Here is a little scenario to consider when it comes to HECS debt and the idea flagged by Education Minister Christopher Pyne that when a person dies, the accumulated HECS debt would be repaid to the government from that person’s estate.

Think of someone who goes to university, studies hard and when they turn 21, have a degree and a $30,000 HECS debt.

If, for example, the person lives to 81, when they die and if they have never had paid employment that required them to cover their HECS debt, they will leave a massive debt which will need to be paid from their estate.

Here is some basic and non-controversial maths.

Assuming the HECS debt accrues a 5 per cent interest rate over that time – when they die, the HECS debt will be $560,376.

If this person were to accrue a HECS debt starting at $50,000 when they turn 21, the balance owing to the government on death would be $933,959.

This is a lot of money is absolute terms, but also in relation to what may happen to incomes.

To be sure, incomes will rise many fold over 60 years, as will asset prices and wealth.

By way of benchmarking this, let’s take as the starting point that average earnings, all employees, is $60,000 per annum. This is the latest estimate from the Australian Bureau of Statistics. Coincidently, this is double the assumed HECS debt in example one above.

Over the long run, wages growth is estimated to be 3.75 per cent per annum which means that in 60 years, average annual earnings will be $546,308, a level below the outstanding level of HECS debt.

The difference, of course, is that wages growth is less than the bond interest rate and the compounding effects of this difference over 60 years is huge.

Taking out a HECS debt today at half the level of average incomes, will leave a cost to one’s estate somewhat higher than average incomes if that person lives for 60 years after graduation.