Anna Bligh speaking to 4BC on HECS debt and lending  

Sofie Formica   

ABA CEO Anna Bligh is joining us on the line. Good afternoon, Anna, and thanks for connecting. 

Anna Bligh   

Good afternoon Sofie, nice to talk to you again. 

Sofie Formica   

You too. So, can you just talk us through this? Let’s start at the beginning. How are banks assessing student debt now when it comes to their ability to borrow?  

Anna Bligh   

Okay, well with HECS, students don’t have to start paying that debt back to the government until they reach an income of $51,000, which is not a high income. But you know, there could be people who are working part time, in a relationship and the two part two partners want to borrow. But if they haven’t reached that repayment threshold, then that’s not taken into account by the bank in terms of what they can service by way of a new loan. However, if they are over that threshold, and frankly, most people who are ready to borrow money for a house are, then it is treated like other debts, because it comes out of your pay. People who haven’t paid it probably don’t realize that it’s a bit like tax, it comes out of your pay before your pay gets into your hand. So, it’s not money that is available to you to use for any other purpose, including paying a mortgage. So, banks do, because they are responsible lenders, they look at your net income when they are trying to decide what you can afford. So, there’s this fine line that banks walk, trying to do their best to give young people an opportunity to get into the housing market, but not giving them a debt and a mortgage that they can’t afford. Banks have an interest in responding in lending as responsibly as they can. But they’re also subject to legislation that spells out their duties very clearly. And there is quite a bit of regulation from regulators like APRA, and ASIC that specify what banks have to do. So, when the government released their report on higher education, one of the recommendations is that HECS debt should be looked at differently. What we’ve said is that should be done very carefully and very thoughtfully, because you do still have to walk that fine line, we don’t want to put young people into a house that they can’t afford and see them in terrible financial difficulty. 

Sofie Formica   

Because the reality there, Anna, is that the debt remains, and it still continues to be indexed. And I know that we’re looking at how that might change. But you don’t want to be loading young people with debt, even if they’ve got a higher borrowing capacity? 

Anna Bligh   

That’s exactly right. You know, the debt still has to be repaid, it’s not an optional debt for students. But that doesn’t mean that with housing prices growing, with interest rates high, with rents high, they all together make it much harder for young people to save a deposit, it doesn’t mean we shouldn’t, every now and then, have a look at the rules and say, are they still fit for purpose? You know for example, a young person whose got a HECS debt that’s only two years from being paid off might be very different to someone who’s got 15 years of that debt. So, some flexibility might actually make it different. For some people, it won’t be a silver bullet, for the problems in the housing market. I think we should always challenge ourselves thoughtfully and carefully, not in a knee-jerk way, but ensuring we get this right. 

Sofie Formica   

That’s what I wondered actually, if one of the ways that you and they may have this conversation is this possibility of a sliding scale. So as you’re reducing your debt, and your wage may also be increasing as you know, sort of move forward in your career, and maybe you and your partner, at that point can combine your borrowing capacity, and the banks could look at it and say, well, we know you’re on this income, and you may only have, you know, three or five years left to pay it off. So, we might assess the risk differently in terms of what we’ll give you now knowing that you’re close to really paying it all off. 

Anna Bligh   

And remember that banks also apply what’s called a buffer. So whatever the interest rate, they’re going to charge you, they add 3% to that, so that they can be confident that if you have a change of circumstances, or if the economy changes rapidly, then you are still well placed to keep paying your mortgage because banks know that young people, you know, on a 30 year mortgage. All kinds of things are going to happen. Some of them will be out of the workforce for a while having families, they might have an accident that, you know, keeps them out of the workforce for a while. These are the ups and downs of real lives, the economy in a 30-year timeframe will go up and down.  

Sofie Formica   

Certainly housing. It certainly has in the last couple of years, Anna I wanted to ask you, you mentioned education minister Jason Clare. And he’s acknowledged that more needs to be done around student debt and home loans. But I just wonder, from your perspective, if you think there are still some missed levers that the government could be pulling, because like you just outlined, we’ve got this hot housing market, inflationary pressures, cost of living pressures, interest rates, where they are. You like me, we’ve both got young adult children, it just seems to be that it’s a generation who are really up against it financially, in almost every metric. 

Anna Bligh   

There’s no doubt about that Sofie, and banks recognise that it’s extremely difficult now for first homebuyers. You know, I think most economists would agree that the single biggest issue is supply of new housing into the housing market. And, you know, anything that governments at a state or federal or local level can do to sensibly expedite planning approvals and get more product to market, I think will make a very big difference. But there’s not much comfort to people who are sitting there now right today trying to get into the market. So, I do think we’ve got to have an open mind and look at everything. But I do caution I can’t see a circumstance where banks won’t take HECS into account at all, because that would leave I think a lot of young people at serious risk of entering into a loan that they ultimately couldn’t afford and in a spiral of financial difficulty that makes them worse off. So, something we’ve got to approach carefully. Not a knee-jerk reaction to a sort of hot political issue. But with an open mind and think about what could we do differently that would for some young people, by no means all, but for some young people make a difference? 

Sofie Formica   

I have to ask you before you go, because it’s been a little while since we’ve spoken as we march towards a state election here in a few months and today there’s been more money thrown at Queensland. Is there anything about politics you miss? 

Anna Bligh   

There are days when I miss some of the excitement and adrenaline of it, but I am enjoying the quiet life and that’s not a bad thing.  

Sofie Formica   

Thank you so much for your time this afternoon. Really appreciate it. That’s Anna Bligh. Chief Executive of the Australian Banking Association. All the best to you Anna. 

Anna Bligh   

Thanks so much.