Finance Your Budget HECS-HELP fees: A debt worth having?

HECS-HELP fees: A debt worth having?

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After graduating from a science degree four years ago, Isabel Craik had managed to save $30,000 and was keen to pay off her HECS-HELP debt rather than continue to have it deducted from her wage.

“I just thought it would be great to not have to think about it anymore, to have it out of the way,” Ms Craik said.

But her accountant didn’t agree.

Graduates receive a five per cent bonus for advance payments of $500 and over on their HECS-HELP debt.

“There’s no real reason to pay back the debt ahead of time,” Frank Brass from tax accounting firm H&R Block told The New Daily.

“People can get much better value for their money by investing it in other ways. HECS-HELP is a debt that dies with you and accrues no interest.”

Since its introduction in 1989, the amount of outstanding debt incurred through the federal government’s HECS loan scheme (since renamed HECS-HELP) has increased one hundred fold.

Current and former students have amassed current HECS-HELP debts of $26.3 billion, an increase of $10 billion in real terms in the past five years, according the Grattan Institute’s Mapping Australian Higher Education report.

The government is unlikely to ever be repaid an estimated $6.2 billion of that amount, because some former students won’t earn the minimum $51,000 a year required before repayments are deducted.

Further adding to the unrecovered HECS-HELP debt, the government doesn’t recoup payments from graduates who work overseas.

But even those who do pay back their study costs will win financially in the long run. The Grattan Institute’s report notes that male university graduates earn about 50 per cent more over their careers than those with only a Year 12 certificate, after taking out the costs of education and tax. For females with a bachelor’s degree, the net earnings premium is 60 per cent.

“The median male bachelor-degree holder has lifetime additional earnings of $1.4 million, compared to the median male who did no further education after Year 12,” the report stated.

An average four-year bachelor degree costs between $18,000 and $30,000, but the fee can rise to more than $66,000 for a six-year medical degree, or $53,000 for a five-year veterinary degree, according to the Australian Scholarship Group (ASG).

Bruce Guthrie, a strategic policy adviser with Graduate Careers Australia (GCA), stressed that “numerous studies have shown that people easily make back their HECS fee over their work life”.

“The introduction of HECS in 1989 didn’t deter people from studying,” he said.

But not all degrees are created equal when it comes to earning capacity, and some disciplines will give graduates more bang for their education buck.

According to GCA’s Annual Graduate Survey, released last month, dentistry graduates earned the highest median starting salary of $80,000 in 2013. This was followed by optometry ($70,000), engineering ($64,000), earth sciences ($60,000) and medicine ($60,000). Art and design graduates had the lowest median starting salary at just over $40,000.

The starting salary for social science graduates experienced the biggest year-on-year increase, rising to $50,000 in 2013 from $47,000 in 2012 – a gain of 6.4 per cent.

A separate Grattan Institute report, Graduate Winners, calculated a 14 per cent rate of return for male for male graduates with a bachelor’s degree and 16 per cent for their female counterparts.

Between 2006 and 2011, the rate of return on education investment increased by about $80,000 for each gender.

Education is big business in Australia, with 39 universities and more than 130 higher education providers currently catering to 1.2 million enrolled students. All this adds up to a combined revenue of $24 billion per year, the equivalent of about two per cent of Australia’s GDP.

HECS-HELP at a glance

HECS-HELP is a loan scheme offered by the Federal Government to university students who undertake a Commonwealth supported place, or subsidised enrolment. The scheme allows students to defer the costs of a university education until their income reaches a prescribed level. (That’s $51,095 in 2014.) After reaching this income level, graduates pay between four and eight per cent of their income (depending on earnings) to repay their education debt.

At the moment, graduates who make voluntary repayments of more than $500 on their debt receive a five per cent discount. However, this policy will be phased out at the end of 2014.

The HECS-HELP Benefit is assistance offered to graduates of maths or science, nursing, midwifery and education degrees who take up positions in their chosen fields. A benefit is also offered to early childhood teachers who work in specific regions. In the current financial year, the maximum benefit is just over $1,831.32 for early childhood graduates and $1716.85 for the other fields.

HECS-HELP does not attract any interest, but it is indexed annually to keep pace with the increases in the cost of living.

Source: Mapping Australia’s Higher Education, Grattan Institute.

Source: Mapping Australian Higher Education 

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