The federal government’s plan to overhaul student loan repayment has received a mixed reception from economists, who say it misses the major problem of higher education costs.

As part of its pre-election pitch, the Albanian government announced that it would raise the income threshold that people can earn before having to start repaying their Higher Education Loan Program (HELP) debt, from 54,435 dollars to $67,000, alongside changes to how reimbursements are made. are calculated.

Student debt will also be reduced by 20 percent. If re-elected next year, Labor’s policy would benefit those already on student loans starting June 1, 2025.

The increase in the repayment income threshold was largely welcomed, but economists told ABC News that Labor’s policy would only help a portion of university students and do little to ease pressures on the cost of living.

The proposal aims to ease the burden of student loans, which have become more expensive with rising tuition fees.

The government said average student debt has increased from about $13,600 in 2010 to $27,600 today.

Popular degrees such as arts, law and economics have become more expensive, with a full arts degree now costing around $50,000, largely due to changes made by the previous coalition government.

Higher income threshold welcomed

Bruce Chapman, who was part of the team that initially designed the HECS system, said the increase in the income threshold was welcome as the current threshold was “much lower than it was supposed to be”.

Currently, repayments are set as a percentage of total income. Under the changes, refunds would be calculated as a proportion of a person’s income above the new threshold of $67,000.

“This is the most important thing to happen to the system in 35 years,” he said.

“It’s a fringe collection, much gentler and fairer than before – we should have done this years ago.”

Angela Jackson of Impact Economics agreed that raising the income threshold was a good decision.

“It will help new graduates and people on low incomes by reducing their HECS repayments, so I think it’s positive and real reform,” she said.

“How many coffees or lunches does that buy?” »

Recent graduates and current students already working full-time would benefit from a higher income threshold, according to Jack Thrower, a researcher at progressive think tank The Australia Institute.

“Previously, the threshold was not much higher than the full-time minimum wage,” he explained.

“Last year, one in seven full-time students were working full-time, so if they were above minimum wage they were already paying off their HECS while juggling everything else.”

The other part of the proposal would see a 20 percent removal of the current value of student loans. For example, an average HECS debt of $27,600 would increase to $22,080.

Despite the reduction in repayments and overall debt, Richard Holden, an economics professor at the University of New South Wales, said the reforms would do little to ease cost of living pressures.

“I don’t feel like it makes a difference. It’s not like taking 20 percent off someone’s mortgage or car loan, so I don’t see it having a big effect (on expenses).

“Do your own calculations on how many coffees or lunches you buy,” he said.

The broader economic impact, he said, would be the addition of $12 billion to $16 billion to the national debt.

“It makes the country poorer and all other countries’ future taxes will have to pay for it.”

According to Dr Jackson, from a budgetary perspective it is easy to understand why this announcement was made: the debt relief was “off budget” and therefore did not affect the underlying cash balance of the government.

Student loans were listed as off-budget because they are intended to be repaid.

Dr. Jackson believed debt relief was beneficial, but did not directly address the high cost of degrees, which she said had increased disproportionately compared to other living expenses.

“Reducing student debt by 20 percent will help, but it won’t solve the fundamental problem of the cost of degrees,” she said.

“Arts degrees now cost far more than the cost of issuing them, raising the question of whether these costs benefit students or the economy as a whole.”

Calls to reduce the high cost of education

Economists ABC News spoke with agreed that more needs to be done to reduce the cost of higher education.

Professor Chapman said the price of university degrees was unsustainable.

“Humanities degrees are too high, all drastic price changes happened in 2020 and need to be reversed.”

Professor Holden said the most effective change the Government could make would be to scrap the former Coalition Government’s ‘Employment Ready Graduate Scheme’.

The program increased the cost of some degrees, including arts and philosophy, while reducing the cost of a course in priority areas such as teaching, nursing and science, technology, engineering and mathematics (STEM).

He was widely criticized at the time for skewing degree grants based on arbitrary policy goals, he said.

“This is the first thing the Labor government needs to get rid of.”

The Australia Institute’s Mr Thrower also criticized the job-ready graduate scheme, and said his research showed it led to only about 1.5 per cent of students changing degrees.

“It’s buying votes”

Mr. Thrower also noted that reducing student debt by 20 percent could disproportionately benefit people with higher incomes, who took on higher debts due to expensive degrees.

“Those working in higher-paying fields, such as law or economics, will experience a greater reduction, potentially widening the gap between low and high earners.”

Professor Holden criticized the policy, calling it “regressive” because although university graduates generally had higher incomes, only a select group would benefit from the proposal.

“People who are halfway there get half. So it’s actually a pretty specific cohort of people who benefit,” Professor Holden said.

“It’s buying votes, it’s trying to buy green votes, I don’t think it’s more complicated than that.”