Why Australia Shouldn’t Follow in Biden’s Footsteps to Cancel Student Debt


Nanoseconds after US President Joe Biden announced the partial cancellation of American student loans, a string of interest groups demanded the same from the Australian government.

government should not comply. Canceling Australian student loans is unfair, unnecessary, and unlikely to affect the courses students study.

unfair reason

Contrary to some interest group rhetoric, allowing student debt does not make education “free.”

Education is never free as long as researchers want to be paid for their work.

The government currently collects about $4 billion (US$2.7 billion) annually from student loan repayments. The average Australian taxpayer (including low-wage workers who never had the chance to attend college) would have to make up the shortfall if the alumni debt were waived.

Taxpayers have already paid a portion of the student loan interest and will also bear the loss if the graduate doesn’t make enough money to pay off the loan.

We all benefit from an educated society, so the small contributions of taxpayers are acceptable.

But income-conditioned loans also create what economists call “moral hazard”—the willingness to take risks when someone else bears the consequences. Debt cancellation increases moral hazard and increases the costs that taxpayers have to bear.

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College graduates are seen outside the Houses of Parliament in Canberra, Australia, on October 1, 2015. (AAP Image/Lukas Coch)

College is the marshalling yard of life’s gravy train. Graduates enter lucrative careers that are inaccessible without a degree. They also build influential networks at the university, helping them advance in business and society.

Taxing low salaries to cancel loans of higher salaries is highly regressive. It’s like taxing beer to subsidize champagne.

Loan cancellations also add to the money supply fueling inflationary fires that disproportionately affect low-wage workers. Finally, writing off alumni’s debt fools the person who paid the debt.

Why You Don’t Need To Cancel Australian Student Debt

Most American student loans work like mortgages. Graduates must make regular payments until the debt and interest are paid off. Graduates are responsible for payment even if they lose their jobs or work part-time. If they default, their credit rating will be adversely affected, making it difficult for them to finance a car or buy a home.

Student loans in Australia are fundamentally different. Payments are commensurate with graduate income, so default is not possible. People who lost their jobs, took time off to have children, or whose income fell below the repayment threshold ($48,361) are not obligated to repay the loan. There is absolutely no need to cancel alumni loans that you don’t have to pay.

Some naive Australian politicians believe that providing “free” education will motivate students to choose certain courses of study. For example, the Victorian government, faced with a shortage of nurses, offered to pay nursing graduate tuition loans.

The idea is to encourage more students to study nursing by retroactively making tuition free. Time will tell if the Victorian strategy works, but if history is your guide, it probably won’t.

Epoch Times photo
People study on the campus of the University of Technology, Sydney, Australia, April 6, 2016. (Brendon Thorne/Getty Images)

When the British government allowed British universities to raise tuition fees, some held back, hoping the lower prices would attract students. However, these agencies quickly discovered that their tactics were not working.

Just like Australians, English students do not have to pay tuition fees while studying. Loan repayments don’t expire until years later, when the student is at work. Delays between debt accrual and repayment dampen the price impact.

The only truly price-sensitive students are international students who are not eligible for student loans and must pay their tuition fees upfront. Ironically, these students don’t look for the cheapest colleges. Instead, they prefer more expensive courses because they see high prices as an indicator of high quality.

Most Australian students choose courses out of interest. They are not price sensitive. But they are not stupid. The $1 you have today is worth more than the $1 you pay off the loan in a few years.

Therefore, the Victorian Government encourages students to study nursing by contributing to the cost of living today while they are learning, rather than paying off the loan after they have graduated and can afford to pay it back. You should consider seducing them.

In summary, income-contingent loans, such as those used in Australia, enable access to higher education that relies on brains rather than bankbooks. Therefore, canceling them would be unfair, unnecessary, and unlikely to affect course selection.

Of course, students want their loans to be forgiven. But unfortunately, depriving Peter of paying Paul will always get Paul’s approval.

But canceling loans imposes high costs on the economy, antagonizes those who have dutifully repaid their debts, does nothing to entice students to study certain subjects, and denies our equality. It violates the ideal of ideology.

Views expressed in this article are those of the author and do not necessarily reflect those of The Epoch Times.

Stephen Schwartz

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Professor Emeritus Stephen Schwartz has been Vice Chancellor of Macquarie University in Australia, Murdoch University in Australia and Brunel University in the UK. He has advised and chaired numerous educational institutions, including the Australian Curriculum Assessment and Reporting Agency (ACARA). As a researcher, Schwartz’s research spans clinical psychology, psychiatry, and public health. He has also published 13 books, in which he has published over 100 articles in scientific journals.