Recipients of a dumped welfare scheme that enticed low-income students to trade away their right to welfare have cause to mount a class action, a senior legal expert says.
The Australian government is still chasing $2bn of debt from more than 140,000 former students who signed up to the student financial supplement scheme (SFSS).
Operating for a decade from 1993, it enticed tertiary students to take out “low-cost” loans by giving up benefits including youth allowance, Austudy, Abstudy and the pensioner education supplement.
Every dollar of welfare a student gave up entitled them to $2 in a SFSS loan, which could be used to help cover expenses while studying. Minors were also able to take out loans.
The Coalition dumped the scheme at the end of 2003, acknowledging it was saddling students with high levels of debt, was “administratively cumbersome and poorly targeted” and effectively hit people with hidden interest rate costs through forgone welfare.
Andrew Grech, a partner at Gordon Legal, says a class action could be mounted if the implications of the loans were misrepresented to individuals at the time they signed up.
“It might be arguable the arrangements were unconscionable conduct because it wasn’t clearly disclosed to them at the outset they could end up … dramatically financially worse off,” he said.
“It’s very problematic for the commonwealth and it’s purportedly induced people to enter into these arrangements designed to be for their benefit which instead have caused in many cases enormous hardship and detriment.
“If people relied on these representations made to them and suffered detriment and financial loss, they’d certainly have an arguable cause of action against the commonwealth, by individual claims or banded together in a class action.”
Recipients – many of them now in their 40s and 50s – are still struggling to pay off the debts they racked up. More than 100 people in a social media group for recipients who say they were deceived by the scheme have expressed interest in signing up to a class action.
It was “sheer desperation” that led to Deb Woodbridge taking out a SFSS loan. She was among many Aboriginal and Torres Strait Islander students receiving Abstudy support who were encouraged to capitalise on the scheme.
“They said sign up to it, it’ll make life easier,” she said. “When we saw the paperwork it said it was interest free … I traded my entitlement, where did that go?
“So many vulnerable people signed up to them … Aboriginal and Torres Strait Islander people, people with disabilities, vulnerable children. If that’s not predatory I don’t know what is.”
Woodbridge borrowed a total of $17,500, taking out five $3,500 payments until the scheme was scrapped.
She began paying it back after meeting the minimum threshold in 2008. By then, her debt had more than doubled to $43,000 – indexed in line with the consumer price index (CPI).
She has repaid more than $35,000 since, and still has $17,200 left as the debt swells with inflation. The latest quarterly CPI figures showed Australians with student debt are facing the highest increase in decades when indexation is added on 1 June.
Woodbridge paid off her Hecs in 2014 and, despite working full-time in higher education for 15 years, she still does not know if she will ever pay off her SFSS.
Since the repayment threshold was raised for SFSS loans in 2019, $200 comes out of her pay every fortnight, the equivalent of $5,000 a year.
“I’ve paid double what I borrowed and with the upcoming increase in indexation it’s never going away,” she said.
“I feel like I’ve been conned and so does everyone else. I got knocked back for a $10,000 car loan, you can’t get home loans.”
Woodbridge wants to launch a class action to have the debts abolished. She points to Vet Fee Help loans that were scrapped in 2019 due to findings of inappropriate conduct.
“It’s within their power and it’s completely unfair,” she says. “Labor set up the scheme, it’s incumbent on them to fix it.”
A former student from an advocacy and legal background, who wishes to remain anonymous, took out four loans from 1995 onwards totalling $14,425 and now has $20,026 owing.
The graduate says the loans people entered into “don’t meet basic tenets of contract law”.
“The social security payment is absolutely inalienable … you can’t legislate away a contracted right,” he said.
“Minors without guardians were signing it, people in desperate need with no literature of what it could grow into. It’s criminal and the government is making a profit.”
The social services minister, Amanda Rishworth, said it was “important to remember” SFSS loans weren’t required to be repaid until a person reached the minimum threshold.
“SFSS repayments are a set percentage based on your income,” she said.
“They don’t go up unless your salary does and as with other student loans … [they] are indexed annually by CPI. No interest is applied.”
The education minister, Jason Clare, was approached for comment.
