The Dilemma of the Younger Generation

In the previous issue, we discussed the issue of elderly individuals who lack family members to live with and care for them, and how under the current system, it may lead to the government acting as their guardian. This is a situation that both you and I, as immigrants to Australia, may not have anticipated. In this issue, we will explore the problems that the younger generation, who grew up here, may encounter.

Many people immigrate in pursuit of a better life for themselves or their future generations. It is true that Australia offers more resources compared to other places and values the needs, rights, freedoms, and greater participation of its people. However, Australian society still faces its own challenges.

Engaging in these topics with the readers is not aimed at criticism, but rather a hope that by understanding these issues, we can participate in discussions and exercise our civic right to contribute to society, thereby making Australian society better.

Recently, a news item has caused great concern: 3 million Australian graduates are burdened with a record-breaking AUD 74.3 billion in unpaid debt through the Higher Education Loan Program, which was established in 1989 as the Higher Education Contribution Scheme (HECS). Some early Chinese immigrants who arrived in Australia in the 1970s and 1980s proudly tell you that during their time, studying in Australia, including universities, was tuition-free, except for private schools. At that time, Australia implemented the “Colombo Plan” in Commonwealth countries, aimed at developing talents in the Southeast Asian region. It included university scholarships, and as long as students from Commonwealth member countries were accepted by Australian universities, they could study in Australia for free. This is in stark contrast to today, where higher education has become Australia’s third-largest export service, and the situation is incomparable.

In fact, there was a time when Australian universities did not charge tuition fees. When the HECS was introduced in 1989, the government promised that no one should be prevented from attending university due to financial issues and, therefore, provided an interest-free loan scheme. However, this does not mean that university students are exempt from bearing the cost of their education. Today, with the persistent economic inflation in Australia, students burdened with loans face even greater pressure. Current university students and graduates are struggling to meet the cost of living.

Skyrocketed Student debt

The Australian government currently provides different loan schemes for domestic university students to assist them in paying for their tuition fees. The Higher Education Loan Program (HELP) offers four different loan schemes for students. These loan schemes are available to Australian citizens, holders of permanent humanitarian visas, or holders of New Zealand Special Category visas who meet the requirements for long-term residency. Among them, the HECS-HELP is the most commonly applied for higher education funding programs. If students are enrolled in a Commonwealth government-supported degree, they are eligible to receive a government loan to pay for their tuition fees. According to Andrew Norton, the Director of the Higher Education Program at Grattan Institute, approximately 90% of eligible university students in Australia utilize this loan to pay for their tuition fees.

The loans are gradually repaid through the tax system once graduates reach an annual income threshold of AUD 48,361, slightly above the minimum wage standard. On average, it takes around ten years for students to repay their loans, although the government has canceled debts worth AUD 227 million. The government borrows money for student loans at the cash rate of the Reserve Bank, which is 3.6%. However, the unpaid debts are indexed annually in June using a legislated formula linked to the inflation rate.

Since June 1st of last year, the indexed interest rate for HECS-HELP has skyrocketed to 3.9%, compared to a rate of 0.6% in 2021, marking the highest increase in a decade. In May of this year, the Australian Taxation Office announced the latest indexation rate, which increases the “real value” of the loans based on the cost of living measured by the Consumer Price Index up to March. It is predicted that this year’s young university graduates will experience the largest increase in student debt indexation in decades, resulting in an additional AUD 1,500 on average for the existing debt of AUD 25,000 due to the high indexation linked to inflation. This means that the student debt of 3 million university graduates will increase by AUD 4.5 billion this year.

An analysis conducted by the Organisation for Economic Co-operation and Development (OECD) in 2017 on student tuition fees (not education costs) revealed that the UK had the highest average annual cost of higher education, at around USD 12,000, followed by the United States, Chile, Ireland, Japan, and Canada. Australia ranked closely behind, with an average annual cost of approximately USD 5,000. In contrast, the annual average costs for higher education in France, Belgium, and Germany were less than USD 250. Denmark, Finland, Norway, Sweden, and Turkey offer free education to their residents. It is evident that Australian students face significant tuition pressure compared to other developed countries. Considering the inflation factor, it’s no wonder the National Union of Students (NUS) advocates for free education.

The NUS has issued warnings that struggling graduates burdened by high rent and living expenses are dropping out of their degrees or trading study time for paid work. There have been calls for immediate financial support for students and graduates, addressing the cost of living crisis by suspending the indexation of HELP loan repayments. At the same time, it has been calculated that the federal government will profit significantly from high indexation of student loan interest, earning AUD 670 per average loan. The latest update indicates that the Senate has rejected proposals to freeze the indexation of student debt.

Who Pay?

There was a time when media coverage of student loan pressure seemed to focus only on the U.S. However, in recent years, the UK and Australia have also made adjustments to their university student loan systems or repayment methods, leading to debt challenges for students worldwide. This has become a pressing issue for millennials and Generation Z that cannot be ignored.

In fact, providing loans to students is a form of investment by the government. By enabling students to complete their studies without financial burden, students from disadvantaged backgrounds are not deterred by tuition fees, giving them the opportunity to change their lives through knowledge and repay their loans when they have the means. The government invests funds in future talents, hoping they will contribute to society and improve its quality through knowledge. The personal returns brought by university education are undoubtedly positive, but the advantages of a university degree are no longer as pronounced as before. In particular, a degree can also be seen as a cost, as it only proves what you have studied but cannot determine what else you need to succeed. This leads students to question whether the financial and time investment is worth it.

Nevertheless, many young people still have a strong desire for higher education and are willing to pursue a university education even with loans. Moreover, there was a time when Australian citizens could complete their studies domestically with HECS-HELP and then choose to work overseas, effectively avoiding tax payments and shirking their responsibility to repay their student debts. Fortunately, the Australian government timely revised its policies. Since July 2017, individuals living overseas to evade Australian taxes have been tracked and compelled to repay their student loan debts, which is a fair approach for those who studied, worked, and made timely repayments domestically.

Over the past seven years, student loan debt has more than doubled, and this debt is owed by taxpayers. This raises the question of whether taxpayers’ money is being utilized as intended. The harsh reality of credential inflation should make us fundamentally reconsider the social value of universities. If students’ primary goal is not to acquire useful knowledge but simply to have credentials and qualifications surpassing their peers, then taxpayers are perpetuating a zero-sum game. Brian Caplan, an economics professor at George Mason University and author of “The Case Against Education: Why the Education System Is a Waste of Time and Money,” analyzed data and arrived at a startling conclusion: if half of high school students bypassed university and entered the labor market directly, society would be wealthier.

Applying for student loans may be easy, but repaying them is difficult. Many Australians work for years to repay the loans they took out for their education. Some individuals, unable to bear the burden of substantial repayments, choose not to work or opt for low-income jobs to avoid reaching the income threshold for repayments, which clearly goes against the original intent of the government’s student loan programs. Furthermore, according to current laws, if a person does not fully repay their HELP loans, the debt will be written off after their death. Ultimately, this debt burden falls back on taxpayers.

An example worth mentioning separately is China. The student loan policy of China has been continuously improved over the years, addressing the primary concerns of funding needs for impoverished students and repayment burdens. In addition, the student loans provided by the National Development Bank with parental guarantees have significantly reduced repayment risks, ensuring the overall stability of the policy implementation.

A Life that Requires a Rethinking and Redesign

The exponential growth of student loans poses a double blow for university students of the millennial generation. As they struggle to enter the inflated housing market with rising rental and mortgage rates, they also have to bear the burden of higher education debt. The projected increase in student loan debt means that young people of the millennial generation have to reconsider their future plans. They may find themselves having to live with their parents in their twenties, delaying plans for buying a home or starting a family, and indefinitely postponing travel plans. The accumulation of such mounting debt will overshadow this generation, potentially causing long-term damage to their mental health and motivation.

The millennial generation is being crushed under various forms of debt, such as student loans and housing mortgages. Student debt reduces borrowers’ borrowing capacity because banks take into account the HELP debt when determining the mortgage limit. Despite the decline in house prices in Australia, an online survey revealed that 37% of Australians still believe they cannot afford to buy a home, which is higher than the 23% in 2021. Among the Generation Z (< 25 years old) without homes, the proportion who believe they cannot afford a house increased from 6% in 2021 to 15% in 2022. Among the millennial generation (26-41 years old), the proportion who believe they cannot afford a house rose from 21% – 34%. The recent surge in the Australian housing market further exacerbates the plight of many young people without homes, making the prospect of homeownership seemingly more distant than ever before.

Moreover, a university degree has become just a piece of paper for some individuals, rather than a guaranteed path to success. With the changing times, a university degree has become the “basic qualification” for young people to enter society. However, facing such high tuition fees and living costs, investing time and money does not necessarily guarantee a well-paying job in society after graduation. Nowadays, having a degree is no longer as crucial as one’s skills and contributions in the eyes of employers. The importance of a degree has diminished.

It is no wonder that many students are faced with difficult choices – leaving campus and abandoning their degrees to exchange learning time for paid work. A report earlier this year showed that the obvious profit motive of universities would lead to 20,000 dropouts this year, as these students realize they are unlikely to pass their exams. Not completing their education is not only an inefficient use of taxpayer resources but also a waste of time and money for these students themselves – they incur the debt costs of their courses but do not receive a degree. However, in the face of harsh reality, what better choices do these students have?