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Estimates: Education and Employment Legislation Committee (Department of Education and Training)

Estimates & Committees
Lee Rhiannon 25 Feb 2015

Senator RHIANNON: This morning when we were trying to explore some of the advertising issues, I asked some questions that I would like to return to. Principle 4 of the department's guidelines for expenditure on advertising states, 'Any campaign must be instigated on the basis of a demonstrated need.' It is a quote you would obviously know well. Other than the government's desperation to pass its legislation, what was the demonstrated need for this advertising campaign?

Ms Paul : To go into the detail of this—the people who attended the open days and so on are here now, so I am more than happy to talk about it—between July and September last year, and I think we talked about this before, we attended five tertiary skills or career exhibitions and 41 open days across 36 higher-education institutes. We estimate that we probably talked to about 8,000 prospective students and their families. As I said this morning, I think, we encountered a range of misconceptions and—I am not sure what adjective I used—quite a fundamental lack of understanding, even about the current system and of the reforms.

In particular, we found there was a common misconception that the reforms would mean that the HECS-HELP scheme would be abolished and we discovered that prospective students and their families were very worried that they would have to pay up-front fees versus the current system, where not a cent has to be paid up-front; it is only after you reach earnings—if the legislation passes—over $50,000. That indicated there was a need for information in the market. The people who were there can talk in more detail, but I am advised that prospective students and families, once they heard they would not have to pay a cent up-front and the scheme would stay, were offered some amount of comfort.

Then formal market research was undertaken, which we talked about this morning. It basically found the same thing—for example, the fact that the federal government funds, under the current system, a large part of a student's course et cetera. ORIMA research found there was a very low level of understanding that there was a level of funding from the federal government or from contribution.

I do not know if you were here, but one of the quotes from that research was, and I presume they were being asked about their understanding of the Commonwealth's involvement—I am not sure what the question was—that somebody said, 'Is that about the Commonwealth Bank?' So there was quite a deal of fundamental misunderstanding about the current system and the impact of the reforms.

I am advised that this piece of market research found up to 81 per cent of respondents were unaware that HECS would remain in place with the system of no up-front fees and not a cent to be paid until you are earning a certain amount. The ORIMA research report found overall that it was appropriate for the Australian government to be conducting a campaign. Some of the people the researchers talked to in focus groups agreed with that. Apparently one of the prospective students said, 'It's important to get out there. People are worried about paying more. It's important to encourage people to still go.'

That was the nature of the context for the campaign. As I said this morning, the market research directly informed the creative for the campaign.

Senator RHIANNON: You are saying that is a demonstrated need. I understand the guidelines also state that campaign materials must not scorn the views, policies and actions of political parties or members of parliament.

Ms Paul : I am not sure the guidelines use the word 'scorn'. I do not know where that would be.

Senator RHIANNON: I do not have the number here.

Ms Paul : Naturally, I have read them carefully but it does not ring a bell.

Senator RHIANNON: I will find the quote for that and will put it down for you. I will come back to that one. Portfolio additional estimates statements set out that the costs associated with HELP debt—I am on page 40 to 43 here—are anticipated to almost treble, from about $1.5 billion in 2013-14 to $4.4 billion in 2017-18.

Ms Paul : We have just—

CHAIR: That was Senator Carr's line of questioning.

Senator RHIANNON: Was that with Senator Carr?

Senator Birmingham: That is indeed what we were going through with Senator Carr.

Senator RHIANNON: I do not want to repeat that; I can go over that one.

Senator Birmingham: We established that a very large part of that is attributable to the government removing its proposal to shift indexation to the bond rate and going back to the CPI rate. I am sure, Senator Rhiannon, you would warmly applaud that change.

Ms Paul : We might draw your attention, Senator Rhiannon—

CHAIR: Hansard: note the smile of Senator Rhiannon!

Ms Paul : Apropos the reference you are making now to page 42, I draw your attention to page 16. Under 'Higher Education Reforms—amendments' there are numbers that go $425,766,000 and $591,040,000 et cetera. We did give evidence on this to Senator Carr a while ago.

Senator RHIANNON: Okay, I'll go back and look at that.

Ms Paul : I can talk about it briefly, but you will find it on the record already. It encompasses a range of the features of the current bill, the new bill, and we have taken on notice to break that down. By far the largest portion of that is because of the return to the CPI rate of interest on HECS-HELP loans in the current bill and the new feature of a pause on the interest rate for the parents of a newborn.

Senator RHIANNON: When does the department expect the cost of HELP to exceed the cost of the Commonwealth Grant Scheme?

Mr Griew : The cost of HELP is the cost of running the HELP scheme. Around 80 per cent of student loans are repaid so, from a public-financing point of view, what you have just outlined is very unlikely to happen with any of the policies that are on the table at the moment.

Senator RHIANNON: Because the repayment level is such that, you are saying, it would not exceed it? Is that what I conclude?

Mr Griew : It is simply that the cost of HELP, as accounted for in the budget, is the cost of running the scheme. The difference between a grants scheme and a loans scheme is that, by and large, the loans are repaid.

Senator RHIANNON: That is what I am trying to assess, because a lot of them are not repaid. Is there not a point coming when the cost of HELP will exceed the cost of the CGS?

Mr Griew : The Australian Government Actuary's advice to us is that the foreseeable increase in the non-repayment rate is from 17 per cent to 23 per cent over the forward estimates, stabilising at about that upper amount—maybe a couple of points higher. The Australian Government Actuary's view is that the scenario you are talking about is not foreseeable.

Senator RHIANNON: So they are not converging.

Ms Paul : I think we might have said this before, but we should also add that the numbers you are looking at on page 42 include the whole range of HELP schemes—VET FEE-HELP et cetera. That is on the next page.

Senator Birmingham: I think the top right-hand part of page 38 of the portfolio additional estimates statements shows the Commonwealth Grants Scheme expenditure for 2014-15 to be estimated at close enough to $6.5 billion. We were just looking at the cost of administering HELP, which is $2.3 billion. So there is a fair disparity between the two at this stage.

Senator RHIANNON: How far into the future, Mr Griew, have your actuaries projected in order to conclude that we do not have a trend that is converging? Periodically this is said to me—that this will happen, that there is a convergence here. I understand that you have said your actuaries have looked at it and that that trend is not occurring, according to them. I am just wondering how far into the future they have made this assessment.

Mr Griew : The actuary's estimate that I was referring to was the non-repayment rate, which is an essential component for estimating the cost of the HELP scheme. We and Finance estimate together the cost of the HELP scheme and then we get the actuary's sign-off on that. We do that up to the end of the forward estimates period and the government publishes that in the budget papers. But, if you look at the distance between those two figures, it is very unlikely the kind of convergence you are raising will occur.

Senator Birmingham: In the final year of the forwards, HELP—

Senator RHIANNON: What page are you on now, please?

Senator Birmingham: Page 42, where you started. In the final year of the forwards, the estimated cost of HELP comes in at $4.368 billion, which is still more than $2 billion less than the budgeted 2014-15 CGS figure.

Mr Griew : And that includes all of the HELP schemes.

Senator Birmingham: Mr Griew is correct. That includes VET FEE-HELP, SA HELP and so on. If there were to be a crossover point at some stage in the future, it would certainly, based on those sorts of trajectories, be well into the future.

Mr Griew : Beyond the forward estimates.

Senator RHIANNON: But you are saying that that convergence could happen?

Mr Griew : No, we are not making that comment.

Ms Paul : Not at all.

Senator RHIANNON: I thought that you said—

Mr Griew : That is not what Mr Griew was saying when he said, 'Beyond the forward estimates'.

Mr Griew : We are very confident of the figures through the forward estimates—because we calculate them with the Department of Finance and the Australian Government Actuary. They are published and that is the basis of the government's financial bills that go before the parliament.

Senator KIM CARR: But the rise is quite substantial in the space of 10 months. How can you be so confident what they are going to look like in three years?

Mr Griew : We revise them to take account of actual information that comes in. The VET FEE-HELP scheme, which is the one you referred to, is a new scheme which was coming off a low base with a sharp incline in its take-up, and that is a circumstance where you are always particularly vulnerable to the estimates changing as real figures overtake estimates. But the HECS-HELP scheme and the FEE-HELP scheme that is being incorporated into it are mature programs, the dynamics of which we understand much better and are not so volatile.

Senator RHIANNON: But haven't the figures for 2017-18 doubled since 2014-15? Isn't a that correct reading of page 42?

Mr Hart : I think that was the discussion we had with Senator Carr before about the expense in relation to HELP. What you will see included there is, basically, the debt that is not expected to be returned on a financial year basis, deferral costs, which are basically the opportunity cost that the Commonwealth wears in the difference between the bond rate that it borrows at and the concessional indexation rate that is applied to HELP loans. It also takes into account up-front discounts for HECS of 10 per cent and bonus repayments of five per cent. So the difference that you will see over the financial years there is a direct relationship to an expectation that there will be more loans taken out and also as a result of the fact that at MYEFO the government reversed its decision in relation to the bond rate versus the concessional indexation rate. Therefore, you will see that flow through in the expenses from 2014-15 to 2017-18.

Senator Birmingham: The government makes no secret of the fact that the cost of the HELP schemes increases over time and, if you are thinking that is a problem, the only ways to deal with that problem are either to have fewer student loans, which presumably means fewer students in higher education, or to make those students pay more and have the taxpayer loan less, or to make people repay at a higher rate. So the reality of the schemes we have at present, with the government's current policies that are before the parliament, is that that is the increasing trajectory of the cost of operating the HELP programs. If you want to change that trajectory of the HELP programs, you really have to contemplate one of those three measures.

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