Poorly targeted loan Scheme to end
Minister for Children and Youth Affairs, Larry Anthony, today announced the Federal Government’s decision to end the Student Financial Supplement Scheme from 1 January 2004.
“The loan scheme is not delivering good outcomes for either students or Australian taxpayers,” Mr Anthony said.
“The structure of the scheme is fundamentally flawed. For example in order to receive a loan, customers have to trade in a component of their income support payments. This means they can face effective interest rates significantly higher than market interest rates.
“As a result of these flaws the loan scheme is creating high levels of student debts, many of which are not repaid. The Australian Government Actuary has estimated that more than 50 per cent of total loans may never be repaid. Clearly, for many customers the Scheme works more like a gift than a loan.
“Some customers have debts as high as $28,000. On an income of $35,000 per annum this would take 40 years to repay.”
The Student Financial Supplement Scheme was introduced in 1993 in a climate of high youth unemployment, high interest rates and when there were few commercial loan packages available to students.
“Students now have far more flexible and better-targeted options to fund their studies such as Youth Allowance,” Mr Anthony said.
“Since the inception of Youth Allowance, take-up of the Student Financial Supplement Scheme has declined by one third. Youth Allowance provides flexible benefits such as the $500 advance, higher income free area, Student Income Bank and access to Rent Assistance.
“I will be introducing legislation in the winter sittings and would hope this legislation will be supported by the Labor Party,” Mr Anthony said.
Student Financial Supplement Scheme- Overview
The Student Financial Supplement Scheme (SFSS) is a voluntary loan scheme that gives eligible tertiary students the option of borrowing money to help cover expenses while they study. It is paid on a fortnightly basis, not as a lump sum.
For every $1 the student trades in of their entitlement, they can borrow $2. The money traded in becomes part of the loan, all of which is repayable. For example to take a $7,000 loan a customer must trade in $3,500 of their income support payment.