Back in the dark days of the late 90's I was a student at University here in Melbourne Australia. As with most students, i was exceedingly poor, I've concluded skipping meals is part of the charm of studying, however I was lucky enough to recieve a fortnightly allowance from the government called Austudy, it wasn't much - maybe $150 a fortnight - but it was better than a poke in the eye with a burnt stick as my mother might say. My housemate that year had discovered a wonderful new scam, sorry scheme, the government had available - it was called the Student Financial Supplement Scheme or SFSS for short. How did it work? I hear you think! Well basically it allowed you as a student to trade in half of your year's Austudy allowance, and receive twice that amount back as a loan. ie. You are entitled to $7000 for the year in Austudy payments - you could trade in $3500 and receive a lump sum loan of $7000 in it's place. Not bad, what's the catch? The catch was that all of that $7000 was considered a loan which you would later have to pay back - despite the contribution of $3500 of your student allowance.
So far you might be thinking .. hmm a bit shady but not terrible - but it gets worse! Firstly, the government applied indexation to these loans, in other words they charged interest - i missed the worst of it, but I know of people who borrowed maybe as little as $2000, only to find out years later they owed almost $10,000.
Whenever you sign up for a job here in Aus, you fill in a form where you are asked if you owe the government for a student loan, or one of these loans - the idea being that after you start earning over the minimum threshold, your employer starts withholding more tax to cover the payments you owe towards those debts. Every job I had after I took the loan i ticked Yes to both - my employer took more tax out, and my student loan was paid down year after year - never heard anything about my Supplement loan. Why is that? Well for one, about the time I took it out the government welfare department decided to stop sending out yearly statements. Also, the welfare department held onto the debt for five years before passing it to the tax department to handle, so in other words every year i ticked the box when doing my tax that i had a debt, the tax department checked and said nup, no supplement loan - sure i had the money returned to me as a tax refund, but i'd rather it was paying off my debt instead.
So back in 2005 or so my debt suddenly re-appeared when i got my tax return and instead of a $500 refund as I had expected I was presented with the $400 bill I mentioned in my previous post. It came at the absolute worst possible time, and it took me hours on the phone with the Tax dept and going through my records to figure out what had happened.
Also as i am a pack rat I still have the paperwork I got from the welfare dept at the time of taking out the loan - re-reading it now it is scandalously light on for detail - especially considering these loans were targetted at some of the most desperate and financially illiterate people in society. If a bank or financial institution targetted loans like these at students and the unemployed they'd be run out of town and they'd probably still be doing time.
So to sum up these loans worked by loaning half your allowance but expected you to pay back double the amount you were loaned. They were offered to desperately poor people with minimal due diligence or information. They didn't send you statements of any kind whilst applying arbitrary 'indexation' rates. Five years after the loan was taken they'd forward the debt to the tax department - meaning no payments were made through your taxes over the previous years.
I feel bad for those people who took more than one of these loans out - you could take such a loan each year you were studying or whatever. Upon reading a forum of pee'd off people I see some now owe tens of thousands of dollars. Fortunately they were discontinued in 2003 - but for those with huge surprised debts it is little consolation.