Does Australia Boast of the Best Student Loan Repayment Program in The World?

The Australian Government recently announced shocking changes to its HECS (Higher Education Contribution Scheme). The new changes to the program have made some Aussie graduates agitated. A whopping 11 percent repayment threshold is the new repayment policy announced by the Government.

The new scheme means that any Australian graduate or student earning more than $45000 will start repaying their student debt immediately. Those graduates who moved overseas to evade the repayment scheme are no longer safe under the new laws. The Australian Tax Office now has the power to pursue those debts anywhere in the world.

For Vocational Education & Training student loan (VSL) and Trade Support Loan (TSL) debts, the new directives also apply.

Effect of The New Policy on Graduates

The real effect of the new policy on graduates living overseas is uncertain. As a fellow graduate who falls into the overseas group, I can only speculate on how the plan will affect myself and others.

Will the policy force students to take their financial obligations more seriously? Will it lead to a fall in the number of high school students seeking university education? 

The United States offers us a preview of the likely changes the new policy is causing. With the burdensome student loan repayment scheme in the United States, fewer students are applying for higher education.

The HECS Policy Framework Before The Announcement

Before the sweeping changes to the HECS schemes, Aussie students enjoyed an affordable repayment scheme.

The repayment threshold was $56,000 in 2016. In 2018, the limit dropped to $52,000.

As of today, the amount is a staggering $135,000.

If you earn the repayment threshold annually, you will pay just 10 percent of your annual earnings towards repaying your student debt. If you make around the $75,000 mark, you will pay $3,375 a year.

The figures don’t sound bad, do they?

HECS Compared to Nordic Countries Student Loan Repayment Policies

Australia has an excellent reputation for running one of the nicest student loan programs in the world. No wonder the Tax Office and Government are pushing so hard to increase the repayment threshold,

The HECS helps low salary earners to defer repayment obligations in cases of extreme financial conditions. For the period the repayment scheme is suspended, there will be no interest charge.

As lovely as HECS sounds before the new announcement, it still ranks below its Nordic counterparts in terms of higher educational repayment scheme. Scandinavian countries such as Sweden. Finland and Norway rank higher because of their little or no tuition fees charged.

The Worrying Debt Situation in the United States

Australia is ahead of the United States by a distance. In the US, increasing concerns about the rising cost of higher education and the $1.4 trillion student debt portfolio has attracted the attention of the whole world.

Californian Senator Kamala Harris earlier this week announced a proposed program for student loan debt forgiveness in the US. The program targets Pell Grant recipients with harsh financial conditions in disadvantaged communities.

The question on the front burner of everyone’s lips is that could this program be the spark for a countrywide student loan reform in America? It is too early to conclude. 

It is our sincere hope that the student loan problems get more serious national attention. The system that puts debt burden on graduates before they even start work because the educational institutions and the Government cannot provide affordable education.

The Government has attempted several packages to ease the student debt crisis. The popular ones are the $640 billion loan forgiveness scheme for public school teachers and the $1.6 trillion plan recently announced by Bernie Sanders to forgive all student loans. The list is endless; the result, nothing substantial.

The public loan service program, signed into law by President George Bush in 2007, still exists today. Under the program terms, you can apply for debt forgiveness if you can show evidence of working nonprofit or Government for ten years.

 Guess what; the program is nothing but a colossal failure to date. In 18 months after the signing into law of the bill, only 0.7 percent of US citizens got approved for debt forgiven. A whopping 99.3 percent of applicants got turned down. America has a debt forgiveness problem on its hands.

The Swedish and German Example

Sweden is regarded as the country with the best student loan repayment scheme in the world and rightfully so. To solve our problems, we will look at the Swedish example.

In Sweden, students end up borrowing money for their higher education and graduate with around $20,000 in debt.  It is the loan repayment scheme that earns its recognition.

In Germany, the cost of higher education stands at a prudent $2,160. It is the best price model for other countries to emulate in the quest for more affordable higher education.

Final Thoughts

The cost of higher education in Germany s attractive, but such a low price opens it up to questioning. Does it provide value and financial education for its students? My guess is not impressed.

Perhaps no country has the right formula yet. Maybe what we need is for financial education and guidance about the loans. With the current outlook of things, it will get worse first before we start to feel any relief.

I desire that Australia figures out the most rational higher education debt repayment scheme before my kids gain admission into the university. Whatever the Government tries, I pray they do not mess it up and cause us to experience a similitude of the student debt crisis in the US.

Leave a Comment