Student loans, Aussie style

It seems that, currently, Australia does cricket better than we do. It also seems that their system of healthcare outclasses ours in terms of quality of outcomes, costs, and access to treatment when needed. To complete their hat-trick, they also finance higher education significantly better than we do. It scores far higher in terms of student satisfaction, and a much smaller proportion of debt has to be written off.

Students accepted at Australian universities have their fees paid, and incur an obligation to repay that sum once they are earning sufficient salary. There are differences, however, between their system and the UK system of student loans.One big difference is that, while the total default rate of non-repayment in the UK is nearly 50%, in Australia it is closer to 15%. There are two reasons that probably account for this.

The first is that there is no interest added to student loans in Australia. They are topped up each year only in line with inflation meaning there is no increase in real terms. In the UK, by contrast, 3% is added to the rate of inflation. This currently means that the outstanding loans in the UK are increasing by 8% per year and the debt is piling up.

A second reason is that the salary at which repayment has to start is set lower in Australia than it is in the UK. This means that Australian students start to repay their loans earlier. These two factors probably account for a default rate which is less than one third of that in the UK. The Australian system of university finance is not a graduate tax because repayments cease once the entire cost has been repaid. A graduate tax, by contrast, would continue as long as the graduate were earning.

As we have urged several times before, the abolition of the interest surcharge in the UK would almost certainly be self-financing because of the very much lower default rate that would result. It would also be very popular with students, a factor that makes it politically attractive as well as making economic sense.

If we were to adopt elements of the Australian system of student finance, this would undoubtedly improve our own outcomes. The same is true of the Australian health system, which also has much to teach us. Alas, the problem of improving our cricket outcomes to match those of Australia’s is much more challenging, but two out of three wouldn’t be a bad score.