Anna Bligh interview on ABC Melbourne discussing HECS debt and lending

Ali Moore 

Well, if you’ve got a HECS or HELP debt, what happened if you’ve been to your bank and you’ve asked for a home loan, how much of a difference has it made to what you’re able to borrow? And what are the options for treating student debt differently? Anna Bligh is the CEO of the Australian Banking Association, Anna Bligh, welcome to Drive.

Anna Bligh 

Good afternoon, how are you?

Ali Moore 

Can we start just with an understanding, I guess of how HECS or HELP debt is counted? Now, is it just like any other liability you might have?

Anna Bligh 

Well, there are two circumstances, HECS does not have to be repaid until you reach a certain level of income and that’s currently set at just over $51,000. So, if you are not repaying the debt, therefore, it’s not coming out of your salary. Now, it’s not something that would be generally taken into account.

Ali Moore 

That said Anna Bligh, I don’t think anyone who doesn’t earn more than $51,000 is going to have a home loan.

Anna Bligh 

Well, they could as a co-borrower, so you might have one partner working part time, because they might be still studying, for example, they might be doing postgraduate work. I agree with you, that is a limited number of circumstances, but I just wanted to distinguish between someone who’s got a debt they haven’t started repaying yet, and may not need to for some time because of their personal circumstances including if they’re part of a partnership with a couple borrowing together. That’s quite different to somebody who has gone over that threshold, and is now having to repay the debt. Many of your listeners will know that HECS is taken out of your salary before tax. So, before you get the salary, Banks will assess the salary that you get in your hand when they are determining whether or not they think you can afford the loan that you’re applying for. So, for some people, it may not make a difference depending on what loan they’re asking for, or whether they can service it. But for many people, it will mean that the amount the bank will provide to them and by way of debt, will be reduced because they have a higher amount of money coming out of their salary before it gets into their hand.

Ali Moore 

And that is dictated essentially by law. Is that right? That that’s how you have to assess it?

Anna Bligh 

Well, there is both ASIC and APRA who provide guidance to banks about how they should implement responsible lending laws. We’ve had these laws in Australia now for about 12 years, and there’s been a lot of regulatory guidance built up that specifically references taking those debts into account. But I think it’s important to say that even if we didn’t have those regulations, banks still would guard against lending somebody an amount of money that they didn’t reasonably think the person could afford. So, as you said in your opening, ultimately that mortgage has to be repaid, and so does the HECS debt. Banks would still want to make sure that the customer can make their HECS payments, and make their mortgage payments, and not put themselves at risk of being in financial hardship.

Ali Moore 

So, Anna Bligh, you would have heard that little bit that we played with the Education Minister, Jason clear, saying that he’s working with the banks. This is where I find it a bit confusing, because there’s a lot of conversation. I know the Universities Accord, which reviewed the higher education system suggested or recommended this all be looked at. But bottom line, is there really an alternative? Can you treat student debt in any other way, because it goes to what you can afford to pay back?

Anna Bligh 

I should say there is already some flexibility by banks. There’s a big difference, for example in someone who might only have another two years of HECS to pay or another 12 months, versus someone who’s got another 15 years, or 10 years, depending on their salaries. But banks need to make strict assessments, asking if you can afford to repay this money when we give you the loan. But they also do have a buffer that they apply. It’s an imaginary buffer, so they add 3% to the interest rate that they’re going to apply and if you can afford it with 3% added, then that’s a sort of safety net if you like. Banks know, even if you don’t have a HECS debt, things will happen to you in your life. They’re lending to you for a 30-year period. You could have a baby a year after you take out the loan, which was not planned, but that will take you out of the work paid workforce potentially for a period of time. You could have an accident and be off work for a period of time. So banks, and interest rates could go up, but you can’t plan for them so. So, the 3% buffer does help banks have a bit of flexibility depending on the circumstances. Not everybody’s HECS debt is the same, and not everybody’s earning capacity is the same. But, to say the banks would never look at HECS is I think a very unlikely scenario.

Ali Moore 

But is that what you’re now talking to the Federal Government about potentially doing? When you calculate that 3% extra buffer that the banks like to have, you might do that and not include the student debt in that calculation?

Anna Bligh 

No, it’s more if you can repay the debt with the 3%, and you might have not a lot left on your HECS , then maybe there’s some flexibility and judgment that can be applied. But what we’re saying is, there’s a fine line to walk here between making sure we’re doing everything we can to give young people the best chance of getting their own home and giving them an amount of debt that is unaffordable and puts them into a position of financial hardship. We need to walk that line very carefully, and what we’ve suggested to the Government in relation to this recommendation from the review, is that we should have a group that most people will never have heard of, but it’s called the Council of Financial Regulators. This basically combines the Prudential regulator APRA, ASIC the conduct regulator, the Reserve Bank, and representatives of the Treasury. Given that there’s a lot of connection here between not only banks doing the right thing and not giving customers a debt they can’t afford, it also goes to the stability of system and I think it’s important that we have a good careful look, by people, well qualified to understand what a change like this might mean.

Ali Moore 

But given what you’ve just said, and the line that you have to walk, and I’m assuming that you would argue all the banks are walking that line now between responsible lending and helping people. Isn’t handing it off, well not handing it off, but suggesting the regulator’s having a look at it really a hollow promise, because in practice, what can you do differently that you’re not already doing?

Anna Bligh 

As I said, banks, try to make sure people can afford their loans, because it’s not in the interests of the customer or the bank, if people can’t afford it in the long-term. But there is also legislation and regulatory guidance that’s very specific, and I think, it never hurts when circumstances change to ask lawmakers and regulators, the simple question, is this still fit for purpose?

Ali Moore 

Do the banks think it is? Do the banks have an idea of what could be different or not?

Anna Bligh 

Well, they’re very aware that for some of their customers who have a HECS debt, they are offering them a lower level of loan than they are to someone on a similar salary who does not have a HECS debt. So, they know at the front line that of course this is having an effect. The answer isn’t necessarily just wipe out the HECS debt because you run the risk that you’re putting people in a circumstance where they cannot afford it. So, I should be clear to your listeners, it’s not that a HECS debt means you can’t get a loan, it’s just that it’s like any other debt that you’re repaying. If it cuts into your disposable income, then, you know, it may mean that you will have lower borrowing capacity. Now, maybe there’s some tweaking that can be done. But that’s why we think this is quite a fine line to walk, we wouldn’t want to make a rash decision here that would have consequences that I think could be very poor outcomes for customers, and potentially not good system wide.

Ali Moore 

You’re listening to Anna Bligh, who’s the CEO of the Australian Banking Association, and I’m sorry to press you on this, but I’m just trying to get a handle on what that tweaking might be?

Anna Bligh 

Well, all I can say is, if I knew the answer to that, we wouldn’t be asking the Council of Financial Regulators to have a look at it. I think it requires people who are very well versed in how the system is connected, a sector wide view, because this advice, this regulatory guidance doesn’t just apply to the big banks, it applies to the small banks, it applies to credit unions to building societies. I think these rules have been in place for a long time and circumstances have changed. You know, are they fit for purpose? These are all good questions to ask. The review recommended it, which is where this idea has come from, that lending practices be reviewed and we’re suggesting that the body to do that review are those experts who run the financial regulatory system who will be very well versed in the sorts of things that should be taken into account.

Ali Moore 

Anna Bligh, many thanks for joining us.

Anna Bligh 

Thanks, Ali.