Repost: The Strange Plan to Securitise HECS Debt

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Given that this has reared its ugly head again, here is a repost of a post from April 2013.

The ANU’s Glenn Withers has a plan to securitise HECS debt.

Professor Withers told the HES the main advantage would be that the government “gets the money now”. Rather than waiting for graduates to pay off some $26 billion in HECS debt — with the proceeds conservatively estimated at about $15bn, once forgone interest and non-payments had been taken into account — the government could immediately recoup $15bn in bonds.

The Oz asked both Stephen and myself independently what we thought and, as it turns out, much the same thing.

However, Monash University economist Stephen King said the proposal was just another form of government borrowing.

“All you’re doing is playing around with government cashflows,” he said. “It doesn’t matter where the money comes from when it’s time to pay it off.”

Professor King said the government could just as reasonably issue bonds against expected tax receipts. “You can run the argument for more funding of higher education, but accounting tricks are just accounting tricks,” he said.

Former University of Melbourne economist Joshua Gans said the proposal amounted to “quasi-privatisation of a government asset”, and could have unintended consequences. “It will make it hard for the government to adjust the (HECS) system should it need to in the future,” said Professor Gans, now with the University of Toronto.

“And) it separates ownership from income flows even further. The government has an incentive to ensure that university education works out because that impacts on the flow of HECS repayments.”

This is the full email I sent to the Oz.

Near as I can tell this is just an accounting trick. As the government is in no danger of going bankrupt and there is healthy demand for government bonds, this is a kind-of quasi-privatisation of a government asset, the HECS debt.
There could be real effects from this. First of all, it will make it hard for the government to adjust the system should it need to in the future. Second, it separates ownership from income flows even further. The government has an incentive to ensure that University education works out now because that impacts on the flow of HECS repayments. Take that away and you lose part of that incentive.
If the government really wanted to reform education financing in an economically sensible manner, it would let Universities collect and retain their own fees and hold HECS debt on their books.
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