Norton warns against using super to pay off HELP debt

Letting graduates raid superannuation to repay HELP loans is a bad idea, the Grattan Institute has warned. Liberal Senator Chris Back has urged the treasurer to allow graduates to use retirement savings to pay off their student debt. Back proposes letting people dip into superannuation and then requiring them to make catch-up payments later in their careers to ensure they’re not short of cash in retirement. Back argued this would ease financial pressure on recent graduates in their 20s and 30s and provide $500 million in savings if incorporated into the next federal Budget. Andrew Norton, the Grattan Institute’s higher education policy director, warned against this proposal. He said as superannuation investments have compounding interest, for recent graduates, of 5 per cent to 10 per cent annually, taking out sums early could have long-term financial consequences. Money that graduates would accrue from leaving their earnings in superannuation would outpace their debt, Norton explained, as HELP debt interest is 2 per cent to 3 per cent. He summarised that “superannuation offers a much better deal”. This plan is also open to rorting, he warned. “People could salary sacrifice into superannuation, [cutting] their marginal tax rate [by half or more], and then use the money to repay HELP,” he told Campus Review. “There would need to be a tax on withdrawals from superannuation to avoid this, but that would increase the negative impact on retirement savings.” If government wants to save on HELP, there are other ways, Norton argued. They include recovering loans from deceased estates – a plan Christopher Pyne floated during his time as education minister. Other options include introducing loan fees for HELP, and lowering the repayment threshold from $54,000. Robert Simms, Greens higher education spokesman, warned, however, that lowering that threshold could unfairly target low-income earners. “HELP debt can take a significant slice out of your income,” Simms said. “Lowering the repayment threshold will place an increased burden on low-income earners at a time when cuts to penalty rates and an increase in the GST are already on the table.” Last year, the federal government lent $30 billion in HELP loans to students. Next year, this number is expected to grow beyond $50 billion.