 38 763 40 801 43 858 43 859

2003-04(f) 48 571 25 347 26 731 28 805 33 414 40 328 42 447 45 628 45 629

2004-05 to 2016-17

Income year AWOTE ($pa)(a) Repayment rate and repayment threshold ($ pa)(b)

Nil 4% 4.5% 5% 5.5% 6% 6.5% 7% 7.5% 8%

2004-05(f) 50 929 35 000 38 987 42 972 45 232 48 621 52 657 55 429 60 971 64 999 65 000

2005-06(g) 52 978 36 184 40 306 44 427 46 762 50 266 54 439 57 304 63 062 67 199 67 200

2006-07(g) 55 143 38 148 42 494 46 838 49 300 52 994 57 394 60 414 66 485 70 846 70 847

2007-08(g) 57 673 39 824 44 360 48 896 51 466 55 322 59 915 63 068 69 405 73 959 73 960

2008-09(g) 60 991 41 598 46 333 51 070 53 754 57 782 62 579 65 873 72 492 77 247 77 248

2009-10(h) 64 399 43 151 48 066 52 980 55 764 59 943 64 919 68 336 75 203 80 136 80 137

2010-11(h) 67 077 44 911 50 028 55 143 58 041 62 390 67 750 71 126 78 273 83 407 83 408

2011-12(h) 69 662 47 195 52 572 57 947 60 993 65 563 71 006 74 743 82 253 87 649 87 650

2012-13(h) 73 239 49 095 54 688 60 279 63 448 68 202 73 864 77 751 85 564 91 177 91 178

2013-14(h) 75 169 51 308 57 173 62 997 66 308 71 277 77 194 81 256 89 421 95 287 95 288

2014-15(h) 76 963 53 345 59 421 65 497 68 939 74 105 80 257 84 481 92 970 99 069 99 070

2015-16(h) 78 429 54 125 60 292 66 456 69 949 75 190 81 432 85 718 94 331 100 519 100 520

2016-17(h) 54 868 61 119 67 368 70 909 76 222 82 550 86 894 95 626 101 899 101 900

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2017-18(h) 55 873 62 238 68 602 72 207 77 618 84 062 88 486 97 377 103 765 103 766

(a) Average weekly ordinary time earnings for adults working full time (calculated as average weekly ordinary time earnings for the two quarterly survey estimates multiplied by 52 weeks)

(b) Highest income level at which rate is payable, except for top repayment rate, which commences at income level specified

(c) As HECS was only introduced on 1 January 1989, repayment rates for 1988-89 were at half the level of later years (that is, 0.5%, 1.0% and 1.5%)

(d) Repayment at 2% rate was voluntary

(e) Taxable income plus net rental losses

(f) As per (e) plus total reportable fringe benefits amounts

(g) As per (f) plus exempt foreign employment income

(h) As per (g) plus any total investment loss (which includes net rental losses), and reportable super contributions.

Sources: Australian Taxation Office (ATO), ‘HELP, SSL, ABSTUDY SSL, TSL and SFSS repayment thresholds and rates’, op. cit., Earlier years sourced from ATO websites now archived at National Library of Australia, Australian Government web archive; ABS, Average weekly earnings, Australia, ‘Table 3’, cat. no. 6302.0, ABS, Canberra, 23 February 2017.

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