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Low earners slugged by student loan overhaul

university student
Low-income graduates will be slugged by a tax increase under a new government plan. Photo: Getty
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Nurses, artists, pharmacy workers and other low-paid university graduates face a tax hike under the government’s proposed changes to student loans.

The big losers will be those earning between $45,000 and $51,957 who from next financial year (2018-19) will be forced to give up 1 per cent of their yearly wage to repay their HELP debt. Currently, they pay nothing.

If the changes make it through Parliament, workers on $45,000 will cop a $450 bill, and those on $51,000 will pay $510 a year.

Under the current system, students don’t pay anything until they earn $55,874. At this point they forfeit 4 per cent of their yearly wage, which rises to 4.5 per cent at $62,239 and 5 per cent at $68,603.

The threshold has already been legislated to fall to $51,957 by 2019, with those graduates forced to hand over 2 per cent of their income. The proposed changes would go even further, by dropping the repayment threshold down to $45,000.

Oddly, some middle earners will get a reprieve.

Currently, repayments range from 4 to 8 per cent a year, depending on annual income. The government wants to increase this range to between 1 and 10 per cent, catching more low-paid workers and high-paid workers – while helping some in the middle.

For example, graduates on $60,000 will be slugged only $1800 a year, which is less than the $2400 a year they currently pay. For those on $65,000, they would keep an extra $650 a year in their pockets.

Grattan Institute higher education program director Andrew Norton said the new thresholds were “preferable” to the existing arrangements.

“For most people, the new thresholds will slightly speed up repayment but not affect total repayments in real terms,” he told The New Daily.

He said there were “some rather random income gaps between thresholds” under existing system.

The extra thresholds mean the burden is spread more evenly, the government argues, while slugging the most wealthy graduates with faster repayments rates.

Labor and the Greens have already warned that the lower threshold hits low-income earners too hard, particularly because the government also proposes to increase the Medicare levy to 2.5 per cent to fund the National Disability Insurance Scheme.

Earlier in the year, the government tried to drop the HELP threshold even lower, to $42,000. The Senate rejected it.

Education Minister Simon Birmingham has said he is “hopeful” the new thresholds would win crossbench support.

He has conceded that a tax hike for those on $45,000 will be “challenging” for some people, but argued change is needed because one in four student loans are currently expected to go unpaid.

The government will also introduce a cap on the amount students can borrow for a degree, setting it at $104,440 for the majority of students, and $150,000 for those studying medicine, dentistry and veterinary science.

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