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Which university degrees in Australia pay off their HELP debts the fastest?


Which university course should you study?

Deciding what to study at university is one of the most pivotal decisions a young person can make. It can unlock a whole avenue of life you may have never thought about and be the first step in getting your dream job. But in the current economic climate with interest rates rising sharply, share markets falling worldwide and some forecasting a global recession in the next few years, prospective students might also have an eye on what the most cost-effective degree might be. Which degree is the best financial decision?

One way to look at the most cost-effective university degree is to identify which one gives you the best chance of getting a job. The Graduate Outcomes Survey (GOS), a survey of over 120,000 recent graduates, shows that in 2021 degrees in pharmacy, rehabilitation or medicine were the most likely to land a graduate a full-time job. Not far behind were veterinary science, dentistry, engineering and teaching. The least likely to land a graduate job was a creative arts and communications degree.

These employment prospects are reflected in the 2022 Skills Priority List Key Findings Report, which identifies a shortage of university-educated workers in the healthcare industry, with only 1.5 suitable applicants for every job vacancy.

But picking a degree based only on what's most likely to get you a job would be short-sighted from a cost-effectiveness perspective, since not all jobs pay the same. Students could land a high-paying job in an industry not directly related to their area of study. They could also study a degree that has lower employment prospects initially but offsets this by opening up jobs with a higher pay scale. Graduates could then make up the income loss from the initial period of unemployment.

GOS data on median full-time salaries by a graduate's area of study (rather than occupation), shows that students who studied dentistry were the highest earners, with a median income of $100,000. The next best-paid degrees were medicine, social work, teaching and engineering where the median pay ranged between $70,000 and $76,000. Surprisingly pharmacy, which had the best employment prospects, had the lowest median salary, only $50,000.

The cost of a university degree

If a high salary is your goal then the choice seems clear: study dentistry. But in terms of cost-effectiveness the actual cost of a degree matters, given university education in Australia is not free. Higher Education Loan Program (HELP) loans are the main way most Aussies pay for their university education. These are income-contingent loans, meaning repayments only start once you earn more than $48,361 and gradually increase, from 1% to 10% of your income, as you earn more. Repayments are, importantly, calculated separately and before income tax.

Different degrees also cost different amounts. They vary according to how much a graduate is likely to earn from it and the ongoing costs of teaching. The most cost-effective degree would then be the one that doesn't saddle you with too much debt to repay. Degree costs currently sit in 4 bands. This means a degree can cost anywhere from $3,985 to $14,630 a year.

HELP loans are also not interest-free. They are indexed each year so they grow in line with inflation. In 2022, outstanding HELP debt grew by 3.9% compared to 0.6% in 2021 and 1.8% in 2020. With inflation now at some of its highest levels in more than 20 years, indexation rates are likely to stay higher for some time.

When the above costs are extrapolated out to the most common length of a degree and we calculate the indexation from the first year we get the following estimates of the true cost of a university degree.

The figures show that mathematics, nursing, indigenous and foreign languages and agriculture emerge as the cheapest degrees, with a cost of $11,955. This is a bargain compared to law and medicine, which cost roughly $58,520 and $57,005, respectively.

What is the most cost-effective degree?

A cost-effective degree then involves 2 aspects:

  • It doesn't saddle a graduate with too much HELP debt to repay
  • It allows a graduate to earn a sufficiently high salary to pay back that debt quickly

How cost-effective a degree is is determined by how quickly a graduate can pay back their HELP loan given those 2 considerations.

The figure below shows a model that takes those 2 considerations into account and estimates the pay-off rate of degrees in years. The model assumes an average indexation rate of 2% and average wage growth rate of 3% per year. In addition the model assumes that graduates would make voluntary payments equal to 5% of their income after 7 years. ATO data shows that this is the average time at which graduates make their first voluntary payment. The model also assumes a graduate lands a full-time job in the first year out of university. When that is not the final year of payment would simply be shifted forward.

The model shows how a cost-effective degree is largely dependent on how little the degree costs initially. This is clear in degrees like mathematics, nursing, indigenous and foreign languages, agriculture and teaching. But the model also shows that a high initial cost can be offset by a high salary. This is because as salaries grow, more of one's salary is used to pay off the loan. This pays off a loan quicker over time. This is the effect we can see with dentistry, medicine and engineering.

We can see a ranking of how cost-effective each degree is in the chart below, which shows the years it takes to pay the full HELP debt for a specific degree.

The top 10 most cost-effective degrees are:

  1. Teaching (pay off in 6 years)
  2. Mathematics (pay off in 6 years)
  3. Nursing (pay off in 6 years)
  4. Indigenous and foreign languages (pay off in 6 years)
  5. Dentistry (pay off in 7 years due to high salary)
  6. Agriculture (pay off in 7 years)
  7. Social work (pay off in 7 years)
  8. Computing (pay off in 8 years)
  9. Allied health (pay off in 8 years)
  10. Engineering (pay off in 9 years due to high salary)

So if you want to do the most cost-effective degree, teaching, mathematics, nursing or indigenous and foreign languages are good options to consider. They will ensure a low initial loan that can be paid off quickly. But dentistry and engineering are also solid choices, because the high salaries they open up offset their high initial cost. If cost-effectiveness matters to you, then you should be wary of veterinary science and communications degrees.

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