My HECS debt is finally gone!

In 2004, I attended my last exam at the University of Melbourne – 316-303 Industrial Economics. As the “pens down” call went out, quiet fell. The ratcheting sound of my HECS debt accruing was finally gone.

The day I graduated, that debt was around $30,000.

I went on to add a bunch of credit card debt that final summer of freedom, flitting around the northern hemisphere in the knowledge that I had a job waiting for me in Canberra when I came back.

santa 2004
Christmas 2004. I had to shave when I came back home.

But while that $6000 of credit card debt was paid off within six months of working full time, the $32,000 took 10 years of nibbling to finally destroy.

HECS is a system that allows you to buy education now and pay later. You rack up debt on every subject you study (arts costs less, medicine more). Then you only have to pay it back once your earnings go over a certain level, currently $51,309.

HECS was invented by a kindly gentleman called Bruce. I’ve met him and he seems like a good egg.

The idea is for people who get a big benefit out of their tertiary education to put some money back into the system to help keep it afloat. The genius of HECS is that it – in theory – shouldn’t deter people who come from less wealthy backgrounds, or have lower expectations of their lifetime earnings. If they never earn above the threshold, they never pay it back.

My HECS debt shrank steadily for several years, then picked up again in 2008 when I left the federal government to sample a life of leisure, etc. The knowledge that the HECS debt you worked hard to eliminate is creeping back up does tend to haunt those otherwise blissful idle hours. Perhaps that’s the point. But the good news is it only ever goes up at the rate of inflation.

So long as wage growth outstrips inflation, your HECS debt is getting smaller in practical terms.

Wage growth vs inflation

There were always deals available where you could trade cash now to eliminate your HECS debt with a small bonus. But I never took them, preferring current liquidity and betting that my future wages would make my HECS debt seem small. (After choosing to work in media, I never really reached that point.)

By the end, the impact of HECS on my paycheque was quite annoying. I would much have preferred the few hundred extra in my hand every time. But then, while I wasn’t paying attention, it was gone. Hallelujah!

The lessons of HECS are this:

  • When the government adds a few percent to your fortnightly tax bill, you mostly don’t notice.
  • Income contingent loans seem like a very fair kind of user-pays. We should use them for other things. For example, sports.
  • The zero real interest loans are really nice. If it weren’t for them, I’d be up to my eyeballs in debt still, like some New Zealanders I know. Education Minister Christopher Pyne wants to introduce positive real interest rates. I think that could be justified only if you ignore (or don’t care about) the deterrent effect. Students with less access to economic resources are already far less able to attend university, and the prospect of enormous mounting debts will only make the challenges worse.

Grattan SES uni

How to make athletes pay for their training and still bring home Gold! Gold! Gold!

As Aussie athletes make a name for themselves in Sochi, we can look forward to another four years of seeing their smiley faces shilling for products on our TVs. No athlete steps up onto that podium without making their agent’s phone ring off the hook.

That’s why the idea of a HECS system for athletes is very tempting.

(For the international readers, a quick primer: HECS is a TOTALLY AWESOME student loan system. Zero real interest rates and no need to pay any of it back until you earn above $51,309. Meanwhile Australia’s Institute of Sport spends millions training athletes without seeking any recompense.)

The Australian Sports Commission (which funds the Insitute of Sport) spent $310 million last year, and that’s before counting the various state institutes of sport. (The VIS is boasting today about an athlete that finished 61st in cross country skiing).

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But there are a few very intriguing twists to this tale that will require policy makers to work hard to stick their landing.

Problem 1. Athletes are So Poor.

We have a sample bias. The athletes we see the most are the athletes that earn the most. Thorpey. Cadel. T-Brizzle (Australia’s favourite Mormon!) Clarkey.

BRW tells us our top athletes are earning over $10 million a year. But the best need the rest to make their performances stand out. Their glory is made out of trampling coulda-beens, duds, ones with questionable work ethic, journeymen and hacks. The ones who make no coin.

Solution 1. The way an athletes HECS scheme works needs to be different to the student system. Most people are not going to pay off. But some will pay off in spades.

It’s not a low-risk low return game like training people in nursing or accountancy. It’s a high risk, high return set-up. That means you need to more than fully recover the cost of training from the few big winners. If Clarkey got $30,000 of support from the Cricket Academy, you need to get $300,000 back from him to cover all the guys who also got $30,000 but made a string of ducks and no cash. The debts should be 10 times the investment, and recovered progressively.

Problem 2. Sports skills are just not useful.

If the AIS trains you to be the best white-water canoeist you can be, in the hope of bringing home Olympic gold, and you don’t, but then years later you go on to found an IT consultancy and you invent a really quite terrific database that makes you a lot money, should the AIS be able to ping you for cash?

It hardly seems fair.

Solution 2. If athletic earnings could be kept separate from non-athletic earnings, that would be ideal, but I fear such a system is ripe for being gamed.

ATO: “Pay up, Clarkey.”

Clarkey: “Sorry ATO, no dice. Swisse Vitamins paid me this money because I’m a good-looking Aussie dude, they didn’t even know I played a spot of cricket!”

ATO: *curses*

A simpler idea might just be a time limit on AIS debt so it expires at about the time any sporting career ends. Ten years for gymnasts. 25 years for long-distance runners, or five years after any career-ending injury.

Problem 3. Some sports are cash cows, some are not.

The AIS supported 1233 athletes in the most recent year. This includes weightlifters. Pole vaulters. Badmintoners. These guys could be reigning nine-times world champion and spokesperson for the globe’s top shuttlecock brand and still need to pull shifts driving a forklift at a logistics company to pay their way.

Solution 3. This one is easy. Set the bar for repayment at $50,000 and the earners in these lesser sports will never trouble the threshold.

The Clifton Hill under 12s have as much profile as the Australian badminton team.

The reality is that sport is luxury. These are frivolous games to play and our national pursuit of Olympic “glory” is also a simple distraction.

When taxpayers lay the groundwork for a handful of golfers, cricketers, basketballers and boxers to own homes in Miami and St Tropez, there is a moral issue at stake. Sports training can fund itself using the above principles, and by god it should!

If there are any other clever features such a program should have, or if you think I’m totally wrong, leave a comment below!