The Australian Labor Government has announced a 20% reduction in student loans under the Higher Education Loan Program (HELP), effective June 1 next year.
This initiative is expected to benefit around three million Australian students, cutting an average of A$5,520 from loans typically around A$27,600. By alleviating the financial burden on students, the government aims to enhance their disposable income and spending power, thereby improving living standards amidst rising inflation.
However, how does this impact international students, particularly those from India, planning to study in Australia in 2025?
Firstly, it's important to note that this loan reduction applies only to domestic programmes like HECS and HELP. Consequently, Indian students relying on private loans in India will not see direct benefits.
Moral hazard and unintended incentives arise when future students begin to expect similar loan forgiveness, which could lead to irresponsible borrowing behaviors. Additionally, this expectation may disincentivize educational institutions from controlling tuition costs, as the perceived value of education could shift.
Moreover, loan forgiveness can be perceived as unfair to individuals who diligently worked to pay off their loans or those who opted for less expensive education options to avoid debt. This sense of inequity has the potential to foster societal and political divisions, further complicating the discourse surrounding student loan policies.
Loan forgiveness may disproportionately benefit higher-income individuals, as student debt holders typically have greater earning potential due to their degrees. This creates a regressive policy that fails to address the underlying issues of rising higher education costs. While loan waivers or reductions can provide significant short-term relief to borrowers and potentially stimulate economic activity, they must be implemented thoughtfully.
Policymakers should carefully weigh the immediate economic benefits against broader implications for fairness, fiscal policy, and the incentives for both educational institutions and future students.
(Ankit Mehra is the CEO & Co-Founder of Gyandhan. Views expressed are his own)
