The attached report was commissioned by Universities Australia (UA), to help inform the debate and to better understand the viability of different options around securitising or privatising the relevant HECS debt portfolio.
The study, which was undertaken by ACIL ALLEN Consulting, does not necessarily represent the views of UA but rather, is a useful discussion of the issues.
The paper considers two broad cases, one where the government retains repayment risk, and one where it is passed onto the buyer of the HECS debt.
Where the government retains the repayment risk, the sale of HECS debt is concluded to be a marginal proposition and largely financially neutral for the Commonwealth, moreover provided there is no variation in the terms and conditions of existing loans it will of course have little impact on students. The report indicated there would be little or no benefit with this approach especially given the substantial transaction costs involved.
In the second scenario which shifts repayment risk to the buyer, it is likely the government will receive a highly discounted, or unacceptably low, up-front payment for the HECS debt. This is due to substantial risk associated with individuals, mostly because the loans are income contingent or by moving overseas repayment obligations can be deferred altogether. The repayment rate of loans is also contingent on overall economic conditions where slower economic growth may constrain the reduction in debt levels.
An additional area of concern discussed in the report is the extent to which the sale of the HECS debt under this option may constrain higher education policy setting by government, including flexibility of repayment terms or matters relating to growth in the number of university places.
The overall conclusion of the report suggests from a public policy perspective that sale of the HECS debt is neutral at best, with the possibility of negative consequences for government.
To view the report click the link below.
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