Student Debt: Facts and Predictions

Last night I tweeted this image.

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It’s from the Greens’ website, What Will My Degree Cost? You type in some variables and it spits out a figure that’s supposed to be your predicted net debt if you want to go to uni under the radically different higher education model proposed in this year’s federal budget. The above graphic was generated when I put in that I wanted to study medicine and hadn’t yet begun my degree.

As many people have pointed out: no, it’s not precisely accurate. That’s not because it’s ‘Labor-Green propaganda’ or because ‘Lefties are dumb’ or even because we don’t have mathematics degrees. It’s because there are no certainties upon which projections can be based. However, the makers of the website have discussed the underlying assumptions in their model here.

Fee deregulation literally means that universities can charge whatever they want for their courses. The VC of UTAS has recently said that, with the drop in federal funding, there will be a $30 million gap in the budget that will somehow need to be filled. The VC of the University of Melbourne recently said that course fees are likely to rise up to 61% – and that was only for ‘average’ courses like Arts and Science. Many others have said that course fees will almost certainly rise significantly, including The Conversation, Gay Alcorn, Greg Jericho, and Ross Gittins.

Of course, until deregulation actually happens, we won’t know exactly what the course fees will be. It’s likely that some universities will charge higher fees than other universities. Higher fees may or may not reflect a more prestigious or higher quality course offering. We simply don’t know yet.

What we do know is what has happened in other countries. In the USA, an undergraduate degree at Harvard, an Ivy League school, will cost you $44,000 per year. A post-graduate law course (remember they will only let you study law if you already have a bachelor’s degree) will set you back $54,000 per year. The post-graduate MD course at Harvard will cost a similar $52,000 per year. This is likely what we’re heading for as we proceed towards deregulation and ‘free market’ ideologies that prioritise competition over fairness.

The tweet containing the image above has, at last count, been re-tweeted 355 times and been ‘favourited’ 94 times.

This has gotten me in a lot of trouble today as I became a punching bag for LNP die-hards and rabid tories. People accused me of being stupid, naive, of falling for ‘anything plonked in front of [me]’ and generally being gullible and unthinking. They said that it was ‘impossible’ that the figures in the above graphic could possibly be true, and that it was simply scare-mongering by the Greens and Labor. Basically: I’ve spent today being abused on the internet.

I don’t mind that. But it did get me thinking about what the actual mathematics involved are. It’s all speculation, as I mentioned above, but it would be useful to have some working shown rather than just an automatically-generated figure at the end of a web page.

So I decided to do some maths. Here’s what I came up with.

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This is what the first 36 years of your working life would look like if you completed a medical degree that cost you $40,000 per year and accrued interest at 6% per annum. It also assumes the new pay-back thresholds (between 4% and 8% of your yearly income). Based off this modelling, it would take you 61 years of work to pay back the debt, and by the time you’re debt-free, you will have paid a total of $1,584,000, most of which is simply the effect of compound interest.

The results are almost as dire if we use a model where the cost of a medical degree is $30,000 per year. It takes 36 years of work to pay back the debt and the total you will have paid by the end is $581,932.78.

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Again, while the degree cost is only $150,000 for five years, it’s the compound interest that really gets you.

The point of all this is to say: I’m not relying on shonky mathematics or Labor-Green propaganda to make my point. In fact, the original image I tweeted is a pretty conservative estimate.

I admit that you’d have to be pretty stupid to only be paying the minimum threshold repayments on a debt like this, especially on salaries of upwards of $150,000 per year. On the other hand, even if, upon getting a steady job, you begin paying off $10,000 or $15,000 per year (a pretty signifiant portion of your income at this stage), your debt level will still peak at at least $200,000. Even if you continue paying off significantly more than the 8% of yearly income required by the legislative scheme – say $20,000 to $30,000 per year – it still takes at least ten years, and probably more like twenty, to clear the debt. Remember that the ‘salary’ column is your pre-tax income; the actual amount you have to live on will be significantly less when you account for income tax on top of your HECS contribution. It’s also significantly harder to make extra contributions to pay off the debt when, for example, you’re financially supporting someone else (e.g. a partner; a parent; a family member who is sick or disabled), if you have children, or if you’ve been lucky enough to buy a house and need to also pay off your mortgage.

I have a post in the works about the merits (or otherwise) of various models of university funding and costs which will be much more in-depth. For now, I just wanted to stick it to all the people who been saying that the claims on the How Much Will My Degree Cost website are outrageous or absurd.

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Joe Hockey’s New Mantra: Earn or Learn

Joe Hockey was ‘grilled’ on the ABC TV program Q & A last night, much to the glee of the audience members who lined up to take shots at Mr Hockey over last week’s budget. The clip above shows a young Tasmanian asking where young people are supposed to find jobs when the numbers of unemployed Tasmanians are so much higher than the available job vacancies. Mr Hockey refuses to answer the question, instead repeating the words, ‘if you’re under 30, we need you to earn or learn.’

Well, Mr Hockey, I’m 23 and I am both earning and learning, and I still can’t afford a $7 co-payment every time I go to the GP. Many Tasmanians, and in fact people all across the country, are engaging in higher education or looking tirelessly for work. Many people who have already completed the ‘learning’ part of their apparent obligation to the government are now struggling to find meaningful employment. In five years time, young people with professional qualifications will likely still have the same difficulties finding a job, except that they will also have three times the student debt that today’s graduates are saddled with.

Jobs do not magically appear out of the air just because people wish it. The government does not directly create jobs – although, counter to Mr Hockey’s assertion, the government (at all levels) does in fact employ many people – but it helps to shape the economic climate of the nation. The government’s own budget papers predict that rates of unemployment will actually increase over the next 12 to 18 months, before stabilising.

While we’re at it, it remains unclear to me why the government feels the need to establish young people as a separate class of persons, somehow less deserving of the government’s assistance. The six-month waiting period (and subsequent on/off eligibility) on Newstart and the ‘tightening’ of eligibility of the Disability Support Pension apply exclusively to under-30s and under-35s respectively. Joe Hockey himself makes it very explicit: ‘if you are under 30, we need you to earn or learn.’ Why is it so much more important that today’s young people are economically productive members of society? Why does this draconian requirement not apply to other generations? As a number of people (I think principally Greg Jericho) have pointed out, the proportion of unemployed young people is actually smaller when compared with unemployment in the general population. Yes, there are a small number of young people who do not wish to study or work. These people are a drain on the economy and it’s a problem that needs to be addressed. However, most young people who are not (or soon will not be) in study or work are victims of circumstance. The jobs market, particularly for young people (who generally lack required experience), is in pretty bad shape right now, although there are geographic variances. Compounding the problem is the government’s proposed changes to HECS and student fees, which will discourage young people, particularly those from lower socio-economic backgrounds, from going to university. This is particularly the case when those young people believe that a university degree – that takes three or four years out of their life and can cost up to $100,000 – will make their chances of securing a decent job only marginally higher.

Forcing young people into poverty and desperation when they are supposed to be in the prime of their lives is morally reprehensible. If it truly is necessary to change how Newstart is paid to young people – an assertion I would dispute, but let’s assume for a moment – why not do it another way? How about paying unemployed under-30s Newstart unconditionally for the first six months of their unemployment. This would allow them to concentrate their full energy on finding a job, without having to worry about whether they’ll be able to afford food that week or whether they might get evicted from their rental property. People are much more likely to get a job when they’re showing up to interviews well-rested, well-fed, well-dressed and on time. These things are only possible, however, when you’ve got a regular income to rely on. If people haven’t found a job after six months, then by all means, restrict or reduce their payment. I still don’t think it will have been their fault that they haven’t found paid employment, but if the government is so desperate to reduce welfare spending, this is a much fairer way to do it. It would also mean encouraging young people to get jobs instead of punishing them for a situation over which they have no control. Although, put in context, perhaps the government is deliberately trying to be punitive.

In short: Mr Hockey, answer the damn question. Tell us where to find these magical jobs, because there are a lot of people out there who’d really appreciate the heads up.

Joe Hockey’s Culture of Entitlement

The media has been doing a lot of scaremongering this week about the impending federal budget. Considering the noises being made by federal ministers, particularly treasurer Joe Hockey, about ‘deep cuts’ and the like, it’s probably fair enough. It certainly has been causing a lot of outrage on Twitter, not least because the money being cut from things like pensions and healthcare is, as it turns out, going to be used to buy a bunch of planes that don’t actually work. Before all of this started, we heard a lot from Minister Hockey about a ‘culture of entitlement’ that needed to end. In fact, Hockey’s been complaining about an ‘age of entitlement’ for a full two years now.

The victims of Abbott and Hockey’s rampage against the culture of entitlement will, as ever, be those already doing it tough. Hockey has all but admitted the government’s plan to raise the pension age to 70. Then there’s the new $6 GP co-payment which will affect those who are currently eligible to be bulk-billed. (Never mind the fact that most GPs will only bulk-bill you currently if you demonstrate financial need, for example by holding a Healthcare or Concession card from Centrelink.) No details on any particular areas of budget cuts have yet been released, but we are all waiting with bated breath for the budget announcement on May 13th. The government is allegedly using the Commission of Audit Report, to be released in full to the public next week, to direct their fiscal policy into the future.

Did anyone ever think that perhaps the ‘age of entitlement’ that Joe Hockey seems so concerned about is not so much about working-class Australians, but is in fact about those in our community doing well for themselves? Could it be that, rather than people who rely on Newstart or the Disability Pension to keep a roof over their heads and food on their tables, it’s people like Joe Hockey himself who feel this overwhelming sense of entitlement?

Take this guy, for example. Despite being in the top 1% of wage earners in the country, he seems to feel entitled to label himself as ‘average’, perhaps even struggling. Never mind the fact that his meagre $21,000 left over after paying for all of life’s essentials is the same amount as my total taxable income for a year. You ‘only’ have $21k each year for holidays and/or savings? Boo hoo. Try living your life on that amount and then come back and talk to me about how hard it is to pay off a mortgage while putting two kids through private school.

How about Gina Rinehart? I think I could make a pretty good argument that she’s one of the most entitled people in the country. Who else could argue that welfare recipients are dragging this country into disastrous debt while being worth 29.17 billion dollars? And who could forget that time she said that workers should work harder for less money in order to compete with third-world producers? This is a woman who feels so entitled to her (mostly inherited) wealth that she has been embroiled in a court battle with her children over a trust for the measly sum of $4 billion. But still she continues to argue that it’s people receiving piecemeal government benefits who are the ‘entitled’ of this country.

Let’s talk about Joe Hockey himself. He’s repeatedly said that current pensioners need not fear any changes to their entitlements, as it is his generation who will bear the brunt of the proposed changes to pensions. Mr Hockey isn’t your average everyday Joe, though. As a Member of Parliament, his base salary is $195,130 per year. This is before we factor in the extra money that comes from holding a senior ministry position. Since 2004, federal Members have enjoyed superannuation contributions of 15.4% per annum – a little more than the compulsory 9.25% per annum that everyone else gets. In fact I doubt that Joe Hockey will ever need to rely on the aged pension, which in turn essentially means that he can retire whenever he likes. But by all means, talk about ‘your generation’ as if you share their future fate, Mr Treasurer.

We live in a Western social democracy. Part of our social contract with one another is that we sometimes have to help people who cannot help themselves. Sometimes, as in the case of the NDIS, we help people who, through no fault of their own, do not have the capacity to work for a living. Sometimes, as in the case of Newstart, we help people who are temporarily out of work. Sometimes, as in the case of the aged pension, we help people who have worked all their lives and who now need a bit of help keeping their heads above water in their final years of life. Sometimes, as in the case of Youth Allowance, we help people get food on the table while they are studying, so that in five or ten years time we have skilled workers in the community, paying taxes and contributing to the economy. And sometimes, as in the case of negative gearing for investment properties, we help people who already have lots of money make more money.

Which of those seems like the odd one out to you?

We have built a culture of social welfare. That much is undeniable. Subsidised medical care; safety nets for unemployed people, the disabled, the elderly and students; universal state-funded education: all of this is welfare. And we do it because it makes society better for everyone. It also upholds the human rights of everyone in the community – to be healthy, to have food and shelter, to have equal opportunity. People feeling entitled to their rights aren’t the problem. The problems come when people feel entitled to rip up this country in search of mineral wealth and expect not to have to share that wealth. When the government and the populace feel entitled to lock up innocent people, including children, for having the audacity to flee peril and attempt to come to this country on boats instead of on planes. When people feel that their tax dollars shouldn’t be used to pay for anything they don’t like or don’t use, despite us having some of the lowest taxes of the OECD nations. Yes, entitlement culture exists, but there shouldn’t be a knee-jerk reaction punishing those already struggling. Instead, we should be questioning those doing well in our society, who seem to feel entitled to their position even when their success comes at a detriment to the rest of us.

Trying to make sense of privilege and poverty

Recently a friend of mine went on a bit of a diatribe on Facebook about just how good we have it, here in Australia. This particular friend is currently in India; I’m not sure exactly what it is he is doing there but it may have something to do with teaching impoverished children how to read and write. It was sparked by a post he’d seen, directed at Prime Minister Gillard, where a young man complained that he was ineligible for Youth Allowance while studying at University, while “a person that lives their life on drugs and that has no intention of getting a job” is eligible for government assistance. My friend was absolutely scathing about Australians who complain about the ‘difficulties’ of life here or the exorbitant cost of living.

I want to defend those people. No, I don’t think it’s right to complain incessantly about what are, rather crudely, elsewhere called ‘first world problems’. I certainly do think that a large number of people need to pause, look around, and try to appreciate just how good they have it – not just compared with many other people in this world, but in and of itself. But these things aren’t simply caused by wilful ignorance and stupidity: they are actively encouraged by the society in which we live.

There are two kinds of poverty: absolute poverty (also known as extreme poverty), and relative poverty. Absolute poverty is a standard set by the World Bank; it approximately means that you live on a total of less than US$1.50 per day. Relative poverty is like, not being able to afford a computer while everyone else in your neighbourhood has a high-speed internet connection. In Australia, the poverty line has been set at 50% of the average median income.

When you’re more likely to compare yourself to Gina Rinehart than an anonymous Chinese sweat-shop worker, I can understand why you might feel like you’re being ripped off. If Ms Rinehart can become the richest person in the country by inheriting a financial empire – and then have the audacity to claim that ordinary Australians should be willing to work for poverty wages – why can’t I afford to buy a brand new car? The media have a vested interest in keeping us discontented. That is how advertising works: make people feel like they don’t have enough. To get people to buy things, you must keep them believing that they deserve a certain standard of living, and then get them to work towards that standard of living. Next step: profit! Not to mention the fact that the federal opposition continue to tell us about how difficult life is under the carbon tax and skyrocketing cost-of-living pressures. Never mind the fact that the cost of many of the essentials of life has either remained stable or actually decreased over the past decade (compared with the average wage): if the Opposition can convince us all that there is a widespread problem, then maybe they can win the next election by convincing us that they have a solution to that problem.

Yes, it is absolutely, shockingly ignorant to think that middle-class Australians are somehow having a hard time of it. But when our daily lives consist of news stories about super-wealthy people like Gina Rinehart and Rupert Murdoch, when politicians tell us that we’re having trouble heating our houses through (incredibly mild) winters, or even when we feel a bit jealous over our next-door-neighbours brand new Ford SUV, it can be hard to put this back in perspective. Most of us do not travel to developing countries or view news stories about wars, famines, and natural disasters that afflict the global poor. The problem is that telling people that they’re oh-so-privileged to live the life they lead just isn’t profitable.

There’s an argument that providing welfare breeds a culture of entitlement. I think it’s a valid argument to make, but I also think that even if it is true, providing some kind of welfare is worth it. The problem comes when middle-class recipients of welfare masquerading as tax breaks start to believe that they are more entitled to their Family Tax Benefit than the long-term unemployed are to the money that literally allows them to eat and keep a roof over their head. Claiming that you are entitled to government benefits by virtue of being a university student while simultaneously denying the right of impoverished Australians to try to build a better life makes my head spin. These kind of people seem blissfully unaware of the fact that if you are born into disadvantage, it can be very difficult to find a decent, permanent job or obtain appropriate long-term housing. It’s much easier to advocate for the doctrine of ‘personal responsibility’ when your parents have coddled you all the way to university.

Yes, we live in an incredibly privileged society and yes, we need to stop sometimes and look around and understand how good we have it. But none of us lives in a vacuum; the way that we interact with society influences the way we make sense of our lives and of the world around us. Having a go at someone for acting entitled is valid, but there are larger things to blame than just their own sheltered ignorance.

  • Things about me:

    My name is Mel, I'm a final year law student from Australia. I'm interested in politics, feminism, sociology and science, among other things. You can find my Twitter account below; I am more active there than here.

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