Labor has promised to slash 20% off all student loan debts if elected, wiping around $16 billion of debt for about 3 million Australians. Under a new system, the remaining debt would be repaid with no compulsory repayments for people earning less than $67,000 a year. Both measures would need parliamentary approval, but is this good policy?
For this week’s Friday Fight, writer Ben Eltham argues in favour of the policy, and Steve Hamilton makes the negative case.
I was flabbergasted by the government’s plan to cancel 20% of HELP debts. Of course those receiving a giveaway will cheer. But for anyone who cares about the greater good, it has literally nothing to recommend it.
It’s a policy that the left, of all people, should hate. Yet, in today’s upside-down political discourse, they’re the ones cheering it on most enthusiastically.
If you think HELP forgiveness is a good idea, here are eight reasons why you’re wrong.
It’s regressive
The policy transfers money from taxpayers to those with HELP debts. On average, the latter earns significantly higher earnings than the former. This is the definition of regressive. But it’s worse. Around a quarter of current HELP debts will never be repaid because HELP is only repaid if your income is sufficiently high. So this doesn’t even go to the poorest 25% of HELP debtors! Rather, it goes to the richest 75% of a group who already have higher incomes than those paying for it.
It’s unfair
If you already paid off your HELP debt — and a record number of people chose to do so in the past two years (sucks to be them!) — or if you never went to university, or if you haven’t yet started, you get nothing. Why is such an arbitrary subset of the population entitled to an on-average $5,500 windfall paid for by everyone else?
A lot of people (including the prime minister) have claimed it’s fair because university used to be free and current HELP debtors also deserve a subsidy. This ignores the fact that university education in Australia is heavily subsidised by the government and foreign students before we even get to HELP fees.
As a benchmark, my not-for-profit university, which offers similar services to a typical Australian university, charges around $100,000 a year in tuition. Do you really think $15,000 for HELP fees paid off only if you earn above a certain income, and even then with zero real interest, is unfair?
It’s intergenerationally inequitable
Many have claimed it’s important for intergenerational equity — that boomers got a free education so why shouldn’t today’s young people. The problem is it’s not the boomers who are going to pay for it. It’s today’s and tomorrow’s workers who will have to pay higher taxes to pay off the $11 billion debt we are issuing to cover it. It’s the opposite of intergenerationally equitable! We are simply handing off the burden to future generations just as our parents are with us.
It’s not magically free just because it’s off-budget
Strictly, the policy is not off-budget. It’s a subsidy, so it will be recognised on the budget over time as HELP debts are not paid back, but which otherwise would have been. Despite the fact this no doubt provided a great incentive to go ahead with the policy, we should not pretend it’s free. The government will issue $11 billion in debt that must be repaid.
It lowers our living standards
That means we’ll have to collect $11 billion more in taxes or cut $11 billion in spending. Either is economically damaging. Every dollar the government spends comes at a cost to our living standards. That’s why it’s so important to ensure every dollar creates social value. Our living standards have been stagnant for more than a decade. The last thing we need is the burden of funding another regressive transfer.
It does nothing for education
HELP forgiveness has been framed as an education measure, but it’s nothing of the sort. The people benefiting already made their education decision! This is simply a free giveaway after the fact. One big reason we subsidise education is to incentivise people to get an education because it benefits all of us. This policy provides no such incentive. It does nothing whatsoever to improve our education.
It’s political blackmail
Why did the government announce this policy now, before the election, but will not actually implement it until after the election? It could introduce a bill into Parliament today and pass it into law. There is no reason for this. It’s the most crass vote-buying exercise I can recall. If you have a HELP debt, you get on average $5,500 if you vote Labor.
It’s cringe
This government has an embarrassing obsession with imitating the Biden administration. Albo’s staffers spend too much time on TikTok. The government’s competition policy is a rip-off of Lina Khan’s at the US FTC, and Future Made in Australia is a rip-off of the Inflation Reduction Act. But the notion that Australians, with a higher-education financing system that Americans would kill for, needs the kind of “student debt” relief Biden has offered is simply cringe. And if what happened to the Democrats this week is any indication, it’s not a platform worth emulating! It’s time for Albo to come up with his own ideas.
Read the opposing argument by Ben Eltham.
