Students Are Right To Rage Over Debt

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Another day, another student protest.

This one was in Melbourne’s CBD, where a small group of students loosely affiliated with the Socialist Alternative protested outside the Melbourne CBD campus of the now-notorious Whitehouse Institute of Design. The protestors then inflicted traffic chaos on inner Melbourne, staging a sit-in on a busy tram line at Bourke Street.

As we know, the Whitehouse Institute is the college that bestowed Frances Abbott with her $60,000 scholarship, a scholarship that she didn’t even really apply for. But the dissatisfaction on Australian campuses is general. As the full significance of the sweeping changes to higher education announced on budget night sinks in across the sector, there has been an outbreak of student protests right across the country. On 20 May, there were protests in most capital cities. Foreign Minister Julie Bishop was heckled and jostled during a visit to Sydney University. Following security warnings from his staffers, Prime Minister Tony Abbott cancelled an appearance at Deakin University in Geelong.

The protests were predictably ridiculed in some sections of the mainstream media, with the News Corporation tabloids particularly vicious in their attacks on a 15-year old high school student involved in a Melbourne protest. Fairfax’s Annabel Crabb also took a shot at the supposedly retrograde optics of massed public protest (you can read New Matilda's response here).

Despite the media’s disdain, the fresh upsurge in student radicalism is actually big news. Few commentators may yet have grasped it, but higher education policy in general, and student debt in particular, look set to become one of the most potent political issues of the next few years. 

The high level of concern about student debt just now was graphically demonstrated earlier today, when the National Centre for Student Equity in Higher Education at Curtin University released modeling which appeared to show that a student with a $50,000 debt might need 43 years to repay it, even while averaging $80,000 a year in wages. When journalists (including this one) started tweeting that figure, the statistic quickly gained a lot of notice.

Unfortunately, as seems to be happening increasingly often with economic modeling, it appears that some of the details of the analysis were flawed. The 43-year figure was wrong. The Conversation, which had published an article detailing the modeling, was forced to take the page down. Subsequently, New Matilda took our article on the modeling down too.

The really interesting thing about the analysis is that, while acknowledging the error in this instance, other models show an even worse scenario for graduates than the Curtin University data. The Greens’ Lee Rhiannon, for instance, has done her own modeling which she says predicts that “graduates on a starting income of $50,000 who receive pay rises in line with inflation will never pay off their HECS debt during their working lives”.

Even if we assume that a graduate will eventually rake in the big bucks as they get higher-paying jobs, the real interest rates mean that repayment timelines are blown right out. As with any loan, those with low incomes make smaller repayments, and they will, of course, take longer to repay and therefore pay higher interest repayments than high income earners.

You can build all sorts of models and make all sorts of assumptions, and no doubt many policy wonks now will. But the underlying logic of Pyne’s changes are undeniable: higher fees and a real rate of interest will make university markedly more expensive over a graduate’s life.

As a result, the changes proposed by Minister Pyne mean many students will simply never pay off their HECS and HELP debts.

In their ill-fated article for The Conversation, Pitman and his colleagues observed that:

“those most at risk are lifetime low-income earners or people experiencing extended periods of absence from, or underemployment within, the workforce. This includes those with parenting or carer responsibilities, those experiencing illness or injury, or unemployment during periods of economic downturn. The problem for these people is that while they are not paying back the debt, the interest on the loan continues to accumulate.”

Whatever the finer details of the modeling, this remains true.

By charging interest at the 10-year government bond rate, the Commonwealth is effectively turning students into a profit centre. The government will actually make money on these student debts, not just levying a fee for education, but charging an interest rate for the privilege. Nor is the government a typical creditor. Unlike home loans and credit cards, HECS-HELP debts never go away. A citizen declaring bankruptcy will still be on the hook for university debts.

In defending the changes, the government has tried to argue that the government still pays the majority of the cost of a university degree, and that the bond rate is merely the cost at which the Commonwealth itself borrows money.

Both are disingenuous arguments. Many studies have repeatedly shown that graduates enjoy a significant premium in their lifetime incomes as a result of getting a degree. But the government also wins, by levying higher taxes on wealthier graduates. In fact, the benefits to Australian society in things like productivity growth and a smarter, more innovative workforce comfortably exceed the cost of government spending on higher education.

Similarly, there is no cogent justification for linking real rates of interest for student debt to government bond yields. The government is not borrowing to fund the entire higher education system. It is borrowing to service a small and falling deficit. In any case, no-one is suggesting that the government will turn around and void student debts as soon as the budget returns to surplus.

Student debt is a perfect example of the government’s neoliberal obsessions. Not only are higher fees and real rates of interest a cost shift from the taxpayer to the student, they are also a risk shift. Currently, if a graduate gets sick and leaves the workforce, the government assumes that risk in the form of lower repayments. With a real rate of interest, that risk is shifted to the debtor. Should you be unlucky enough to lose your job with a big student debt load, that debt will inch up and up. The government will benefit from your misfortune in the form of higher interest repayments.

And there’s more risk than ever. Today’s graduates embark on their working life in an economy in which whole careers are being created and destroyed with astonishing rapidity. Even without an economy-wide recession that history says must happen sometime in the future, once-stable jobs can vanish quickly under the onslaught of disruptive technology and voracious global competition. Many women and men will inevitably spend time out of the workforce raising children, or caring for family members. Some will get sick themselves. Some will choose a life of full-time employment in careers that pay less than average earnings.

Student debt is such a big issue because it affects so many people. More and more Australians are going to university than ever before; indeed, one of the goals of Pyne’s policy is to lift enrolments. When only a tiny proportion of the population gets a degree, student debt is not necessarily a big issue for society as a whole. Now that most school-leavers are going on to higher education, this is an issue that affects nearly every family.  The comparisons to the noisy but ultimately ineffective protests of 1996 fall down here, precisely because so many more voters are involved.

In an economy in which low-skilled jobs are less and less secure, most families want their kids to get the best education they can. In the United States, skyrocketing tuition fees and crippling student debts have become so problematic that they spurred widespread national protests, and were a key aspect of the Occupy movement. In Quebec, student protests in 2012 against higher university fees become some of the most important in modern Canadian history. In Europe, of course, student protests have a long and storied past.

That’s why higher education is going to dog the government right up until the next election. And that’s also why the Frances Abbott scholarship is so controversial.

Despite the support of the Murdoch press for its education proposals, the Coalition may soon come to rue the electoral backlash that these changes have sparked. 

Ben Eltham

Ben Eltham is New Matilda's National Affairs Correspondent.

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