Student Loan Plan Comes Under Fire

The Age

Monday September 22, 2003

Misha Ketchell

Education Minister Brendan Nelson has come under attack from students and vice-chancellors after it was revealed the Government is likely to make a profit from its student loan scheme.

An associate dean of business at RMIT, Robert Brooks, said that if the Government's proposed FEE-HELP student loan scheme were operating today it would make money.

Under the proposed scheme, which is part of a package of higher education reforms introduced into Parliament last week, university students who pay full fees will be able to borrow up to $50,000 from the Government.

The rate of interest charged will be set at 3.5 per cent, plus the consumer price index, which is currently 2.7 per cent. Students repay the money after they enter the workforce.

Professor Brooks said that to fund the scheme the Government would borrow money at a bond rate that was cheaper than the 6.2 per cent charged to students.

With the Government planning to double the number of places open to students who pay full upfront fees, and are therefore eligible for FEE-HELP, Professor Brooks said the scheme could present a big windfall.

``Currently the students will be paying a higher rate of interest than the rate at which the Government will borrow," he said. ``So the Government will make a profit. That picture has been fairly stable since the introduction of the GST."

He said that to make the scheme fairer the Government should charge students either the bond rate or 3.5 per cent plus the CPI, whichever is lower.

Australian Vice-Chancellors Committee chief executive John Mullarvey yesterday said universities opposed any real interest rate being attached to FEE-HELP loans.

He said interest rates were simply too high and the Government should review it.

National Union of Students president Daniel Kyriacou said the interest rate would create spiralling debt that students would struggle to repay.

``The money from this doesn't go back to universities, it goes into Government coffers. And you have to repay your HECS debts before you can repay your loan, attracting a real rate of interest. The Government has designed it so students accrue as much debt as possible," he said.

Mr Kyriacou said the debts would have a long-term effect on students and would make it harder for them to buy a first home and start a family.

``The Government has refused to do any research into the long-term effects of this debt system. Students are being consigned to a lifetime of debt," he said.

A spokesman for Dr Nelson said he would investigate Professor Brooks' claim.

© 2003 The Age

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