CENTRE FOR
ECONOMIC POLICY RESEARCH
Australian National University
DISCUSSION PAPERS
:
Income-Contingent Financing of Student Charges for Higher Education: Assessing the Australian Innovation
Bruce Chapman1 and Chris Ryan2
DISCUSSION PAPER NO. 449 May 2002
ISSN: 1442-8636 ISBN: 0 7315 3519 7
1 Bruce Chapman is Professor of Economics and Director, Centre for Economic Policy Research, Economics Program, Research School of Social Sciences, Australian National University, Canberra Australia.
E-mail: Bruce.Chapman @anu.edu.au
2 Chris Ryan is a Research Fellow, Economics Program, Research School of Social Sciences, Australian National University, Canberra Australia.
E-mail: c_ryan@optusnet.com.au Acknowledgements
We are grateful for the excellent research assistance of Tony Salvage. All responsibility for the contents lies with the authors
CONTENTS
Page
Abstract iii
Introduction 1 Conceptual issues: what is the right form of government assistance? 1
Up-front fees with means-tested scholarships 2 Up-front fees with government subsidised bank loans 2
Income contingent loans 3
Implications of different financing approaches 3 Australian university financing in historical context 4
1973 to 1986 4
Introduction of HECS 4
HECS compared to conventional student loan schemes 6 What HECS Means for Students 6
Charge levels 6
Repayment parameters 7
Typical graduate HECS repayments by age 7
The Effects of HECS 9
HECS revenue 9
Effects of HECS on access for the disadvantaged: previous research 11 Effects of HECS on access for the disadvantaged: new evidence 12
Summary and a caution 13
Notes 14 References 14
ABSTRACT
In Australia in 1989, for the first time in the world, a broadly-based income contingent loan policy for the payment of higher education charges was adopted, when the government introduced the Higher Education Contribution Scheme (HECS). This can be seen to be a watershed in terms of the relationship between economic theory and education policy. Fourteen years later it is timely to revisit the arguments for its introduction and review Australia’s experience with income contingent charging for higher education. That is the purpose of this article.
It is argued that compared to all possible alternatives, income contingent loan arrangements are preferable for both economic and social reasons, so long as the administrative context allows efficient collection of the debt. These points are explained in detail.
The political background to HECS is examined, and the paper considers the implications of the scheme for both revenue and the access of the poor to higher education. It is demonstrated that neither the introduction of the scheme in 1989 nor the radical modifications undertaken in 1997 have had any deleterious consequences for the participation of less advantaged students.
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