There’s something about the government collecting money from dead people that sends shivers down my unashamed classical Liberal spine. So I wasn’t surprised at my initial reaction of what can best be described as ‘sorrywhatwasthat?’ when I recently heard about a report from the Grattan Institute which proposed that outstanding HECS debt over $100 should be collected from deceased estates worth more than $100,000. Have a read here.
It took me quite a while to actually figure out why this thought alone made me feel uneasy, and it was primarily because at first instance, this proposal sounded like death duties, or inheritance taxes, which were (thankfully) abolished several decades ago. It just seemed morally squeamish for the government to be collecting tax liabilities from dead people – it sounded like a way for them to cheat their way into more tax, which no matter how you put it, doesn’t sound good.
However, when I really sat down and thought about it, I found myself completely agreeing with the proposal on principle, because the collection of a HECS loan is a completely different entity to inheritance tax, or any other type of debt for that matter. It’s an unsecured loan for an indeterminable amount from the government, for a service they have already provided you by the time you have to pay it back.
It’s not money that belongs to a bank or creditor, which you are solely accountable for, like most other debts that need to be paid from the assets of a deceased estate. It’s government money and therefore public money that gets circulated back into society through the provision of public goods and services, and therefore by extension belong to everybody.
Therefore, I think it’s unfair and ineffective if everybody on a HECS loan completes university and only some have to pay it all back- it defeats the purpose of having a broad-based student loan scheme in the first place. This rings especially true to me at least, as I am of the camp that HECS is incredibly reasonable; it has no interest charged upon it (unlike FEE-HELP or any other loan), and is only repayable in increments once a $51,000 income threshold has been reached – a threshold far above the $18,000 tax-free threshold.
That’s where my level of agreeance stops though.
While on principle the proposal is sound, I think it would be completely flawed in a practical sense, and would cause more trouble than it’s worth. I had to think about the kind of people who would die without paying their HECS debt, and I came to the conclusion they were most like either:
- Young people, who wouldn’t have a will or any assets to collect the debt from
- Lower income earners, who are also unlikely to have large assets or credit
- People who have lived overseas during their working lives or
- Middle aged part timers, most likely stay at home mums.
This leads me to believe that trying to collect HECS debt from these people’s estates would be a pointless exercise, a legal nightmare, and they most likely won’t have an estate worth $100,000 anyway. Will twenty year olds now be writing wills? If their chance of getting hit by a bus is the same as everyone else’s, then probably.
In my opinion, the only feasible solution to solving the logical/practical dilemma which is costing the government billions, is to either lower the threshold at which HECS starts being paid, or start charging those who live overseas and hence are exempt from paying HECS. The latter idea was actually included in the Grattan proposal, and has assent from Professor Bruce Chapman, a creator of the HECS concept back at its genesis in the 1980s. Once again, on principle it makes sense because it’s unfair for someone to, excuse my French, piss off to another country once their university degree is finished when everyone else in the land down under slowly (or never) pays their way through a communications degree.
In practice though, this would still be a bureaucratic nightmare- images of ATO officers chasing people around the world comes to mind. The proposal is to create a legal obligation to pay the minimum 4 per cent of the income threshold in the event that someone moves overseas for six months or more; it would effectively be illegal to not pay $2100, and they’d be picked up at customs if they ever returned. This sounds ludicrous but what else can we do?
I posed this question to my boyfriend in the car the other day, and he suggested the solution be to make university free. I almost jumped out of the car in political fright, but he had a point. If all of the feasible solutions to the problem of not paying HECS before you die are practically flawed, then should HECS exist at all? It makes me tentatively conclude that the best practical middle ground between free university education and a U.S Style scheme, by which college is unaffordable for the majority of the population, is our current situation.
Yes, collect the remaining HECS debts from deceased estates if there are any assets there, but if not, then live and let die. I say, let’s be grateful for an affordable and accessible university education.
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The report itself (chapter 6) discusses the issue of whether or not the people involved will have assets above $100,000 on death. In most cases they will. This was based on survey research into the assets of people on low incomes, and into the household circumstances of graduates on incomes below the repayment threshold. We found that many of them are in high income households due to their partner’s income.
Collecting the money would not be to difficult. Many deceased estates have to interact with the ATO anyway.
http://grattan.edu.au/publications/reports/post/doubtful-debt-the-rising-cost-of-student-loans/
Hi Andrew,
Thanks for the reply! This is really interesting, and clarifies a lot- I understand that those individuals who would indeed meet the $100,000 asset threshold most likely would not encounter legal dramas, in that the executor would repay the debt in the way that most deceased estates are dealt with. What I wonder though is if it would in fact operate in this way, and whether it on principle, should operate in this way, considering that HECS is neither completely comparable to a conventional loan (it is unsecured) or an existing tax debt- it seems to be a marriage between the two. What would happen to individuals who could not pay the debt off? Say they had very little personal finances, and they had to pay the debt with a property asset which would then place a burden upon another person because there is no prior ascertained security? (Would this burden fall to their executor or devisee?) I don’t think any model could in fact conscionably ‘catch’ all those who have not paid in it’s net. As a uni student myself, I would much rather see those who rake in big dollars overseas due to an australian education have to pay this debt over deceased people. I think it raises a lot of questions about the way in which we charge for university as well, which is a whole other can of worms! Readers- gives us your thoughts! 🙂