STUDENT DEBT WEIGHS ON CAREER GOALS

Skills shortages remain a pressing issue for governments across Australia, as public and private sector employers struggle to fill critical roles.

Health, education, engineering, science and agriculture are just some of the sectors hampered by a paucity of qualified staff.

In 2020, the former Morrison Government sought to do something about it, by directly targeting the tertiary education sector through its funding of university places.

It announced that Australian university students who studied in areas of expected employment growth would pay less for their degree, as an incentive to students to make more “job-relevant choices.”

From 2021, the government announced, students would pay 46 per cent less to study teaching, nursing, clinical psychology, English and languages. Students in agriculture and mathematics would pay 62 per cent less, while those in health, architecture, environmental science, IT and engineering would pay 20 per cent less in their university fees.

Course fees for current students in 2020 were grandfathered.

In 2020, then Federal Education Minister Dan Tehan proclaimed that Australia needed more educators, more health professionals and more engineers; the government was therefore “sending a price signal” to encourage people to study in areas of expected employment growth.

As a result, there’s now a greater gap between ‘student contributions’ for various course streams, as outlined by the Federal Government’s table of student contributions.

For example, in 2023 students in communications, society and culture now pay a maximum contribution of $15,100 (annual full-time load) for their studies; for those who were studying pre-2021, it is $7105. Students in law, accounting, administration, economics and commerce also contribute a maximum $15,100, or $11,800 for pre-2021 students.

Students in nursing, engineering, science, education, medicine and veterinary science, however, effectively had their pre-2021 maximum contribution rates frozen under the reforms. In real terms, these contributions are lower, given the effect of two years of inflation.

Nursing and education student maximum annual contributions remained at $4124, engineering and science at $8301, and medicine and veterinary science at $11,800.

Most Australian students repay their contributions when they start working, via the Higher Education Loan Program (HELP). Indeed, the 10 per cent discount for paying upfront on annual contributions was abolished in late 2022.

Despite the changes in the university student fee structures – especially the fee increases for Arts, Law and Business streams – Dan Tehan maintained that students would continue to have access to “the world’s most generous income contingent loan scheme.”

Under HELP,  graduates repay student loans through the Australian tax system once their annual income reaches the compulsory threshold –  $48,361 in 2023 – with debt indexed to the rate of inflation.

Certainly, the level of student fee contributions at Australian universities appears relatively attractive to that of students in the United States.

In the US, university students can pay total annual fees of more than US$80,000 (A$120,000) for tuition, board and extras at private universities such as Harvard, Columbia and Yale.

For most US students, attending a state university (i.e. University of California, New York State University) is the more cost-effective choice. Instead of paying an average of US$80,000 students at state universities can expect to pay around US $30,000 (A$45,000) a year for a bachelor's degree.

Depending on the area of study, post-graduate education is often required after completing an undergraduate degree. In the United States graduates interested in fields such as law and medical services are required to attend anywhere from another two to six years of schooling on top of the four years already spent in university. These students can expect to pay an average of US$50,000-$60,000 (A$75,000 - $90,000) per year to complete their required standards of education.

Some fee relief may be available, depending on enrolment status and financial contribution of the student’s family. Outside of federal aid, there are private scholarships, grants, and awards for which students can apply/qualify.

For Federal loans specifically, there is no income limit for financial aid eligibility; however, based on the family income and number of dependents, aid is adjusted accordingly. Financial aid is released to the universities each semester as long as the assisted student maintains eligibility. US university students are required to keep satisfactory academic records to maintain their aid; the ‘satisfactory’ requirements are set by each university individually.

It is estimated the US has $1.76trillion in student loan debt, of which 92 per cent is federal student debt. Interest rates for a public university hover between five per cent to almost eight per cent, whereas private student loans may easily be in the 4-15 per cent range.

Every spring, the US Congress sets federal student loan interest rates based on the high yield of the 10-year treasury note auction. The federal loans are fixed, but interest charges will differ if a student chooses subsidized or unsubsidized loans.

As it stands right now interest rates are temporarily set to zero due to President Joe Biden’s debt relief plan announced in late 2022. In President Biden's statement on debt relief he said:  “If you earn under $125,000 a year, you’ll get up to $10,000 knocked off your student debt. If you earn under $125,000, you’ll receive a Pell — and you received a Pell Grant, you’ll get another $10,000.  That’s $20,000 in relief.” (A Pell Grant is awarded in US to a student who does not have a bachelor's degree and has exceptional financial need as deemed by the federal student aid scheme.)

This loan forgiveness plan will only apply to loans taken out before June 30, 2022 and this program is currently on hold due to ongoing litigation. Furthermore, this forgiveness program will not extend to any private student loans.

In Australia, meanwhile, students and undergraduates carrying HELP debt are in for a sting this year; with six per cent-plus inflation set to impact the level of indexation applied to loan repayment.

Gavin Clancy is a Senior Consultant and Kate Roberts a US-based intern at Lunik