Monday, September 15, 2003

Student Financial Supplement Scheme – Why Labor’s Higher Ed Policy is bankrupt

It has an effective interest rate of 16% and comes with appropriately little lender disclosure to match. Introduced by the Keating Labor government in1993, the Student Financial Supplement Scheme has lately emerged as an actuarial time-bomb.

“Assisting” students with up to $3,500 of extra allowance annually, but with a long-term debt kicker of double this amount (meaning that up to $7,000 of debt could be accrued annually) may have seemed financially expedient for the government, and (just) palatable for students ten years ago. Interest rates were much higher then – but more importantly, a degree (probably any degree) could legitimately be seen as an investment against future earnings.

How times change. What was a cynical piece of government student assistance cheap-skating has now become a out-and-out financial black hole. Naively playing lender of last resort, the government gambled on the poorest cohort of Australian graduates – those who would actually take up the loan – hitting American-style salary payola after graduation. Of course, this wasn’t to eventuate; a typical 1990s graduate working full- time in a call centre would be struggling to make $30k a year. Not that the glossy uni brochures suggest such a mediocre employment outcome for their graduates, of course – in this sense, the degree mills are deeply complicit with the loan sharks.

Abolishing the Student Financial Supplement Scheme (SFSS) from next year, as the Howard government is currently attempting should be the beginning of a much broader reality check for Australian higher ed. Over the last decade, the problem of declining resources and higher course costs has in part caused, and in part been overtaken by, a bigger issue – higher ed’s leading to negative lifetime financial returns for graduates (compared to their earnings had they wholly bypassed higher ed).

That the GCCA stats do not reflect this can in part be explained by demographic contractions at system intake. With the “cream” (the rich and thick) being increasingly well-represented on campuses, current stats showing higher lifetime returns for graduates simply reflect back the pictures of the already privileged – they say nothing about the value of educational attainment simpliciter. Labor may wish it were otherwise in the lifetime future earnings stakes, but sadly, the only good bets, when it comes to backing university students in 2003, are the already privileged.

Properly resourcing the public uni system, as the National Union of Students advocates (along with abolishing the SFSS) may yet turn this bleak situation around. Labor’s alternative – to keep the SFSS, in the expectation of its providing a modest future cross-subsidy for equally modest increases in student assistance, is hypocritical nonsense. A fully-laden, four-year SFSS debt-burden ($28,000) easily outstrips the HECS fee debt of most courses. Even more so, the prospect of incurring large course fees debts – even on an income-contingent basis – acts as rationality maximiser at the course selection stage. In contrast, a hefty SFSS debt-burden can (an human psychology suggests, often will) be taken out mid-course – possibly by students who have glimpsed their call centre future, and so have decided to have an easy year or two before joining the proletariat, knowing that it’s unlikely they’ll ever have to repay the loan shark.

Additional reading: Hansard (House of Reps) 11 September 2003; pp 19212-19231.

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