How Australia scammed students into welfare debt

Imagine if the Australian government told people they had to willingly repay their social security entitlements, and also pay interest on it. And imagine if people agreed. Sounds a bit far-fetched? Well that’s exactly what happened between 1993-2003.

The Student Financial Supplement Scheme (SFSS) was a scam introduced by the Australian government 30 years ago, and more than 140,000 people still owe the government over $2 billion because of it.

Under this scheme, students were asked to give up their benefits, including youth allowance, Austudy or the pensioner education supplement, and take out a loan of double that amount instead.

For every $1 the student gave up, they got a $2 loan instead. Many on low incomes, struggling to survive, gave up most of their benefits, with the enticement that they would have more to live on each week.

And there was also the enticement that it didn’t have to be paid back until they started work and reached an income level of around $60,000. Later, after the students were already in debt, the government demanded repayments when their income level reached $48,361 a year.

As the cost of living rose, the threshold for compulsory repayments was made lower, meaning people were suffering greater financial stress.

The other hidden trap that wasn’t properly explained was indexation. The government touted the scam as low interest loans, but with indexation, many of the debts have doubled or even tripled.

Over 140,000 people still have debts under this scheme, with the largest being over $128,000. It has been sitting at this figure for about six years, with people struggling to pay off the interest, and making no inroads into the principal loan.

The scheme was abandoned by the Howard government in 2003, when the government acknowledged that it saddled students with high levels of debt, was “administratively cumbersome and poorly targeted” and effectively hit people with hidden interest rate costs.

In effect, the government admitted that they knew what thay had done was wrong, but they took no steps to rectify their wrongdoing. This was a scam that was right up there with Robodebt.

The Greens recently introduced a bill to wipe these debts, but it was rejected. The Greens also asked for the repayment threshold to be raised to $60,000, but this was also rejected.

Instead, the interest rate has risen to 7% in line with indexation, which means the debts are actually increasing. This means people are finding it harder to meet the costs of living, pay their rent or save for a house. All this on a scheme that targeted young students and wasn’t properly explained.

It was a Labor government that introduced this scheme, and it is up to Labor to now rectify it. The debts need to be wiped. They were a scam.

Craig Hill is a Brisbane-based Social Justice Campaigner, Writer, Teacher and Business Consultant. He has campaigned for social justice in Australia, promoted human rights in China and worked with the homeless in Honolulu. He holds a Graduate Certificate in Business, a Graduate Certificate in Education and a degree in Management. He is also the General Manager of The Australian Business and Leadership School.

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