Young people feel short-changed, and student debt is a key reason why

The Financial Burden of Higher Education in Australia: A Growing Concern for Students

The cost of pursuing higher education in Australia has become a significant financial burden for students. Under the current system, students are required to pay approximately $17,000 per year for their studies. This figure is part of the Higher Education Contribution Scheme (HECS), a system designed to make higher education more accessible by allowing students to defer their payments until they earn a steady income. However, over the years, the system has evolved in ways that have placed a greater financial strain on students. The income-contingent repayment model, which was initially intended to ensure that students only repaid their debts when they could afford to, has seen significant changes. Today, students begin repaying their loans at a much lower income threshold than originally intended, with repayment rates starting at just over half of the average weekly earnings.

Originally, the repayment system was designed to levee an additional tax on graduates’ incomes, ranging from 1 to 3 percent, depending on their earnings. However, this has been increased to a range of 1 to 10 percent on top of graduates’ marginal tax rates. For someone earning around the average weekly earnings, this means an additional 6 percent of their income goes toward repaying their student loans. This shift has made the system more burdensome, with the increased costs disproportionately affecting students who are already struggling to make ends meet.

The Job-Ready Graduates Package: A Policy with Unintended Consequences

The higher cost burden on students can largely be attributed to the Job-Ready Graduates Package, introduced in 2020 by then-Liberal Education Minister Dan Tehan. The package aimed to "incentivise students to make more job-relevant choices" by reducing the student contribution in fields with expected employment growth and demand, while increasing fees in other areas. For instance, humanities students saw their fees more than double, rising by a staggering 113 percent. The logic behind this approach was to steer students toward fields like teaching, nursing, agriculture, and STEM (science, technology, engineering, and mathematics), which were identified as areas of growing demand.

However, the policy has been widely criticized for its flawed assumptions and unintended consequences. Data and research have shown that the employment outcomes for graduates in fields with high fees, such as society and culture or commerce, are actually better than those in STEM fields. This contradicts the government’s assertion that these fields are less "job-relevant." Additionally, the demand for STEM skills has not grown at the anticipated rate, and over the past 15 years, demand for qualifications in society and culture fields has outpaced that of STEM.

Questionable Assumptions and Misaligned Incentives

The government’s approach to higher education funding has been based on a flawed set of assumptions about student behavior and labor market demands. Economists predicted that students would not change their enrollment patterns in response to fee differentiation because they do not have to start repaying their loans until well into the future. This has proven to be the case, with student enrollment patterns remaining largely unaffected by the changes in fees. For example, agriculture, environment, and related studies, which were billed as a growth area and given the lowest student contribution rate of just 13 percent of course costs, have seen declining enrolments, slow growth in qualifications demand, and modest graduate outcomes.

These outcomes highlight the failure of the Job-Ready Graduates Package to achieve its intended objectives. Instead of creating a system that aligns with labor market needs, the policy has arbitrarily increased the financial burden on students in certain fields, with little evidence to support the idea that this will lead to better employment outcomes. The government’s recent pledge to wipe 20 percent of student debts if re-elected can be seen as an admission that the current system has become unfair, but it fails to address the underlying flaws in the system.

A Missed Opportunity to Create a Fairer System

The current system is stifling the educational aspirations of many young Australians under a mountain of debt, based on a series of false assumptions and misaligned incentives. The government’s approach to higher education funding has been short-sighted and inequitable, prioritizing political expediency over the long-term needs of students and the economy. By arbitrarily increasing fees in certain fields and reducing them in others, the Job-Ready Graduates Package has created a system that is both unfair and ineffective.

Rather than addressing the root causes of the problem, the government has opted for quick fixes, such as its pledge to wipe 20 percent of student debts, which does little to address the systemic issues in the system. This approach has left many students feeling disillusioned and overburdened, with the cost of higher education becoming a significant barrier to accessing opportunities. The government’s failure to create a fair and sustainable funding model for higher education is a missed opportunity to invest in the future of young Australians and the broader economy.

A Call to Action: Young People and the Federal Election

As the upcoming federal election approaches, young people have a unique opportunity to demand a fairer deal from both major parties. Housing affordability may be a complex issue to tackle, but the cost of university education is not. With the current system placing an unsustainable financial burden on students, young Australians should be calling for a more equitable and sustainable funding model that prioritizes access to education over short-term political gains.

The government’s failure to address the flawed elements of the Job-Ready Graduates Package and the broader HECS system is a clear indication that young people need to make their voices heard. By advocating for a fairer deal, young Australians can push for a system that truly reflects their needs and aspirations, rather than one that is based on flawed assumptions and arbitrary incentives. The upcoming election is an opportunity to create a more equitable and sustainable future for higher education in Australia, and young people must seize it.