The federal government’s plan to overhaul student loan repayments has drawn mixed reactions from economists, who say it misses the fundamental problem of higher education costs.

As part of its pre-election speech, the Albanian government said it would raise the threshold for how much money people can earn before they start repaying Higher Education Loan Program (HELP) debt from $54,435 to $67,000 and change the way they repay. is calculated.

Student debt will also be reduced by 20 percent. If re-elected next year, Labor’s policy will benefit those with existing student loans from June 1, 2025.

The increased repayment income threshold was generally welcomed, but economists told ABC News Labor’s policy would only help a small percentage of university students and do little to ease cost-of-living pressures.

The proposal aims to ease the burden of student loans, which have become more costly due to rising tuition fees.

Average student debt has increased from about $13,600 in 2010 to $27,600 today, the government said.

Popular degrees such as arts, law and economics have become more expensive; a full arts degree now costs around $50,000, largely due to changes made by the previous Coalition government.

Higher income threshold praised

Bruce Chapman, who was part of the team that first designed the HECS system, said the raising of the income threshold was welcome as the current threshold was “miles lower than it was intended to be”.

Currently, repayments are determined as a percentage of total income. Under the changes, refunds would be calculated as a proportion of a person’s income above the new $67,000 threshold.

“This is the most important thing that has happened to the system in 35 years,” he said.

“This is a marginal collection, much softer and much fairer than the previous one; we should have done this years ago.”

Angela Jackson of Impact Economics agreed that the increase in the income threshold was a good move.

“It will help new graduates and people on low incomes by reducing HECS repayments, so I think this is a positive and real reform,” he said.

‘How many coffees or lunches does that buy?’

Recent graduates and existing students already working full-time will benefit from the increased income threshold, according to Jack Thrower, a researcher at the progressive think tank Australia Institute.

“Previously the threshold wasn’t much above the full-time minimum wage,” he said.

“Last year one in seven full-time students were working full-time, so if they were on minimum wage they were already paying back their HECS while they were juggling everything else.”

The other part of the proposal envisages deleting the current value of student loans by 20 percent. For example, the average HECS debt of $27,600 would drop to $22,080.

University of New South Wales economics professor Richard Holden argued that despite the reduction in repayments and overall debt, the reforms would do little to ease cost-of-living pressure.

“It doesn’t feel like it’s moving the needle. It’s not like getting 20 percent off someone’s mortgage or car loan, so I don’t see that having a big impact (on spending).

“Do your own calculations about how many coffees or lunches to buy,” he said.

He said the broader economic impact would be $12 billion to $16 billion added to the national debt.

“This is making the country poorer and everyone’s taxes will have to pay for it in the future.”

Dr Jackson said from a fiscal perspective it was easy to understand why the announcement was made, as the debt relief was “off-budget” and therefore did not affect the government’s underlying cash balance.

Student loans are listed as off-budget because they are intended to be repaid.

Dr Jackson believed debt relief was beneficial but did not directly address the cost of higher education, which he said had risen disproportionately compared to other living expenses.

“Reducing student debt by 20 percent would help, but that doesn’t solve the fundamental problem of degree costs,” he said.

“Arts degrees now cost much more than it costs to provide them, which raises questions about whether these fees benefit students or the economy at large.”

Call to reduce higher education costs

Economists ABC News spoke with agreed that more needs to be done to lower the cost of higher education.

Professor Chapman said the price of university degrees was unsustainable.

“Humanities degrees are too high, all the radical changes in prices happened in 2020 and they need to be reversed.”

Professor Holden said the most impactful change the government could make would be to abolish the former Coalition government’s “Job Ready Graduates Programme”.

The program increased the cost of certain degrees, including arts and philosophy, while lowering the cost of courses in priority areas such as teaching, nursing and science, technology, engineering and mathematics (STEM).

He said degree subsidies were widely criticized at the time for being distorted based on arbitrary policy goals.

“That’s the number one thing the Labor government needs to get rid of.”

Mr Thrower, of the Australia Institute, also criticized the Job Ready Graduates Programme, saying his research showed it had led to only 1.5 per cent of students changing their degrees.

‘Vote buying’

Mr. Thrower also noted that the 20 percent reduction in student debt could mean the policy could disproportionately benefit high-income earners who face higher debt due to expensive degrees.

“Workers in higher-paying fields such as law or economics will see a larger decline, potentially widening the gap between low- and high-earners.”

Professor Holden criticized the policy as “reactionary”; because while university graduates generally have higher incomes, only a select group would be eligible for the offer.

“People who are half way through are getting half, so there’s really a specific group of people who are benefiting from this,” Professor Holden said.

“This is vote buying; it’s trying to buy the Greens’ votes, I don’t think it’s any more complicated than that.”