tag:theconversation.com,2011:/ca/topics/hecs-2694/articlesHECS – The Conversation2023-05-09T06:23:44Ztag:theconversation.com,2011:article/2040402023-05-09T06:23:44Z2023-05-09T06:23:44ZHECS for farmers? Nature repair loans could help biodiversity recover – and boost farm productivity<p>Almost three billion hectares of farmland is in poor condition worldwide – an area the size of Russia. Biodiversity is in freefall. Extinctions are rising. Wild animal populations <a href="https://www.theguardian.com/environment/2022/oct/13/almost-70-of-animal-populations-wiped-out-since-1970-report-reveals-aoe">have fallen</a> almost 70% since 1970.</p>
<p>Restoring damaged land and bringing back ecosystems is phenomenally expensive, estimated at <a href="https://doi.org/10.1111/conl.12709">A$21 trillion globally</a>.</p>
<p>The sheer scale of the problem is <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab5deb">beyond</a> the capacity of traditional approaches to funding repair. That’s one reason why the Australian government is looking to alternatives such as a <a href="https://consult.dcceew.gov.au/nature-repair-market-exposure-draft">nature repair market</a>. This, the government hopes, would boost biodiversity – especially on private land such as farms. </p>
<p>To make this market work, the government might consider creating a new version of Australia’s well-known HECS higher education loans. Call it FECS – Farm Environment Contribution Scheme. </p>
<p>The lead author of this article, Bruce Chapman, helped create HECS – the world’s first national income-contingent loan for higher education. Co-author David Lindemayer, ecologist and conservation biologist, has spent decades exploring ways to preserve biodiversity on farmland. </p>
<p>We <a href="https://doi.org/10.1088/1748-9326/ab5deb">have shown</a> how farmers could access loans similar to HECS but based on annual revenue, not income to undertake work helping both their business and restoration of nature. This work will boost farm productivity and biodiversity with farmers repaying the loan when their revenues permit.</p>
<h2>Why is this needed?</h2>
<p>Australia has large swathes of <a href="https://www.sciencedirect.com/science/article/pii/S0143622814002793">degraded land</a> and at least 100 species have <a href="https://www.sciencedirect.com/science/article/abs/pii/S000632071930895X">gone extinct</a> since European colonisation. To prevent further extinctions, the government announced it would introduce a new nature repair market.</p>
<p>This market could, if done well, tackle some of the drivers of biodiversity loss and land degradation – particularly on our farmland. Protecting habitat and waterways, preventing erosion and improving drought resilience would all be eligible. </p>
<p>Take farm dams. The vast majority of the 650,000 dams in the Murray-Darling Basin are in poor condition. To <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0256089">renovate one</a> by fencing and re-vegetating around it costs about $9000.</p>
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Read more:
<a href="https://theconversation.com/we-must-look-past-short-term-drought-solutions-and-improve-the-land-itself-105485">We must look past short-term drought solutions and improve the land itself</a>
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<p>But farmers can make this money back. Livestock with access to better quality drinking water gains weight more quickly, giving farmers more cow to sell. There’s a climate benefit too, as renovated dams <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/gcb.16237#:%7E:text=We%20discovered%20that%20fencing%20to,and%20reduces%20diffusive%20methane%20emissions.">change rapidly</a> from carbon sources to carbon sinks. Plus, healthier dams <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/ece3.8636">provide habitat</a> for more birds, frogs and dragonflies.</p>
<p>The question is – how do you fund this market? Creating tradeable certificates is one way but could be complicated. Another option is to create a rolling fund, where biodiversity loans are given to farmers to do nature repair work such as dam upgrades which help their bottom line – and wildlife. </p>
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<a href="https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="farm dam" src="https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524812/original/file-20230508-26085-8oxuyz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Farm dams can be rich habitats for many species – but only if managed well.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>How would this work with the nature repair scheme?</h2>
<p>The federal government has pitched its planned nature repair market as an <a href="https://theconversation.com/would-a-nature-repair-market-really-work-evidence-suggests-its-highly-unlikely-199975">offset scheme</a>: farmers and landholders do repair work and get biodiversity certificates which can be bought by, say, another farmer wanting to clear land. </p>
<p>But there’s a complementary, parallel approach. All farms experience large swings in annual revenues from forces outside a farmer’s control, such as rain, drought, floods and commodity price shocks. The best financial tool to help farmers undertake nature repair is the type which smooths their income. That’s where revenue-dependent loans could work. </p>
<p>Farmers would get the money needed for work on restoration and biodiversity recovery, and incur a debt to be repaid only when future revenue makes it possible. During bad years when farm income is low, repayments would be low or zero. During good years, more debt would be repaid to the government.</p>
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<a href="https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="eroded gully" src="https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524821/original/file-20230508-180826-qxlqc9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Tackling erosion is expensive, but could bring benefits to farmers and nature.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>This isn’t wholly new. We already have policies <a href="https://www.agriculture.gov.au/agriculture-land/farm-food-drought/drought/assistance/fmd">allowing farmers</a> to draw on savings from good years to help cope with poor years, coupled with associated tax benefits. By and large, this works well.</p>
<p>Loans like HECS have this vital income-smoothing feature – you only pay it back when you are in a position to do so. This scheme has worked well to share the cost of university education between the recipient, who will benefit directly from it, and society more broadly, which benefits from highly educated doctors, lawyers, business owners and so on.</p>
<p>With this type of loan, you <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab5deb">don’t risk</a> losing your farm if you can’t repay the debt. They’re better than extending your bank loan, because they don’t add to repayments until you’re in a position to make them. </p>
<p>If these loans were added to our nature market, it could get much more traction than a grant scheme. This is because most of the money outlaid by government would be returned as the loans are repaid. It creates a revolving fund, allowing the government to finance many more projects with many more farms than with a grant which, when spent, is gone.</p>
<h2>What about the transparency problem?</h2>
<p>Government schemes can attract people trying to game the system for their own financial benefit. </p>
<p>To avoid this, projects tied to a FECS loan would have ensure plantings, shelterbelts and dam renovations are effective and meet standards.</p>
<p>We could borrow from decades of monitoring <a href="https://www.sustainablefarms.org.au/">hundreds of sustainable farms</a> in endangered temperate woodlands to create robust standards.</p>
<p>These will be crucial to <a href="https://www.publish.csiro.au/book/8020/">avoid perverse effects</a>, such as the risk of promoting populations of the wrong species. Replanting along narrow strips can simply create habitat for damaging hyper-aggressive native birds like the noisy miner while introduced trees can harbour pests such as starlings. Robust monitoring will be needed to ensure restoration projects <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/emr.12573">actually do</a> produce more biodiversity.</p>
<p>We’ll need <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/emr.12573">three types</a> of monitoring:</p>
<ol>
<li>Compliance monitoring – did a landowner do what they said they would?</li>
<li>Inputs monitoring – how much of the loan or grant was actually invested in fencing, planting trees or improving dams?</li>
<li>Outcomes monitoring – what was the end result? Did we get more species of native animals and invertebrates (including species of conservation concern)?</li>
</ol>
<p>As we wrestle with the best way forward for Australia’s first nature repair market, we should seriously consider rolling out revenue-dependent loans for farmers. </p>
<p>It could make life easier for farmers at little cost to the government – and get the ball rolling on the ever more urgent issue of restoring land and the species that rely on it.</p>
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Read more:
<a href="https://theconversation.com/can-a-nature-repair-market-really-save-australias-environment-its-not-perfect-but-its-worth-a-shot-203126">Can a ‘nature repair market’ really save Australia’s environment? It’s not perfect, but it’s worth a shot</a>
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<p class="fine-print"><em><span>David Lindenmayer received funding from The Australian Government, the NSW and Victorian Governments, the Australian Research Council, and a series of private foundations interested in enhancing biodiversity conservation on farms and integrating conservation and agricultural production. He is a member of Birds Australia that seeks to boost bird conservation outcomes on farms </span></em></p><p class="fine-print"><em><span>Bruce Chapman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Reparing farm dams helps farmers – and nature. What if farmers could access loans for nature repair work – and only repay them when revenue is high?Bruce Chapman, Director, Policy Impact, College of Business and Economics, Australian National UniversityDavid Lindenmayer, Professor, The Fenner School of Environment and Society, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1920232022-10-17T19:04:48Z2022-10-17T19:04:48ZUniversity fees are poised to change – a new system needs to consider how much courses cost and what graduates can earn<p>One key change to universities under the Morrison government was the <a href="https://theconversation.com/3-flaws-in-job-ready-graduates-package-will-add-to-the-turmoil-in-australian-higher-education-147740">Job-ready Graduates program</a>. Starting in 2021, this <a href="https://www.smh.com.au/national/nsw/everybody-is-confused-humanities-students-hit-with-surprise-fee-hikes-20220621-p5avbh.html">significantly increased</a> student fees for humanities degrees, slashed them for nursing and teaching, and moved many other courses up and down. </p>
<p>University <a href="https://www.theage.com.au/national/victoria/science-teaching-and-health-enrolments-drop-despite-uni-fee-overhaul-20220705-p5az3o.html">enrolment figures</a> suggest it has not achieved its goal: to steer students into certain fields of study and away from others. </p>
<p>So, a new system of student fees is likely to be part of Labor’s <a href="https://www.jasonclare.com.au/media/speeches/5137-universities-australia-2022-gala-dinner">promised Universities Accord</a>, which aims to reset the relationship between the federal government and university sector. </p>
<p>Its terms of reference will be <a href="https://ministers.education.gov.au/clare/speech-12th-national-conference-university-governance">announced next month</a>. </p>
<h2>Ideas about setting student fees</h2>
<p>Australia has had several student fee systems before. In a <a href="https://melbourne-cshe.unimelb.edu.au/__data/assets/pdf_file/0014/4320401/From-public-to-private-benefits.pdf">new paper</a>, I look at the five different rationales used for setting HECS, later called student contributions, since 1989. These include: public benefits, increasing resources per student place, incentivising course choices, private benefits and course costs. </p>
<p>In the past month, two new reports have also looked at possible student contribution systems, adding to or varying those used previously. </p>
<p>In its October <a href="https://www.pc.gov.au/inquiries/current/productivity/interim5-learning">report on improving education outcomes</a>, the Productivity Commission set out two main options. </p>
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<img alt="Student with backpack." src="https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489952/original/file-20221017-11-7k16yr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The way university fees are set up is expected to change under the Albanese government.</span>
<span class="attribution"><span class="source">Scott Webb/Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>In the first, courses with <a href="https://theconversation.com/students-choice-of-university-has-no-effect-on-new-graduate-pay-and-a-small-impact-later-on-what-they-study-matters-more-171491">greater expected private financial benefits</a> (or future income) would get lower public subsidies and require higher student contributions. Courses with the potential to earn low, medium and high incomes would have correspondingly low, medium and high student contributions. </p>
<p>In a second option, government subsidies would be a flat dollar amount or percentage of course teaching costs. Either way, students in courses <a href="https://www.qilt.edu.au/general/article/2020/11/04/third-news">with high teaching costs</a> would pay the most, as student contributions make up the difference between the public subsidy and the course cost. </p>
<p>A <a href="https://iru.edu.au/news/job-ready-graduates-principles-and-options-for-reform/">new report</a> from the Innovative Research Universities lobby group also suggests different options. Under one, most students would pay a flat student contribution rate, with public subsidies making up the difference between the flat rate and course costs. </p>
<p>For a <a href="https://bizfluent.com/info-7882139-budget-neutral.html">budget-neutral</a> transition from Job-ready Graduates, the flat rate would be about A$10,000 a year. The report says that this would offer “simplicity and predictability”. </p>
<h2>These ideas have a history</h2>
<p>It is important to remember these ideas have histories, with lessons today’s policymakers should not forget. </p>
<p>In 1997 the Howard government replaced the original flat HECS rate (where all students paid the same fee, regardless of their course) with three different HECS rates. Cabinet documents from the time show support for a “course costs” approach, so students in more expensive courses paid more. </p>
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Read more:
<a href="https://theconversation.com/governments-are-making-nursing-degrees-cheaper-or-free-these-plans-are-not-going-to-help-attract-more-students-189547">Governments are making nursing degrees cheaper or 'free' – these plans are not going to help attract more students</a>
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<p>However, the Howard government also recognised what <a href="https://melbourne-cshe.unimelb.edu.au/__data/assets/pdf_file/0014/4320401/From-public-to-private-benefits.pdf">my paper</a> calls the “nurses and lawyers problem”. Nursing costs more to teach than law, so under a course costs student contribution policy, nursing students would pay more than law students. That is a hard idea to sell. </p>
<p>Introducing a “private benefits” rationale solved this problem. On average lawyers earn more than nurses, and since 1997 law students have always paid higher student contributions than nursing students. </p>
<p>Despite the nurses and lawyers problem, the idea that course costs could be used to set student contributions has persisted. It led to two detailed <a href="https://andrewnorton.net.au/2022/10/06/the-public-private-balance-a-failed-rationale-for-setting-student-contributions/">government-commissioned reports in the 2010s</a>, and is being suggested again now by the Productivity Commission. </p>
<h2>Politics, income and policy</h2>
<p>The education ministers who received those 2010s reports - Chris Evans from Labor and Simon Birmingham from the Liberals - did not implement their cost-sharing ideas. Student contribution levels are political as well as policy decisions, which need to be explained to the parliament, voters and students. </p>
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Read more:
<a href="https://theconversation.com/the-inequity-of-job-ready-graduates-for-students-must-be-brought-to-a-quick-end-heres-how-183808">The inequity of Job-ready Graduates for students must be brought to a quick end. Here's how</a>
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<p>Any rigid course cost model that ignores the politics of student contributions for areas like nursing and teaching isn’t politically viable. Public opinion will not support students training for these careers paying more for their education than law and business students.</p>
<p>The private financial benefits approach fits with Australia’s tax and social support system, under which we increase charges and reduce benefits with income.
But we also have to be careful about just relying on potential earnings to set course fees. On average, law graduates earn a lot, but a top commercial law barrister and a legal aid lawyer have very different incomes.</p>
<p>A flat-price student contribution would avoid some anomalies of the course cost and private benefit systems. But the transition back would be politically difficult – nursing and teaching student contributions would increase significantly unless overall public funding increased. </p>
<h2>Real-life consequences</h2>
<p>Although student contributions have little effect on course choices, <a href="https://melbourne-cshe.unimelb.edu.au/__data/assets/pdf_file/0014/4320401/From-public-to-private-benefits.pdf">my paper</a> argues they do have practical consequences policymakers should take into account. </p>
<p>The doubling of humanities student contributions under the Job-ready Graduates scheme, combined with the relatively low incomes of humanities graduates, means their <a href="https://www.studyassist.gov.au/help-loans">HELP student loan</a> repayment times will be <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-8500.12472">longer</a>, with an increased proportion never fully repaying their debt. </p>
<p>While the <a href="https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/">HELP repayment system</a> lets graduates repay over decades if necessary, this is to assist people with low or irregular incomes, not to penalise people for their course choices. Under the current student contribution system, two graduates on the same income could have significantly different repayment times. </p>
<p>Repayment delays are bad for the government too. Repaying the <a href="https://data.gov.au/dataset/ds-dga-ce4c58ec-c930-4a05-8a37-f244d960e5f8/details?q=higher%20education%20loan">$74 billion in outstanding HELP</a> more quickly would reduce the <a href="https://indaily.com.au/news/2022/10/07/cost-of-government-debt-to-rise/">government’s interest bill</a> and the risk of debt never being repaid.</p>
<p>To combat these issues, we need to consider how much graduates can potentially earn when setting university fees. </p>
<h2>What does this mean for universities?</h2>
<p>Student contributions affect universities as well as students. As the Productivity Commission points out, universities need to pay their bills now and must pay attention to revenue per student. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1544884757770768384"}"></div></p>
<p>For universities, the key financial figure is the total funding rate. This is the public subsidy plus the student contribution. But each university has a cap on public funding. Once they reach it, additional students are funded on student contributions only. </p>
<p>For classroom-based courses such as arts or business, adding more students to subjects already being taught usually does not cost much. A low student contribution could cover it. But for courses with clinical components such as nursing, which requires expensive equipment and close supervision, the costs of more students are higher. </p>
<p>We know clinical training costs, combined with very low student contributions for nursing, are an obstacle to increasing enrolments despite <a href="https://andrewnorton.net.au/2022/08/29/bonded-scholarships-for-nursing-students-in-victoria/">high demand</a>.</p>
<p>So, for universities’ purposes, we cannot forget what courses actually cost to run when setting student contributions.</p>
<h2>Pragmatic student fees</h2>
<p>Some student contribution systems, such as incentives to steer students into particular courses, should be ruled out. But when looking at university fees, the new federal government can adopt more than one rationale, pragmatically reflecting a mix of policy and political goals. </p>
<p>An enduring student contribution system will ensure that most graduates can repay their HELP debt in a reasonable amount of time, that students in nursing and teaching courses don’t pay more than other students, and that universities have the right incentives to meet student demand.</p><img src="https://counter.theconversation.com/content/192023/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Norton was on an expert panel advising then education minister Simon Birmingham on higher education funding in 2016 and 2017. </span></em></p>A new student contribution system is likely to be part of Labor’s promised Universities Accord.Andrew Norton, Professor in the Practice of Higher Education Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1515652020-12-14T19:06:07Z2020-12-14T19:06:07ZRevenue-contingent wage loans, a proposal for supporting jobs in times of crisis<figure><img src="https://images.theconversation.com/files/374707/original/file-20201214-21-1qol0t7.jpg?ixlib=rb-1.1.0&rect=372%2C178%2C2981%2C1529&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">only_kim/Shutterstock</span></span></figcaption></figure><p>As JobKeeper is <a href="https://theconversation.com/next-phase-of-a-pared-down-jobkeeper-will-last-until-end-of-march-143037">wound back</a>, businesses are tentatively preparing to stand on their own feet.</p>
<p>What follows is a simple proposal to help them share the risk (and rewards) with their workers.</p>
<p>It has features in common with the government’s <a href="https://www.studyassist.gov.au/help-loans/hecs-help">Higher Education Contributions Scheme</a> (HECS) in which university students get help with fees in return for making their own contribution when (and if) circumstances allow.</p>
<p>Recently a variant has been suggested for farms, whose income is notoriously variable and unsuited to conventional loans with regular repayment schedules.</p>
<p>What’s proposed is an arrangement contingent on <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab5deb">business revenue</a> rather than personal income as with HECS.</p>
<p>Farm businesses would borrow from the government or banks and make repayments when conditions permitted. It would cost taxpayers much less than subsidies or grants.</p>
<h2>Employers could ‘borrow’ from workers</h2>
<p>We are proposing the same sort of arrangement between employers and employees.</p>
<p>Universities, for example, might consider revenue-contingent salary reductions as an alternative to redundancies.</p>
<p>All staff or staff at risk of being made redundant might be offered a 10% salary reduction that would be refunded by the university when (and only if) its revenue bounced back by a agreed amount in the future.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bowing-out-gracefully-how-theyll-wind-down-jobkeeper-143011">Bowing out gracefully: how they'll wind down JobKeeper</a>
</strong>
</em>
</p>
<hr>
<p>If the university’s fortunes did bounce back, the staff affected would be repaid the income they lost.</p>
<p>Such a scheme would support employees at risk as did JobKeeper, while maintaining the employeer-employee relationship as did JobKeeper.</p>
<p>It ought to work in all sorts of enterprises.</p>
<h2>For many, jobs matter more than income</h2>
<p>Wellbeing and life satisfaction are often more dependent on job security than they are on salary, suggesting that many people would be willing to trade-off one for the other.</p>
<p>Introduced through enterprise bargaining and policed by Fair Work Australia, such an arrangement might well be a win-win for workers and the enterprises they work in.</p>
<p>It ought to be added to the <a href="https://www.attorneygeneral.gov.au/media/media-releases/industrial-relations-reform-supporting-jobs-and-our-economic-recovery-9-december-2020">menu of possibilities</a> being considered to support businesses and workers when JobKeeper ends on <a href="https://treasury.gov.au/coronavirus/jobkeeper/extension">March 28</a>.</p><img src="https://counter.theconversation.com/content/151565/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Workers could take a 10% pay cut on the condition it’ll be paid back when conditions improve.Robert Costanza, Professor and VC's Chair, Crawford School of Public Policy, Australian National UniversityBruce Chapman, Director, Policy Impact, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1450272020-09-02T05:45:31Z2020-09-02T05:45:31ZLet working graduates claim a tax deduction for their HECS-HELP debt<figure><img src="https://images.theconversation.com/files/355730/original/file-20200901-18-hxohb8.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4902%2C3258&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-attractive-desperate-woman-suffering-stress-435542989">Shutterstock</a></span></figcaption></figure><p>Most graduates leaving university today do so with a massive debt hanging over their heads. They will take many years to repay their accrued HECS-HELP debt through the taxation system. There will be little relief for these graduates as the government has slammed the door shut on the tax deductibility of their tuition costs against the income they earn as a result. </p>
<p>The government also intends, for new students from 2021, to increase the amount many students pay towards their education. Popular courses such as humanities, commerce and law will <a href="https://www.dese.gov.au/document/better-university-funding-arrangements-reducing-complexity-and-targeting-job-ready">cost them A$14,500 a year</a>. A combined commerce/law or arts/law course, which are the most popular study choices for aspiring lawyers, will cost them over A$70,000.</p>
<p>The government constantly reminds us government-supported students’ <a href="https://www.studyassist.gov.au/help-loans/hecs-help">HECS-HELP</a> debts are deferred. Only when they reach the annual income threshold (<a href="https://www.studyassist.gov.au/paying-back-your-loan/loan-repayment#:%7E:text=The%20compulsory%20repayment%20threshold%20is,(ATO)%20at%20any%20time.">A$45,881 for 2019-20</a>) do they start repaying their debt. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/lowering-the-help-repayment-threshold-is-an-easy-target-but-not-the-one-we-should-aim-for-94910">Lowering the HELP repayment threshold is an easy target, but not the one we should aim for</a>
</strong>
</em>
</p>
<hr>
<p>The underlying rationale is that students are receiving an interest-free loan, as the HECS-HELP debt is only <a href="https://www.studyassist.gov.au/paying-back-your-loan/loan-indexation#:%7E:text=There%20is%20no%20interest%20charged,they%20are%2011%20months%20old.">indexed to inflation</a> (CPI, which measures cost-of-living increases). HECS-HELP provides eligible students with a loan to pay their student contribution for a Commonwealth-supported place in their chosen course. </p>
<p>Another scheme exists for those students not eligible for a Commonwealth-supported place. This is called FEE-HELP. These students receive a loan to pay tuition fees for units of study in their chosen course. A FEE-HELP debt is also indexed each year. </p>
<p>Graduates repay these HELP debts if and when their earnings rise above the threshold. </p>
<p>However, as explained below, postgraduate students with a FEE-HELP loan can claim a tax deduction for their tuition fees.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/students-low-financial-literacy-makes-understanding-fees-loans-debt-difficult-45088">Students' low financial literacy makes understanding fees, loans, debt difficult</a>
</strong>
</em>
</p>
<hr>
<h2>Two student loan schemes, two different rules</h2>
<p>The usual rule for taxpayers is that expenses incurred in earning assessable income are deductible. Taxpayers can <a href="https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Education-and-study/">claim self-education expenses</a>, which includes undertaking university courses, where they are able to show the study is connected with their income-earning activity. These deductible expenses include tuition fees which can be paid through the <a href="https://www.studyassist.gov.au/help-loans/fee-help">FEE-HELP</a> scheme. </p>
<p>In contrast to <a href="https://www.education.gov.au/higher-education-administrative-information-providers-march-2020/31-fee-help#:%7E:text=Students%20may%20be%20eligible%20for,tuition%20fees%2C%20contact%20the%20ATO.">FEE-HELP tuition costs being deductible</a>, student debt under the HECS-HELP scheme has specifically been rejected as a tax deduction under <a href="http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s26.20.html">section 26-20 of the Income Tax Assessment Act 1997</a>. These students are unable to claim a tax deduction for their university fees regardless of whether they are earning relevant income during their course or when they get a job as a graduate after completing their course. </p>
<p>Graduates start paying income tax on amounts above the normal tax-free threshold of A$18,200 but may not actually earn above the HECS-HELP threshold amount. On this basis graduates may be paying their fair share of tax on their income, but their HECS-HELP debt continues to grow over time. When graduates reach the threshold, they start paying both income tax and repayments of their HECS-HELP debt. In short, there is no tax relief for graduates.</p>
<p>The inequity between graduates and other taxpayers becomes clearer when you consider the additional self-education expenses these other taxpayers can claim. If already working within their chosen job and studying part-time, but not confined by the HECS-HELP tag, they can claim for textbooks, student union fees, computer expenses, internet costs for online learning and stationery. </p>
<p>Crucially, FEE-HELP recipients can also claim for the cost of their tuition fees. Once they reach an income threshold, their debt is also <a href="https://www.studyassist.gov.au/paying-back-your-loan/loan-repayment">repaid through the taxation system</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/five-things-senators-and-everyone-else-should-know-about-changes-to-help-debts-84843">Five things senators (and everyone else) should know about changes to HELP debts</a>
</strong>
</em>
</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Young woman with calculator smiling as she looks at laptop screen." src="https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=430&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=430&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=430&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=540&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=540&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355732/original/file-20200901-22-194dyuv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=540&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Come tax time, students with FEE-HELP debts are smiling compared to those with HECS-HELP debts.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portrait-smiling-young-woman-calculating-finance-166290524">Shutterstock</a></span>
</figcaption>
</figure>
<h2>Treat all self-education expenses equally</h2>
<p>It is time to revisit the tax deductibility of HECS-HELP repayments. The current regime is complex, difficult to comprehend and has inbuilt inequities. The basic rule of tax deductibility should apply across the board, regardless of what type of support the government is providing to university students. </p>
<p>If we accept the arguments from the government that full-time students are receiving interest-free loans for their education and that the debt is deferred until they earn above the threshold, then there is an equally strong argument that graduates should then be able to defer, until that time, a tax deduction for the payment.</p>
<p>The general rule that a tax deduction is allowed to a taxpayer for expenses directly incurred in deriving income should apply to all relevant taxpayers. All taxpayers should be treated equally when spending on self-education. There should be no distinction between students receiving different types of HELP from the government.</p>
<p>At the moment undergraduate students tend to receive HECS-HELP while postgraduate students tend to receive FEE-HELP. These postgraduate students can immediately claim the cost of their tuition fees as a tax deduction even when this is funded through the FEE-HELP loan. This is because postgraduates are normally working in their chosen field and satisfy the necessary link between expense and income earned.</p>
<p>Undergraduate students tend to be studying full-time and working in casual jobs, which are not relevant to their studies. Students in this situation would not be able to claim their fees as a tax deduction regardless of the HECS-HELP tag. It would be equitable to amend the Tax Act to allow graduates to claim deductions for their tuition costs later when they are working in their chosen field.</p>
<hr>
<p><em>Correction: This article has been corrected to clarify that FEE-HELP recipients can claim a tax deduction on tuition fees even when this cost is funded through FEE-HELP, but not on repayments of the loan.</em></p><img src="https://counter.theconversation.com/content/145027/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael William Blissenden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Taxpayers, including those paying tuition fees with FEE-HELP loans, can claim a deduction for self-education expenses that relate to the work they do. But graduates with a HECS-HELP debt can’t claim.Michael William Blissenden, Professor of Law, University of New EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1378772020-05-05T19:50:49Z2020-05-05T19:50:49ZUniversities have gone from being a place of privilege to a competitive market. What will they be after coronavirus?<p><em>This essay is based on the first episode of the new UTS podcast series “<a href="https://www.uts.edu.au/partners-and-community/initiatives/impact-studios/projects/new-social-contract-podcast">The New Social Contract</a>” that examines how the relationship between universities, the state and the public might be reshaped as we live through this global pandemic.</em></p>
<hr>
<p>Younger Australians will bear the economic, social and environmental costs that come from the COVID-19 pandemic. They’re making sacrifices in the name of public health and to protect the old and vulnerable. The heavy lifting of rebuilding will also fall disproportionately to them. </p>
<p>Prime Minister Scott Morrison referred to these sacrifices as “<a href="https://www.news.com.au/world/coronavirus/australia/coronavirus-australia-risks-of-splitting-community-into-under-50-over-50/news-story/cefee875b5f7ebc6c5a73368f521e046">a social contract</a>”.</p>
<p>A social contract in this sense is not something that gets recorded in legislation, but more of an unstated agreement that comes from practice, policy and circumstance. It is a reciprocal relationship, in which obligation and benefits rest on all parties – though these aren’t always evenly distributed.</p>
<p>How Australia will fare in a post-pandemic world depends on this relationship between institutions, society and the state. And universities have a crucial role to play, by providing public goods such as understanding, training and research. </p>
<p>The social contract for universities has changed several times. Its different versions can be seen in the decisions students have had to make on entering university at different points across the 20th century.</p>
<p>These decisions tell us a lot about how the social contract for universities in Australia has changed, and what might be possible as it changes again.</p>
<h2>Early 1900s – the family</h2>
<p>In 1910 a student, let’s call him Frederick, had his family at the centre of decision-making. </p>
<p>Frederick is from Bendigo where his father is a shopkeeper. He is eager to study Medicine at the University of Melbourne. But before he even sets foot on campus, he has to sort out his finances. </p>
<p>That he can even attend university is thanks to his uncle Jim, a successful doctor. His uncle is paying for Fred’s textbooks, microscope, accommodation, living expenses and tuition fees – though the latter are only a minor component of the costs. </p>
<p>Fred and his uncle both expect the university will provide an education on par with that offered in British universities – training that will enable Fred to attain the cultural capital necessary for middle-class society and the technical knowledge to practise as a doctor. </p>
<p>On graduation, he knows he is expected to make his uncle proud by returning to Bendigo and joining the family practice.</p>
<p>Frederick’s story reflects the broad terms of a social contract under which universities, which received about <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Higher_Education/Report/c02#c02f8">half of their funding</a> from state governments, trained a relatively small cohort of professionals. In return for social status, these professionals provided expert services to a rapidly growing society. </p>
<p>State government annual grants supported universities as institutions that would build the society and economy of the new Australian nation. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/332613/original/file-20200505-83757-17s26t2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The 1910 student has family at the forefront of his decision-making. (Students Ormond College, Melbourne University 1896/1902)</span>
<span class="attribution"><a class="source" href="https://www.slv.vic.gov.au/images?keyword=university%20students&smt=1">James Fox Barnard/State Library Victoria</a></span>
</figcaption>
</figure>
<p>Research played a minor role, <a href="https://theconversation.com/coronavirus-lessons-from-past-crises-how-wwi-and-wwii-spurred-scientific-innovation-in-australia-136859">with some funding from private companies and state governments</a>. As far as the student was concerned, the cost (or risk) of attending university was borne by the family (or other patron) and it was to the family obligations were owed.</p>
<h2>Mid-20th century – employers</h2>
<p>Forty years later, Margaret is one of a growing number of women entering university. </p>
<p>On her first day in a teaching degree at the University of Queensland, she meets chemistry student Eric. They find they have a lot in common. They have both joined UQ’s chapter of the Student Christian Movement, and have already signed contracts with their future employers who will financially support them during their studies. </p>
<p>The Queensland education department has awarded Margaret a bonded scholarship based on her high school matriculation results. Eric has taken a cadetship with the CSIRO. </p>
<p>After they graduate, both will have to work on their employers’ terms for three to five years.</p>
<p>Margaret’s and Eric’s stories reflect the terms of a social contract that emerged in the middle of the 20th century. Under this model, the costs of higher education could be borne by a student’s future employer such as government departments like the Postmaster-General or the railways, or private entities such as manufacturers and mining companies. </p>
<p>Connected to an expanding network of state secondary schools, this new pathway delivered benefits to students who would not otherwise have been able to go to university. This enabled them to join the ranks of the expanding white collar, salaried middle class, in return for a commitment to work. </p>
<p>The same logic underpinned the creation of two postwar <a href="http://guides.naa.gov.au/land-of-opportunity/chapter24/">Commonwealth programs</a>: the Commonwealth Reconstruction Training Scheme, which enabled 21,000 ex-servicemen and women to receive a free tertiary education, and Commonwealth Scholarships, which covered fees and in some cases living expenses on the basis of secondary-school results. </p>
<p>Employers benefited, but so did the state, which saw this as a more directed way of providing funding to universities to produce skilled graduates in needed areas. </p>
<p>Eager to boost post-war development and in the strategic context of the Cold War, universities expanded research, helped by new direct grants from the Commonwealth.</p>
<hr>
<iframe src="https://webplayer.whooshkaa.com/episode/644732?theme=light&visual=true&enable-volume=true" height="190" width="100%" scrolling="no" frameborder="0" allow="autoplay"></iframe>
<p><em>Subscribe to the New Social Contract podcast on your favourite podcast app: <a href="https://podcasts.apple.com/au/podcast/the-new-social-contract/id1510173684">Apple Podcast</a>, <a href="https://open.spotify.com/show/2ltBYx6bVMrpqGAWlSpMV5">Spotify</a>, <a href="https://www.stitcher.com/s?fid=527571&refid=stpr">Stitcher</a></em></p>
<hr>
<h2>1970s – society</h2>
<p>It’s 1975 and Daryl, having passed his high school matriculation exam, enrols in the <a href="https://en.wikipedia.org/wiki/Macquarie_University#History">recently opened Macquarie University</a> without having to worry about finances at all.</p>
<p>Since 1974, <a href="https://www.whitlam.org/whitlam-legacy-education">fees have been abolished</a> and, once Daryl fills out the right form, he can get student assistance for living expenses based on a means test rather than a competitive exam. </p>
<p>Like increasing numbers of his generation, Daryl decides to study science. But he can switch degrees if he finds he is better suited to another program. </p>
<p>He lives in a share-house with other students. With less pressure to pass every subject to keep his place, he enjoys his social life in an inner suburb. He forms a punk rock band with some university friends and, for a few years after graduation, tours pubs around Australia. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=773&fit=crop&dpr=1 600w, https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=773&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=773&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=971&fit=crop&dpr=1 754w, https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=971&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/332617/original/file-20200505-83751-vau426.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=971&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In the mid-20th century, the costs of higher education were often borne by the student’s employer. (First Students at Macquarie University, Sydney. 1967)</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:First_students_Macquarie.JPG">Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>Eventually Daryl settles into a job at the Australian Bureau of Statistics. He feels lucky to find employment in an expanding public sector during a period of economic stagnation.</p>
<p>The agreement Daryl made on entering university was not with his family or future employer, but with the state itself, when he applied for student assistance.</p>
<p>Prime Minister Gough Whitlam’s government abolished fees and <a href="http://classic.austlii.edu.au/au/legis/cth/consol_act/saa1973217/">reduced financial barriers to study</a>. This reallocated the cost of higher education from state governments to the Commonwealth, and the benefit to society. </p>
<p>Daryl benefited because he got a secure job in the public service. And society benefited through his skilled employment and active participation in the cultural and social life of the nation. </p>
<p>The Commonwealth also funded research to support economic development, productivity and defence.</p>
<h2>1990s – the individual</h2>
<p>No one in Ashley’s family has ever been to university before. But the introduction of the new <a href="https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/publications_archive/archive/hecs">Higher Education Contribution Scheme</a> (which means she doesn’t have to pay fees until she begins earning money) has opened places for people like her. </p>
<p>Conscious HECS is just a loan, Ashley wants a degree that gets her a job. That’s why she picks Communications. And because she’s interested in video production, she gets involved in the film society. </p>
<p>Ashley hopes this might give her an advantage in a very competitive industry. She doesn’t have much time for socialising, because she also has a part-time job to help pay her living expenses.</p>
<p>Ashley’s experience reflects a social contract ushered in during the late 1980s and early 1990s. With the reintroduction of student fees and creation of HECS, students knew they were paying a much larger contribution to their higher education.</p>
<p>They expected direct benefits in terms of future employment options and income. An emphasis on “human capital” came to the fore and universities were told to equip students with skills they could can take into the job market. </p>
<p>They also competed for a reduced amount of research dollars which were now distributed on the basis of competitive application through a newly created entity, <a href="https://www.arc.gov.au/about-arc/arc-profile">the Australian Research Council</a>. </p>
<p>And they competed for high paying international students whose <a href="https://www.universityworldnews.com/post.php?story=20110305121304874">numbers grew by 2,000%</a> between 1986 and 2006, providing an extra non-government source of income. </p>
<p>Competition created national and global university rankings and research metrics as a way of measuring value. This social contract worked within the terms of the market economy.</p>
<h2>2020 – a new social contract?</h2>
<p>While on average, <a href="https://grattan.edu.au/wp-content/uploads/2018/09/907-Mapping-Australian-higher-education-2018.pdf">graduates earn more than non-graduates</a>, a degree no longer guarantees employment. Going to university is more expensive than before, and its returns are less guaranteed to convert into personal benefits.</p>
<p>COVID-19 has pulled on the threads of the already worn fabric of higher education policy. </p>
<p>The deferred nature of the HECS payment, use of market mechanisms to allocate value, and the enormous supplement that comes from international student fees, has pushed the idea of the social contract for higher education out of view.</p>
<p>After a summer of devastating fire, <a href="https://www.uts.edu.au/partners-and-community/initiatives/social-justice-uts/news/climate-change-demands-crisis-response.-uts-board">universities</a>, <a href="https://www.abc.net.au/news/2020-02-05/australia-attitudes-climate-change-action-morrison-government/11878510">society</a> and <a href="https://www.climatechange.vic.gov.au/__data/assets/pdf_file/0021/55254/DELWPClimateChange_Framework.pdf">even some Australian states</a> have recognised the country needs a social and economic framework dedicated to the conditions of habitability. </p>
<p>To achieve that, care for the planet, and each other, must be at the heart of all we do.</p>
<p>COVID-19 has also revealed people’s willingness to participate in collective action is just as crucial to effecting transformation as is expertise.</p>
<p>What does that mean for universities? What is their purpose in the 21st century? What new set of obligations and expectations will students face? What should we ask of them? What role should government play?</p>
<p>These are the questions our sector should be asking as we face lengthening months and years in which the world of higher education in Australia, and the lives of all those who rely on it, is likely to grow even more precarious.</p>
<hr>
<p><em>Read the next essay, on how universities came to rely on international students, <a href="https://theconversation.com/how-universities-came-to-rely-on-international-students-138796">here</a>.</em></p>
<p><em><a href="https://player.whooshkaa.com/episode?id=644732">Universities and the public in the 20th Century</a> was made by <a href="https://www.uts.edu.au/partners-and-community/initiatives/impact-studios/about-us">Impact Studios</a> at the University of Technology, Sydney - an audio production house combining academic research and audio storytelling.</em></p><img src="https://counter.theconversation.com/content/137877/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tamson Pietsch receives funding from the Australian Research Council. She is the host of The New Social Contract podcast which is produced by UTS Impact Studios.</span></em></p><p class="fine-print"><em><span>James Waghorne receives funding from the Australian Research Council. </span></em></p><p class="fine-print"><em><span>Gwilym Croucher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This essay explores the way the social contract between universities, society and the state has changed over the course of the 20th century. And how generations of students paid and benefited.Tamson Pietsch, Associate Professor, Social & Political Sciences, University of Technology SydneyGwilym Croucher, Senior Lecturer, Melbourne Centre for the Study of Higher Education, The University of MelbourneJames Waghorne, Senior Research Fellow, Melbourne Graduate School of Education, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/949102018-04-18T09:30:02Z2018-04-18T09:30:02ZLowering the HELP repayment threshold is an easy target, but not the one we should aim for<figure><img src="https://images.theconversation.com/files/215319/original/file-20180418-163995-dq004h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Twenty five percent of student loans are unlikely to be paid.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Most recent estimates show the Higher Education Loan Program (HELP) debt owing is <a href="http://parlinfo.aph.gov.au/parlInfo/download/legislation/billsdgs/5869097/upload_binary/5869097.pdf;fileType=application/pdf">nearly A$52 billion</a> in 2017-18. It’s forecast to increase to A$75 billion by 2020-21 and up to 25% of those loans are unlikely to be paid. </p>
<p>Legislation to lower the initial HELP repayment threshold from A$55,000 to A$45,000 (with a rate of 1%) is likely to pass the senate after <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6051">passing</a> the lower house on March 27th. This legislation includes linking indexing to inflation instead of average weekly earnings, which will slightly increase the rate of debt accumulated (20 year average for inflation is around 2.6%, compared to 1.8% for average weekly earnings).</p>
<p>Increasing repayments on HELP debt by lowering the initial threshold is an easy target. Why? Because people who owe money don’t pay much attention to their HELP balances, let alone the parameters that determine repayment and accumulation. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215320/original/file-20180418-163978-1bq06p3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Softer tactics could help students into increasingly making repayments voluntarily.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Since the ATO stopped posting statements in 2013, people owing HELP debt are left to their own devices and to check their balances on the ATO site. General financial advice points to giving HELP debts low levels of attention and paying down <a href="https://www.moneysmart.gov.au/life-events-and-you/under-25s/studying/paying-off-your-uni-debt">high-interest loans </a>first. </p>
<p>Proposed changes, like replacing the annual average weekly earnings indexation with the <a href="http://www.budget.gov.au/2014-15/content/bp2/html/bp2_expense-09.htm">10-year government bond rate</a>, abolishing the <a href="https://grattan.edu.au/wp-content/uploads/2014/10/816-mapping-higher-education-20142.pdf">deceased-estate write-off for estates exceeding A$100,000</a>, and <a href="https://grattan.edu.au/wp-content/uploads/2016/08/875-Mapping-Australian-Higher-Education-2016.pdf">lowering the initial threshold to A$42,000</a> have drawn <a href="https://www.smh.com.au/business/investments/how-paying-off-hecshelp-has-become-even-less-attractive-20170321-gv2t3z.html">media attention</a> over the years, but have not been met with outrage by those potentially most affected. </p>
<p>But there are softer tactics that could nudge debtors into increasingly making repayments voluntarily.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-strange-accounting-behind-the-proposed-hecs-changes-77239">The strange accounting behind the proposed HECS changes</a>
</strong>
</em>
</p>
<hr>
<h2>Students need a financial toolkit</h2>
<p>First, equip students with a financial toolkit. It would involve legislating education providers to deliver financial literacy programs that include information about the HELP scheme and their obligation. </p>
<p>Such a program should include making students aware of the parameters, repayment projections under various scenarios, and potential changes to the scheme as proposed by political parties or commentators. If the provider (university or vocational educator) offers HELP then surely they have a moral obligation to provide this service. </p>
<p>Offering financial literacy programs through tertiary education providers also fills a gap in the <a href="http://www.financialliteracy.gov.au/media/546585/report-403_national-financial-literacy-strategy-2014-17.pdf">National Financial Literacy Strategy</a>. ASIC’s <a href="https://www.moneysmart.gov.au/">MoneySmart</a> would be an ideal curriculum consultant. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215321/original/file-20180418-163971-1k6qkp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Educating students about loan repayments might be as easy as offering financial literacy programs throughout university.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Such programs are already implemented in the US. Due to the large scale of privatised student debt issues, 53% of universities offer <a href="https://soar.wichita.edu/bitstream/handle/10057/11632/t15014_Holthaus.pdf?sequence=1">financial education program</a> to students. </p>
<p><a href="https://soar.wichita.edu/bitstream/handle/10057/11632/t15014_Holthaus.pdf?sequence=1">Studies</a> on the efficacy of these programs demonstrate increased financial knowledge, reductions in financial at-risk behaviours (like delinquencies, excessive credit and over-spending), and increases in responsible behaviours (including improving regular savings and planning). </p>
<p>While the settings in the US differ to Australia (commercial interest rates, not extinguished by death), <a href="https://www.universitiesaustralia.edu.au/news/commissioned-studies/Privatisation-of-HECS-Debt#.WtWIctNuZBw">privatisation</a> has been previously explored. </p>
<hr>
<p><iframe id="qeWze" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/qeWze/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Australian debtors don’t “default” like US debtors because most student loans are like a commercial loan in the US. In Australia, graduates only do not pay if they don’t reach the repayment threshold, or die.</p>
<h2>Bring back discounts</h2>
<p>Second, bring back discounts on <a href="http://studyassist.gov.au/sites/studyassist/news/pages/changes-to-hecs-help-discounts-and-voluntary-repayment-bonus">voluntary payments</a> over A$500, abolished by the Liberal government in 2017 . Previously, discounts were 15% up until 2005, then 10% until 2014, then 5%. What, then, incentivises people to pay lump sums? </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/factcheck-does-australia-run-one-of-the-most-generous-student-loan-schemes-in-the-world-52696">FactCheck: does Australia run one of the most generous student loan schemes in the world?</a>
</strong>
</em>
</p>
<hr>
<h2>Communication is everything</h2>
<p>Third, the ATO needs to communicate with HELP debtors on a regular basis to overcome laziness and put HELP debts as first priority in personal financial decisions. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215322/original/file-20180418-163966-1moho3k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A simple text message might help students remember their student loan repayments.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p><a href="https://www.kcl.ac.uk/study/assets/PDF/widening-participation/What-works-project-report.pdf">Text messaging is effective in influencing behaviour</a>. Text messages prior to indexation have encouraged balance checks and lump sum payments (particularly at tax rebate time) and may be effective in increasing voluntary repayments. These strategies work by subtly reframing the way messages are conveyed, and regular presentation of messages, to positively impact behaviour.</p>
<p>A positive aspect of the legislation under consideration is that lowering the initial repayment threshold means HELP debt repayments will appear on payslips. Because of this, early on in a debtor’s working life they will be able to increase their awareness of HELP debt owing. </p>
<p>The threshold reduction needs to be compatible with the original intention of the income contingent loan scheme to provide equitable access. Lowering the initial repayment threshold will put <a href="https://www.theaustralian.com.au/higher-education/women-will-lose-if-budget-lowers-hecs-repayment-threshold/news-story/47bb6149a9bfd5e77c2c6e2212e13060">increased financial pressure on relatively low paid workers</a>, many of whom are women. Under the new changes, a person earning A$46,000 will repay nearly A$9 a week. While this doesn’t sound like much, a single mother may strongly disagree. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/higher-child-support-doesnt-lead-to-welfare-dependency-for-single-mums-73902">Higher child support doesn't lead to welfare dependency for single mums</a>
</strong>
</em>
</p>
<hr>
<p>The government should consider pursuing other, more gentle and effective behavioural tactics to reduce the national HECS debt in the lead-up to the budget, rather than one that has the potential to hurt low paid workers.</p><img src="https://counter.theconversation.com/content/94910/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tracey West does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With HELP debt likely to increase to A$75 billion in 2020, research from the US shows offering students financial literacy courses may be a gentler way to combat student debt.Tracey West, Lecturer in Behavioural Finance, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/772392017-05-05T04:59:22Z2017-05-05T04:59:22ZThe strange accounting behind the proposed HECS changes<figure><img src="https://images.theconversation.com/files/168032/original/file-20170505-21620-100jwkm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Simon Birmingham said a reduced HECS repayment threshold for graduates would deliver a 'fairer deal for taxpayers'.
</span> <span class="attribution"><span class="source">Sean Davey/AAP</span></span></figcaption></figure><p>All is not as it seems with the Turnbull government’s <a href="https://theconversation.com/higher-education-reform-small-changes-for-now-but-big-ones-to-come-76978">proposed changes</a> to higher education funding.</p>
<p>Federal Education Minister Simon Birmingham has argued that higher tuition fees, lower direct grants to universities and a reduced HECS repayment threshold for graduates will deliver a <a href="http://www.senatorbirmingham.com.au/Latest-News/ID/3483/A-stronger-sustainable-and-student-focussed-higher-education-system-for-all-Australians">“fairer deal for taxpayers”</a>. </p>
<p>But unusual budget accounting rules mean the promised positive impact of these changes on the federal budget’s bottom line is far from clear.</p>
<h2>Accounting techniques used during budgets</h2>
<p>Over recent decades, governments around the world, including in Australia, have increasingly adopted private sector accounting techniques in their budget processes. </p>
<p>This change helps explain the impulse behind <a href="https://theconversation.com/university-students-to-pay-more-as-government-looks-to-2-8-billion-saving-76954">the government’s plans</a> to increase tuition fees by 7.5% and reduce direct grants by introducing a new efficiency dividend.</p>
<p>If the decrease in grants is matched by the increase in fees, universities will see little change in their funding relationship with the government. </p>
<p>Because the costs of tuition fees are deferred through the HECS system, governments will continue to transfer money upfront from Treasury coffers to university bank balances.</p>
<p>The key difference lies in how this funding relationship is accounted for.</p>
<p>Under private sector accounting rules, the portion of money still transferred from governments to universities, but which becomes student debt, is no longer counted as spending. </p>
<p>HECS debt is instead accounted for as a financial asset held by the government and therefore removed from key budget balances announced on budget night.</p>
<p>While the cost of creating new HECS debt is moved off the books, private sector accounting sees traditional grant-based funding as real budget cost and therefore a prime target for savings. </p>
<p>Over time, the effect of moving from grant to debt-based funding is to shift the cost of university funding from all taxpayers to a more narrow group of current and future students, who make <a href="https://www.theguardian.com/commentisfree/2017/may/04/why-the-coalitions-university-changes-are-just-a-great-big-new-income-tax">income-contingent repayments</a>.</p>
<h2>Past changes to HECS</h2>
<p><a href="https://apsa2016.arts.unsw.edu.au/node/65/paper/1762">We have been researching</a> how changes in accounting methods have reshaped the politics of HECS since it was introduced in 1989. </p>
<p>At one level, the Turnbull government is following the example set by the Howard government, which also increased fees and reduced grants in 1996 and 2005. But it is also departing from the Howard government in the other major component of its higher education package: reducing the HECS income repayment threshold.</p>
<p>The last non-indexation change to the HECS repayment threshold was implemented in 2005 by the Howard government. The change went in the opposite direction to the current proposal, increasing the income level at which HECS repayments kick in from about $25,000 to about $35,000. </p>
<p>Strange as it may sound, this move had no negative budgetary effect, despite reducing HECS repayment receipts.</p>
<p>Just as government spending isn’t necessarily accounted for as spending, government income isn’t necessarily accounted for as income.</p>
<p>Under the same private sector accounting rules, repayments by students of HECS debt do not count as revenue. Like the issuance of debt, repayments of principal are removed from the main budget balances because it results in an equivalent reduction in the value of the government’s financial asset</p>
<h2>Why lower the repayment threshold then?</h2>
<p>Why then is the government proposing to reduce the repayment threshold from $54,000 to $42,000 if it will have no direct positive impact on the budget deficit?</p>
<p>Part of the answer to this question lies in lesser known part of the federal budget that was introduced with the adoption of private sector accounting rules. </p>
<p>As with corporations, the federal government now accounts for the “fair value” of the financial assets on its balance sheet. Fair value is basically an estimate of the price an asset could be sold for to investors in the market.</p>
<p>A number of bodies have been raising alarm bells about the fair value of the government’s HECS portfolio in recent times. </p>
<p>Bodies such as the <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Reports/Research_reports/Higher_Education_Loan_Programme">Parliamentary Budget Office</a> have noted that the fair value of outstanding HECS debt is well below the balance sheet value of around $52 billion. </p>
<p>This is because HECS is a concessional loan, with more generous conditions than a normal bank loan.</p>
<p>These concerns are a little misleading. Governments are not corporations and HECS was never designed to be a tradeable financial asset. </p>
<p>This much was acknowledged by the Abbott government’s Commission of Audit, <a href="http://www.ncoa.gov.au/report/phase-one/part-b/7-13-higher-education-arrangements.html">which decided not to</a> recommend privatisation of HECS debt precisely because it would be such a poor investment for the private sector. So fair value rules can’t really apply. </p>
<p>Nonetheless, this unusual accounting sits behind Birmingham’s claim that the level of accumulated HECS debt is <a href="http://www.abc.net.au/radionational/programs/breakfast/simon-birmingham-on-higher-education-overhaul/8488486">“unsustainable”</a> and needs to be repaid at a faster rate.</p>
<p>There is much to be concerned about with the federal government’s proposed higher education reforms, including negative effects on teaching, research and learning conditions, and <a href="http://junkee.com/hecs-student-debt-budget/104028">financial burdens</a> for current and future workers paying off their debts.</p>
<p>As the debate proceeds, it is also important to keep in mind that the government’s own budgetary savings rationale can’t be taken at face value.</p><img src="https://counter.theconversation.com/content/77239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gareth Bryant is a member of the Greens. </span></em></p><p class="fine-print"><em><span>Ben Spies-Butcher is a member of the Greens.</span></em></p>We shouldn’t take the government’s own budgetary savings rationale at face value.Gareth Bryant, Lecturer in Political Economy, University of SydneyBen Spies-Butcher, Senior Lecturer in Economy and Society, Department of Sociology, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/635052016-08-04T05:17:04Z2016-08-04T05:17:04ZExplainer: how student fees are set for different university courses<figure><img src="https://images.theconversation.com/files/133023/original/image-20160804-12192-7qo6mk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students pay between $6,256 and $10,440 for a university degree, depending on which course they choose to study.</span> <span class="attribution"><span class="source">from www.shutterstock.com</span></span></figcaption></figure><p>The issue of how universities are funded across their different courses has been an ongoing but unresolved debate over the past decade. </p>
<p><a href="http://www.smh.com.au/federal-politics/political-news/an-arts-degree-for-the-price-of-a-law-degree-universities-call-for-radical-rethink-20160801-gqigql.html">It has again come to the fore</a> as the Commonwealth government considers responses to its <a href="https://docs.education.gov.au/documents/driving-innovation-fairness-and-excellence-australian-education">consultation paper</a> for ideas about how best to reform higher education in Australia.</p>
<h2>How university courses are currently funded</h2>
<p>University courses are funded by the government at different levels through a government subsidy and a student contribution which, taken together, form the total price for each course.</p>
<p>The government subsequently recoups the student contribution through the higher education contribution scheme (HECS).</p>
<p>There are currently <a href="https://docs.education.gov.au/system/files/doc/other/2017_allocation_of_units_of_study_v2.pdf">eight funding clusters</a> for government across different course areas. </p>
<p>Student contributions are in three bands – A$6,349, $9,050 and $10,596 – which are matched to eight subsidy levels. </p>
<p>An additional loading is also available for enrolments in courses in regional campuses to reflect the higher cost of delivery in regional areas.</p>
<p>The total price paid for each course varies significantly. The humanities, law and commerce assessed as lowest-cost. Dentistry, medicine and veterinary science science are the highest. </p>
<p>In 2017, the funding clusters will include:</p>
<ul>
<li>$12,685 for law and commerce (subsidy $2,089 and student contribution $10,596)</li>
<li>$19,328 for maths and computer science (subsidy $10,278 and student contribution $9,050)</li>
<li>$33,405 for medicine and veterinary science (subsidy $22,809 and student contribution $10,596).<br></li>
</ul>
<h2>Why we have this system</h2>
<p>This funding system was first introduced in 1989 following an extensive analysis of relative university course costs. </p>
<p>It was an important reform as universities could be over- or under-funded relative to other universities based on their course and enrolment profile.</p>
<p>The new funding system was also introduced with HECS so that students, as well as taxpayers, could contribute to course costs (but only repay when they began to benefit from their university education). </p>
<p>HECS levels were initially set at a uniform $1,800 regardless of the course cost.</p>
<p>However, a major change was introduced in 1997 when HECS contributions were varied <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/hecs">by grouping them into three levels</a> to reflect the likely private benefits to graduates from different courses (in terms of lifetime earnings) and the course cost. </p>
<p>Students in areas such as law and medicine have always paid more than students in areas such as arts, humanities and nursing as they are more expensive to provide. </p>
<p>But in some areas such as law and commerce, students now also contribute a much higher proportion of course costs than students in humanities, based on an assessed private benefits – even though the course costs are similar. </p>
<h2>Problems with the current system</h2>
<p>In 2008, The Bradley Review <a href="http://www.voced.edu.au/content/ngv%3A32134">concluded that</a> the different levels of funding across university courses in Australia “appears to bear little relationship to the actual cost of teaching or to any notional public benefits and that maximum student contributions per course similarly had no strong policy or empirical basis”.</p>
<p>The review recommended that further work be undertaken to achieve a “more rational and consistent sharing of costs between costs and discipline clusters as part of a broader review of the base funding of universities”.</p>
<p>The subsequent 2011 <a href="https://www.canberra.edu.au/research/faculty-research-centres/edinstitute/documents/HigherEd_FundingReviewReport1.pdf">Higher Education Base Funding Review</a> found that, while on average funding met the overall costs of teaching and scholarship across universities (but not the costs of research), several course areas were underfunded.</p>
<p>It recommended reducing the funding cluster from eight to five and shifting some courses to different funding clusters. </p>
<p>However, the then Labor government <a href="https://www.canberra.edu.au/research/faculty-research-centres/edinstitute/documents/HigherEd_FundingReviewReport1.pdf">did not act on these recommendations</a>.</p>
<p>The funding reforms announced by Minister Christopher Pyne in 2014 also proposed to reduce the number of clusters and to shift some courses between clusters. </p>
<p>But this proposal failed to pass the Senate along with the other funding reforms proposed by Pyne (including the <a href="https://theconversation.com/university-fee-deregulation-blocked-but-pyne-pledges-to-fight-on-38912">full deregulation</a> of the student contribution and a uniform 20% cut in the government subsidy).</p>
<p>The government’s consultation paper has <a href="https://docs.education.gov.au/documents/driving-innovation-fairness-and-excellence-australian-education">now also concluded</a> that the funding band rates do not reflect well the relative cost of delivering different courses. This results in cross subsidies between courses and, in some areas, cross subsidies to research.</p>
<h2>Outcomes of the governments higher education reform process</h2>
<p>In the consultation paper, the government has suggested undertaking a pricing review with the higher education sector overseen by an independent expert panel. </p>
<p>This proposal has been broadly supported in submissions from the sector including from <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/submissions-and-reports/Submission-in-response-to-the-Government-s-Options-Paper-Driving-Innovation--Fairness-and-Excellence/Submission-in-response-to-the-Government-s-Options-Paper-Driving-Innovation--Fairness-and-Excellence#.V6LFQ5N95Bw">Universities Australia</a>.</p>
<p>The review could consider the overall funding levels, funding relativities and the differing private contributions by students.</p>
<p>However, a pricing review of this kind is not just a technical exercise. It cannot be undertaken in isolation from broader higher review objectives, issues and outcomes.</p>
<p>These include:</p>
<ul>
<li><p>The extent to which the government subsidy is for teaching and learning or includes a contribution to the costs of research (and if so, the level of that contribution).</p></li>
<li><p>The effect of the likely rebalancing of student and government contributions across all courses (to offset the <a href="https://theconversation.com/higher-education-gets-short-shrift-in-the-election-campaign-and-we-are-all-the-poorer-for-it-61509">20% reduction</a> in course funding factored in the budget forward estimates).</p></li>
<li><p>Evidence about differential student contributions in terms of costs and benefits.</p></li>
<li><p>Future infrastructure requirements and how that is to be funded.</p></li>
<li><p>How innovative but expensive partnerships between universities and industry to deliver internships and work integrated learning should be funded.</p></li>
<li><p>If the option to allow universities to set their own fees in designated flagship courses proceeds, should subsidies be reduced once fee levels exceed a set level?</p></li>
<li><p>Transitional issues that will arise if the funding clusters are reduced and/or courses moved between clusters.</p></li>
</ul>
<p>These are complex issues. But after almost a decade of failed processes to reform the current funding system, the government’s current consultation process, and any subsequent pricing review, must produce a revised system for financing universities in Australia that allows then to respond to emerging demands and improve the quality of outcomes for students in all courses.</p><img src="https://counter.theconversation.com/content/63505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Noonan is employed by Victoria University. The University receives public funding through the system analysed in this article. He was also a member of the Expert Panel for the Review of Australian Higher Education (Bradley Review) and was closely involved in the development of HECS and the initial higher education relative funding model in 1989. </span></em></p>After almost a decade of failed processes to reform the current funding system, the government must produce a revised system that improves the quality of outcomes for students in all courses.Peter Noonan, Mitchell Professorial Fellow, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/633842016-08-04T02:56:11Z2016-08-04T02:56:11ZShould students pay different fees for university courses?<figure><img src="https://images.theconversation.com/files/133015/original/image-20160804-12234-1shhkc4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is it fair that students pay different amounts for university courses?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/drewmaughan/7167211852/in/photolist-bVkQo9-9LmiXE-eiFpJj-4SSBov-2sFzwQ-2wqf9L-2sFyZd-aJv6Fv-8ez7rn-9Ja7ux-9HKKvF-4SWQuG-MqLgU-8ez7vH-nwiSwF-8eCpaJ-rvW5ok-8ez7CZ-8ez7HR-4ZXnLr-4SSBja-H4eJa-8ez7jr-5gbSM6-8ez7nH-6SwPv4-5REFia-bXFNnq-5Udbbb-5XbUce-549VU9-5XnAE7-e3JsjH-brFjgr-3ELkB-3ELky-uEBLeS-sb7jgR-nGZh1Q-uoB7P4-87RjCf-uoBz6H-uosNDw-uEBF2Y-uotaa1-uF4mRa-uF4irV-uF4BNV-uCJHYG-uEA2Eq">.SilentMode/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p><em>Vice-chancellors in Australia are <a href="http://www.smh.com.au/federal-politics/political-news/an-arts-degree-for-the-price-of-a-law-degree-universities-call-for-radical-rethink-20160801-gqigql.html">calling for the government to reform</a> how student fees and funding rates are set for different courses.</em></p>
<p><em>University heads say the current system is outdated, too complicated and filled with anomalies.</em></p>
<p><em>Students currently pay higher fees for courses that lead to jobs with typically higher wages. But not all students find, or want, a job that’s within the same area in which they studied. So is this fair? Should all students instead pay the same amount for their university degree? Two education experts debate.</em></p>
<hr>
<h2>Students should pay different amounts for different courses</h2>
<p><em>Andrew Norton says:</em></p>
<p>Since 1997, Higher Education Contribution Scheme (HECS) fees or student contributions have differed between disciplines. </p>
<p>There are <a href="http://studyassist.gov.au/sites/studyassist/helppayingmyfees/csps/pages/student-contribution-amounts#2016">three different annual student contribution levels</a> – A$6,256, $8,917 and $10,440. </p>
<p>Which disciplines are allocated to each rate depends mainly on assumed future earnings, with the cost of the course playing a minor role.</p>
<p>So law and medicine, which typically lead to <a href="https://grattan.edu.au/report/graduate-winners-assessing-the-public-and-private-benefits-of-higher-education/">relatively well-paid careers</a>, are priced at $10,440 a year. Nursing, education and arts, with lower likely future earnings, are charged at $6,256 a year. And in the middle we have disciplines such as computing, allied health and architecture at $8,917 a year. </p>
<p>The rates were changed from the previous flat HECS charge, of about $4,000 a year in today’s money, to raise revenue for the government. </p>
<p>It reduced its public subsidies by an amount equivalent to the additional student revenue, leaving universities in the same financial position as before. </p>
<p>The government’s savings target could have been achieved by continuing with a flat fee, which would have meant that nursing, education and arts students paid more and law and medical students paid less. </p>
<p>But within a generally progressive system of government revenue-raising, it’s not clear that flat fees would be better. </p>
<p>Fees that differ according to discipline create a rough relationship with capacity to pay – a doctor can afford higher fees than a nurse, for example, because usually a <a href="https://grattan.edu.au/report/graduate-winners-assessing-the-public-and-private-benefits-of-higher-education/">doctor earns much more</a> over his or her career. </p>
<p>Differential fees are also more egalitarian in terms of the effort required to repay. Because <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6306.0May%202014?OpenDocument">hourly rates of pay vary between occupations</a>, a flat fee would take someone on $30 an hour twice as much time at work to repay as someone on $60 an hour. </p>
<p>The current system helps even out total HECS-HELP repayment times to a <a href="http://andrewnorton.net.au/2015/04/08/years-to-repay-student-debt-as-a-way-of-setting-student-contributions/">median of about 10 years</a>.</p>
<p>Current differences between the disciplines do need revising. </p>
<p>Engineering graduates <a href="https://grattan.edu.au/report/graduate-winners-assessing-the-public-and-private-benefits-of-higher-education/">on average earn more</a> than business graduates, but <a href="http://studyassist.gov.au/sites/studyassist/helppayingmyfees/csps/pages/student-contribution-amounts#2016">business students pay more for their courses</a> than engineering students. </p>
<p>A careful examination would probably reveal more anomalies like this. </p>
<p><a href="https://docs.education.gov.au/documents/driving-innovation-fairness-and-excellence-australian-education">A proposal</a> to link Australian Taxation Office and Department of Education data could give us a much better understanding of how earnings differ between degrees.</p>
<p>We have had more than three rates of student contributions in the past and perhaps we should again, if patterns of graduate earnings show this is justified. </p>
<p>Problems with the detail of current student contributions do not mean their broad conceptual basis is mistaken. </p>
<p>Charging HECS by discipline from 1997 shared the financial pain of reduced public funding more fairly than a flat fee system. </p>
<p>If we need to reduce per student funding again, getting some graduates to pay more than others will continue as the more equitable option. </p>
<h2>Students should pay the same fees for university courses</h2>
<p><em>Conor King says:</em></p>
<p>Student payments should primarily reflect the value of acquiring a degree, with the government payment ensuring university revenue reflects significant differences in the costs of delivery by discipline. </p>
<p>The case is put on the basis of student charges continuing to be limited to set amount(s) by government.</p>
<p>A single charge need not be set at the highest current point. It just has to be sufficiently high that, when combined with the government’s subsidy, universities can provide the education students require.</p>
<p>As it happens, the English system has a single common maximum (£9,000), which most universities apply to all students. The US public systems generally do not vary the charge by discipline. For example, <a href="http://admission.universityofcalifornia.edu/paying-for-uc/tuition-and-cost/">California has a system-wide tuition</a> and fee charge of US$12,240.</p>
<p>What Australia, or any modern society needs, is people with a wide mix of capabilities and knowledge. We want people to fulfil their potential, in a world where future employment is expected to change constantly, with the detail of the degree rapidly losing relevance. </p>
<p>The funding and charging structure should encourage people to do so, through supporting each discipline neutrally, letting individual choice drive course selection.</p>
<p>Various arguments are made for why some subjects should cost more than others. Mostly, these build on rationales put forward in 1997 to justify the fee increase. </p>
<p>One argument is that if a course costs more, then students should pay more for it. Why is that? We are not talking about the difference between a Mercedes and a Toyota, where the Mercedes performs much better than the Toyota on most measures of a car, and presumably costs a bit more to produce.</p>
<p>An agricultural science degree is not better than an engineering degree, and an engineering degree is not better than a business degree. They simply represent different areas of learning, each intended to give their graduates a solid foundation to apply in employment and in their future lives. </p>
<p>We should not reward or punish a particular preference by charging more or less for pursuing it.</p>
<p>The reality of the current fee schedule bands is that there is little connection between the cost of the course and the charge. </p>
<p>Business and law are moderately low cost to provide, but students pay the same as the high-cost health disciplines of medicine, dentistry and veterinary science. Nursing and arts lie together in the lowest band.</p>
<p>The second argument is that cost should reflect future earnings. </p>
<p>The initial disciplines in the highest band – lawyers and doctors, dentists and vets – were there because the government knew few would care if those students complained. </p>
<p>In reverse, nurses and school teachers were in the lowest band to avoid opposition to setting different rates, even though both provide good starting salaries but with limited options for progression. Future earnings were a diversionary tactic.</p>
<p>What rationale there was reduced considerably when business and accounting were moved to the top band in 2008, charging many more students the highest amount.</p>
<p>We know that within any professions, some people will work in legal aid or public health while others will be the high flyers in the corporate world. More prosaically, the majority will be suburban solicitors, accountants or GPs.</p>
<p>Assumptions about what jobs there will be or who will be the big earners may or may not hold true in the future. </p>
<p>What is more certain is that income tax will continue to be weighted to higher earnings. The tax system and the protection of HECS-HELP repayments being tied to income are the response to differences in future earnings, charging people based on what they achieve rather than their initial choice.</p><img src="https://counter.theconversation.com/content/63384/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute private rates of return analysis referred to in this article was written when the Grattan Institute higher education program was funded by the Myer Foundation. </span></em></p><p class="fine-print"><em><span>Conor King is Executive Director for the Innovative Research Universities. IRU argued to the 2011 Base Funding Review that there be a single student charge and has restated the argument in response to the Coalition Government's Higher Education discussion paper.</span></em></p>Students currently pay higher fees for courses that lead to jobs with typically higher wages. But not all students find, or want, a job in their area of study. Should all students then pay the same amount for their university degree?Andrew Norton, Program Director, Higher Education, Grattan InstituteConor King, Executive Director, IRU, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/450882015-08-03T20:05:52Z2015-08-03T20:05:52ZStudents’ low financial literacy makes understanding fees, loans, debt difficult<figure><img src="https://images.theconversation.com/files/90227/original/image-20150730-10364-1h72mrg.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Do students know what they're getting in to when they take on debt?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/donkeyhotey/6304808136/">DonkeyHotey/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Financial literacy in Australian is low, <a href="http://www.financialliteracy.gov.au/media/558752/research-anz-adultfinancialliteracysurvey2014-fullreport.pdf">particularly so in those under 25 years</a> of age. What might be surprising is that it is low even among university students. </p>
<p>Recently I was part of a research team that undertook surveys of students from across Australia aged 17-20. Students were asked to rate their understanding of different areas of financial importance: budgeting, saving, managing debt, investing, retirement planning, tax, insurance and superannuation. </p>
<p>They were then asked to answer some basic questions related to each of those areas, with some interesting results that are yet to be published. </p>
<p>Students overall rated their understanding of budgeting and saving reasonably high, with 55.4% considering themselves to have a high understanding of budgeting and 66.7% a high understanding of saving. </p>
<p>Students generally rated their understanding of the other areas lower, which means many students who have managed to secure a place at university don’t believe they understand about debt. In fact, 35.8% rated their understanding of managing debt as low, and a further 15.7% as very low.“ This would combine the affected paragraph and also the next one.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/90235/original/image-20150730-10327-skaypa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Over 50% of students surveyed said their understanding of debt was low or very low.</span>
<span class="attribution"><span class="source">from www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>University students have access to credit that most young people with poor financial literacy don’t - through the Higher Education Loan Programme (HELP). Many students take advantage of these loans to help pay their way through a degree and there is an assumption that they know and understand how these loans work. </p>
<p>While the survey did not test student understanding of income-contingent loans such as HECS-HELP, it did test some other basic concepts that are tied to it. For example, only 40.2% showed an understanding of inflation. Given these loans are indexed to CPI, do students understand that these amounts won’t remain at the original cost of the degree?</p>
<p>Their overall self-rated understanding of tax was found to be low, with a mere 11.2% rating it as high or very high. While 57.8% were able to correctly calculate tax payable on a given amount, this dropped to 18.6% who were able to calculate assessable income in a slightly more complex scenario. </p>
<p>Based on the results of our survey, these students are going to find it difficult to understand payment thresholds for HECS and the percentages that need to be repaid. So too the drop in income that will accompany reaching that threshold.</p>
<p>Their understanding of super was also incredibly low. Only 36.8% knew super was taxed at a lower rate and only 36.8% could identify the best indicator of fund performance (returns after fees are deducted). 62.3% did have a super account, although 10.3% admitted not knowing if they did.</p>
<p>There is no doubt that a university degree currently costs a substantial amount of money. Under a deregulated system, this would rise. This would mean an increase in debt for students who potentially don’t understand how to manage it. </p>
<p>Further changes such as introducing a real interest rate, <a href="https://theconversation.com/hecs-upon-you-natsem-models-the-real-impact-of-higher-uni-fees-27808">originally proposed in the 2014 budget</a> but <a href="https://theconversation.com/a-tumultuous-year-in-higher-education-comes-to-a-close-another-soon-to-follow-34982">withdrawn later that year</a>, would create further issues. </p>
<p>The students surveyed were asked a very <a href="http://www.dartmouth.edu/%7Ealusardi/Papers/FinancialLiteracy.pdf">simple interest question</a>:</p>
<blockquote>
<p>Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?</p>
<p>More than $102</p>
<p>Exactly $102</p>
<p>Less than $102</p>
</blockquote>
<p>Nearly 15% of the students could not answer this question, showing they don’t have a basic understanding of how interest works.</p>
<p>This is not to say we should remove income-contingent loans; these are a necessary option for many students to attend university. But students need more information about what they are signing up for. </p>
<p>More thought needs to be given to students’ ability to understand the financial implications of fees, debt and income-contingent loans, and what a new deregulated university environment would mean. This applies especially to the consequences of acquiring even more debt.</p>
<hr>
<p>• <em>This article previously included a sentence that stated only 4.4% of students were able to correctly answer a question around money management. This sentence has since been retracted.</em></p><img src="https://counter.theconversation.com/content/45088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laura de Zwaan is an associate member (non-practising) of the Financial Planning Association and a member of the Financial Planning Academics Forum. </span></em></p>Students rated their financial literacy quite low, which means many students who have managed to secure a place at university don’t believe they understand about debt.Laura de Zwaan, Lecturer, School of Accountancy, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/452922015-07-29T01:16:58Z2015-07-29T01:16:58ZModifying student loan system could ensure access for all students<figure><img src="https://images.theconversation.com/files/89874/original/image-20150728-9853-t65r17.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vocational education and training students probably need income-contingent loans more than university students</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/francisco_osorio/13475151983/">Francisco Osorio/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>When HECS (HELP) was introduced in 1989 it applied only to undergraduates in public sector universities. It has now spread in Australia to cover post-graduates, private universities and some tertiary courses, many TAFE diploma courses and even apprenticeship wage top-ups. </p>
<p>The system has been adopted in around eight other countries as well and can be characterised as a quiet revolution in post-compulsory international education. This is how it should be, because income-contingent loans remove the serious barrier to educational participation of upfront fees while providing lifetime repayment protection for all debtors.</p>
<p>But the HELP revolution remains seriously incomplete because this sort of educational financing protection is nowhere to be seen in many parts of the vocational education and training (VET) sector, which still suffers from the scourge, hostility and unfairness of upfront fees. </p>
<p>The <a href="https://theconversation.com/all-young-people-deserve-tertiary-education-support-not-just-at-uni-38646">Mitchell Institute proposed</a> expanding income-contingent loans to all tertiary students. They asked us to investigate the cost implications, <a href="http://www.mitchellinstitute.org.au/reports/feasibility-and-design-of-a-tertiary-education-entitlement-in-australia/">the results of which</a> have just been published.</p>
<p>The critical starting point is that income-contingent loans are not available for the majority of Certificate III and IV students, yet students intending to undertake these qualifications face increasingly significant upfront fees. </p>
<p>This is poor policy because charging upfront fees disproportionately and adversely affects those from poor socioeconomic backgrounds. Not only is this inequitable, it is also economically inefficient, because such arrangements inevitably limit the participation of motivated but financially constrained prospective skilled labour. It is a waste for the whole country.</p>
<p>If designed properly, an income-contingent loan is a superior option to upfront fees. It provides a training opportunity regardless of current financial means and offers insurance since repayments depend on future income. </p>
<h2>The challenge in handing out more loans</h2>
<p>If income-contingent loans are expanded to Certificate III and IV students, there are a number of arguments for revisiting some of the existing rules. In one way or another these relate to the need to recover considerable proportions of the debt when an income-contingent loan is applied to a different aspect of the post-compulsory education system.</p>
<p>First, there is a fiscal sustainability argument. Compared to university graduates, Certificate III and IV completers have low incomes and, for women, low employment outcomes. </p>
<p>We found that if income-contingent loans were extended to Certificate III qualifications under current HELP rules, the proportion of the loan amount that is not expected to be repaid may reach as high as 60% for female Certificate III debtors. Without corresponding increases in charges, governments would be reluctant to bear these costs. </p>
<p>Second, there is a question of equity within the pool of all students: if university graduates are repaying most of their loans, is it fair if Certificate III debtors repay much smaller proportions of their loan debt? And there is an equity issue for all taxpayers, since lower repayments mean higher subsidies.</p>
<p>The modifications to HELP that are modelled and examined in our report, and which we apply to all VET students from Certificate III upwards, involve combinations of decreases in repayment thresholds and rates, and variations to loan indexation and surcharges. </p>
<p>The results demonstrate that the choice of income-contingent loan parameters has a very significant impact on the magnitude of subsidies and the distribution of costs among debtors. For example, application of a minimum repayment threshold of A$40,000 per annum (with a 2% repayment rate), plus a loan surcharge of 10%, could reduce subsidy ratios by 15% compared to the current system.</p>
<p>VET is in need of important reform, including with respect to the <a href="http://www.sharonbird.com.au/mitchell_institute_reports_national_vet_funding">current accreditation issues</a>, which are undermining the integrity of the system. However, to make sure the system is equitable, there is a critical need to remove upfront fees and expand HELP to cover all Certificate III and IV adults in education and training.</p>
<p>If this occurred, government subsidies would increase if there were no increase in tuition charges. If governments are reluctant to boost funding of tertiary education, then there is a range of modifications to offset greater income-contingent loan subsidies that would arise from including Certificate III and IV debtors.</p>
<p>We illustrate that, with thoughtful variations in design and collection rules, the loan system could be modified in a way that would preserve the insurance features of income-contingent loans that facilitate participation, individual affordability and equity.</p><img src="https://counter.theconversation.com/content/45292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Chapman was commissioned by the Mitchell Institute to prepare the report that is discussed in this article.</span></em></p><p class="fine-print"><em><span>Timothy Higgins was commissioned by the Mitchell Institute to prepare the report that is discussed in this article.</span></em></p>The HECS revolution remains seriously incomplete because it does not extend to many parts of the vocational education and training sector - which still suffers from the scourge, hostility and unfairness of upfront fees.Bruce Chapman, Director, Policy Impact, Crawford School of Economics and Government, Australian National UniversityTimothy Higgins, Senior Lecturer, Research School of Finance, Actuarial Studies & Applied Statistics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418862015-05-17T20:05:40Z2015-05-17T20:05:40ZLabor’s plans for science, technology, maths education well-meaning but misguided<p>A heavy focus of Opposition Leader Bill Shorten’s <a href="http://www.alp.org.au/budget_reply_speech">budget reply speech</a> on Thursday night was preparing for the future with science, technology, engineering and mathematics education. While this focus is a step in the right direction, the policies probably aren’t the right way to go about it.</p>
<hr>
<p><strong>School education expert Misty Adoniou, University of Canberra</strong></p>
<p>Shorten’s budget reply started off with promising words about harnessing the creativity of the nation. He went on to explain that education is the most important catalyst of productivity. So the scene was set for some big announcements in education.</p>
<p>Instead, Labor’s budget response on education turned out to be a one trick-pony: it was all about STEM education – science, technology, engineering and mathematics.</p>
<p>Labor would set aside A$353 million to bulk up science and maths education. A Labor government would ensure every child in primary and high school learns computer coding skills. The rationale is that coding is “the literacy of the 21st century” – but actually literacy is the literacy of the 21st century. We still need to be able to read and write and that will remain true even into the 22nd century.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81784/original/image-20150515-8715-7hz1ni.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Actually literacy, not coding, is the literacy of the 21st century.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/eifl/5997824484/in/photolist-a91qfY-5jWU3i-5guc28-6VvuFx-4TyqWE-6wo5vG-5guaYp-99XZry-hidCyF-aG3FA-pkiGT-4Vzw9M-4hZkPw-4JCkoW-4SeEXy-4TJDqn-36BkzB-5gywLA-4m5ojv-duvjjF-5tQeKc-5gywcb-7LRPcs-e3Zz1-4m9qPy-5bwe6M-4xBfB5-4DEf6B-9es4mr-ehBnRE-5JUU5s-8L9Vbr-7i2gFM-P8J62-5tpTyU-99EyQN-99FWTY-99CQgX-3x44W-kpwdE-pyrM81-621mRe-5jXeU6-BysaT-q3K1zE-4KNRCQ-5o8nRF-7G8gLW-7c3Ldk-Pcd1">Flickr/EIFL</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The computer coding we teach today, much like morse code in its day, will rapidly become obsolete as technology grows and computer languages evolve. Which is not to say computer coding isn’t a worthwhile subject for school in the here and now but it would have been good to have heard what was going to be done to ensure all children leave school with excellent literacy skills. </p>
<p>The present government’s own very limited definitions of literacy as phonics and “sounding out” are woefully inadequate and will not guarantee literate, creative citizens – but neither does Labor’s proposal to apparently neglect reading and writing and head straight for computer coding.</p>
<p>Shorten also promised to train 25,000 teachers in science and maths, and to write off the HECS debts of 100,000 science and maths graduates – perhaps on the proviso that they do some school teaching? </p>
<p>The rationale for this is sound – we don’t have enough science and maths teachers and we have far too many teachers who are teaching out of their area of expertise. But federal Education Minister Christopher Pyne has already said his government will require all teachers, including primary school teachers, to graduate with a subject specialisation in maths, literacy or science. So they are on a unity ticket there it would seem.</p>
<p>But in the end it doesn’t matter how many teachers they get into maths and science classrooms – what matters is that those teachers stay. <a href="https://theconversation.com/why-good-teachers-leave-teaching-21339">Good teachers leave teaching</a> at alarming rates, and they leave teaching far too soon. </p>
<p>Early-career teachers need quality mentoring, timely professional learning and a reduction in their face-to-face teaching in the first year. But neither Liberal or Labor has ever talked about that in their budgets.</p>
<hr>
<p><strong>Higher education expert Gavin Moodie, RMIT</strong></p>
<p>Shorten <a href="http://www.alp.org.au/budget_reply_speech">announced</a> on Thursday night that:</p>
<blockquote>
<p>We will write off the HECS debt of 100,000 science technology, engineering and maths students.</p>
</blockquote>
<p>“Deadweight spending” is the economists’ term for government spending to encourage activity that would have happened anyway. For the rest of us it is waste, and that is a good description of the Labor leader’s promise to write off the HECS debt of 100,000 STEM students.</p>
<p>This promise is apparently for 20,000 <a href="http://www.alp.org.au/futuresmartuniversities">STEM award degrees</a> that <a href="https://theconversation.com/small-business-tax-should-be-cut-by-5-shorten-41831">Labor proposes to offer</a> every year for five years, with the HECS-HELP debt written off at graduation.</p>
<p>HECS for science and engineering students is <a href="https://docs.education.gov.au/documents/2015-indexed-cgs-and-help-rates">A$8,768 a year</a>. Most science programs are three years long, giving science graduates a HECS debt of of around A$26,000. Most engineering degrees are a year longer so graduates will have a debt of about A$35,000. </p>
<p>In 2013 engineering graduates were 30% of <a href="https://education.gov.au/selected-higher-education-statistics-2013-student-data">all domestic bachelor graduates</a> in natural and physical sciences, information technology, and engineering and related technologies, giving a weighted debt per science and engineering graduate of A$29,000. The 20,000 STEM award degrees would therefore cost around A$0.58 billion a year or A$2.9 billion over five years.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81787/original/image-20150515-8712-liama8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Wiping debts of STEM students won’t affect the uptake as it applies only to those who would’ve done it anyway.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/re-publica/13921565608/in/photolist-ndcErf-pfx5vu-nuqoe7-nuqESh-6y4QUE-aUux8-avxdQM-avu4i8-avxecR-avwGiq-avxeCT-avxe1t-avwGwq-7UcCYp-6m2t66-jATiMD-oZ19aX-oYSMFY-pgniWR-8mWwia-6m6C9j-rT8XFk-bLXPYZ-8mZCWG-8mWu1p-8mWtgV-8mWuwt-8mWtJe-8mWuPi-bmXUz1-bmXUy5-nsDWf1-8mZCnY-8mWrLx-8mZzS5-8mZC3U-8mZBL1-8mZDPJ-8mWrXB-8mWttp-8mWw58-8mWs7Z-8mWvit-8mWsR8-8mWt6n-8mZzFd-8mZDed-8mZA3Y-pg6Lpt-8K8Sw7">Republica/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>This returns Labor to a policy similar to one it took to the 2007 election to halve maximum HECS fees for mathematics, statistics and science students. </p>
<p>However, there is little evidence that HECS fees affect students’ choice of subject since demand for science programs <a href="https://education.gov.au/undergraduate-applications-offers-and-acceptances-publications">does not seem to be greatly affected</a> by Labor’s ending of lower HECS for science students in 2013. Shorten is therefore promising to write off the HECS debts of students who would have enrolled anyway in science, technology, engineering and mathematics.</p>
<p>Shorten probably promised to write off HECS to show that Labor values science, technology, engineering and mathematics. But there are much less wasteful ways of showing symbolic support for favoured disciplines. </p>
<p>One would be a science sabbatical that paid for science graduates to spend a term or up to a year providing extra teaching in schools. If science sabbaticals were funded at an average of A$50,000 each, A$0.58 billion could fund 11,600 science sabbaticals or at least one science sabbatical per school.</p>
<p>One of the biggest challenges for schools and universities is to find work-experience placements for their students. While employers complain that graduates aren’t “job ready”, they don’t provide enough placements for students. So A$0.58 billion could contribute around A$350 towards the cost of a science work placement for each secondary pupil.</p>
<p>There are probably many other great ideas for spending A$0.58 billion a year to support science education. Unfortunately, there’s no evidence to say Shorten’s plan will work.</p><img src="https://counter.theconversation.com/content/41886/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Misty Adoniou has received funding from the ACT Education and Training Directorate to research professional teaching standards. She is affiliated with the professional teachers' associations ALEA, ACTA and TESOL International, all concerned with the teaching of English.</span></em></p><p class="fine-print"><em><span>Gavin Moodie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A heavy focus of Bill Shorten’s budget reply speech was preparing for the future with science, technology, engineering and mathematics education. While this focus is a step in the right direction, the policies probably aren’t the right way to go about it.Gavin Moodie, Adjunct professor, RMIT UniversityMisty Adoniou, Senior Lecturer in Language, Literacy and TESL, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/411572015-05-04T19:25:27Z2015-05-04T19:25:27ZCollecting student loans from overseas debtors just a start<figure><img src="https://images.theconversation.com/files/80225/original/image-20150504-23871-zz9s2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students living overseas should have to repay their loans. </span> <span class="attribution"><span class="source">from www.shutterstock.com.au</span></span></figcaption></figure><p>In recent years the number of students in higher education has surged and so has the cost of the Higher Education Loan Program (HELP). HELP expenses will almost double in three years – from $2.3 billion this year to $4.4 billion in 2017-18, according to <a href="https://education.gov.au/portfolio-budget-statements-2014-15">Education Department estimates</a>. This is putting further pressure on the government’s budget.</p>
<p>The government’s <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5396">higher education bill</a> tried to address this issue. Under the bill, debtors would be required to start repayment when their wage reached A$50,638 in 2016-17, not A$56,264 under current laws. But the government has so far been unable to get the bill through the Senate. </p>
<p>Last weekend Education Minister Christopher Pyne <a href="https://ministers.education.gov.au/pyne/new-plan-recover-hecs-debt-aussies-living-abroad">announced a new plan to reduce the cost of HELP</a>. The proposal will require HELP debtors who live overseas to begin to repay their stuent loans if they earn more than the repayment threshold. The government expects this measure to save A$140 million over the decade from mid-2017.</p>
<p>Under current rules, HELP debtors who live overseas are not specifically exempt from repaying. But because the Australian Tax Office (ATO) has no international jurisdiction, anyone not paying tax in Australia is not required to repay their HELP debt. </p>
<p>In principle, overseas HELP debtors should repay. <a href="http://trove.nla.gov.au/work/6956971?selectedversion=NBD5838929">The Wran report</a> that recommended the introduction of the Higher Education Contribution Scheme (HECS) in 1988 argued that students should contribute to the cost of their education when they have the capacity to repay. HELP debtors living in Australia who earn more than around A$53,000 are required to repay, so why should equivalent debtors living overseas be exempt? </p>
<p>The challenge will be to collect repayments in a cost-effective way. Retaining the income-contingent aspect for overseas debtors would place an administrative burden on the ATO as well as on debtors. England has a similar income-contingent loan program to Australia. But, unlike Australia, it requires its overseas debtors to repay. </p>
<p>Like debtors living in England they repay under the income-contingent system. Each year, overseas debtors are required to submit significant paperwork to prove their income levels. A default repayment applies to debtors who do not submit evidence. Despite these efforts, <a href="http://www.slc.co.uk/official-statistics/full-catalogue-of-official-statistics/student-loans-debt-and-repayment.aspx">more than two-thirds of English debtors do not repay</a>.</p>
<p>Pyne wants to introduce a similar system. He is <a href="http://www.news.com.au/national/federal-government-hunts-for-hecs-debt-dodgers/story-fncynjr2-1226926210931">investigating a bilateral agreement with the UK</a> in order to recover debts from Australians living there. </p>
<p>But, as the chart below shows, overseas debtors living in the UK and New Zealand (with which Australia already has an <a href="https://www.pm.gov.au/media/2015-02-28/joint-statement-prime-minister-abbott-and-prime-minister-key">in-principle agreement for debt recovery</a>) represent fewer than 30% of all overseas debtors. </p>
<p>Extending these agreements to other countries is likely to be difficult. We need a low-cost repayment system that can collect from debtors in many countries.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=415&fit=crop&dpr=1 600w, https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=415&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=415&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/80192/original/image-20150504-23877-1lje13a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>A more cost-effective way is to require overseas debtors to repay a flat amount each year. New Zealand provides a possible guide. It minimises administrative costs by charging overseas debtors flat amounts based on outstanding debt levels each year. The repayment amount ranges from A$1000 to A$4800 a year depending on the amount owed. </p>
<p>In Australia, the amount could simply equal the minimum annual repayment for people who reach the threshold – about A$2000. Flat amounts sacrifice income contingency but would make the repayment system less complex and cheaper to administer.</p>
<p>Charging flat amounts would require some people with low income to repay. Exemptions could be granted for full-time students in this category. The ATO could retain its discretion to delay repayment where it would cause financial hardship. </p>
<p>Collecting from overseas debtors, while desirable, would not solve HELP’s financial problems. <a href="http://grattan.edu.au/">Grattan Institute’s</a> 2014 report, <a href="http://grattan.edu.au/wp-content/uploads/2014/04/809-doubtful-debt1.pdf">Doubtful Debt</a>, argues that the biggest saving would come from ending the provision to write off HELP debt at death. </p>
<p>HELP is the only liability that is not recovered from people’s estates. Unpaid fines, taxes, bills and money owed to government agencies are all recovered. Since most people die of old age, the main beneficiaries of uncollected HELP debts at death are the debtors’ adult children. There is little justification for such an inheritance scheme.</p>
<p>Many debtors who earn below the threshold when they are alive are in high-income households. Most will die with estates larger than A$100,000. Grattan modelling shows that recovering HELP from deceased estates will more than halve the amount of debt that is not expected to be repaid (doubtful debt). That is a saving of more than A$500 million from this year’s lending. </p>
<p>Requiring overseas HELP debtors to repay would make HELP fairer, but do little for its financial viability. At present about A$10 billion – a quarter of the government’s total HELP lending – is classified as doubtful debt. It’s a heavy and growing burden.</p>
<p>Ending the debt write-off at death is the reform that is most needed to ensure our student loan scheme remains viable.</p><img src="https://counter.theconversation.com/content/41157/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ittima Cherastidtham does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Overseas debtors should have to repay their student loans, but it won’t recoup as much as repayments from deceased estates.Ittima Cherastidtham, Senior Associate in the higher education program, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/407592015-04-28T20:09:22Z2015-04-28T20:09:22ZUse super contributions to repay student loans<figure><img src="https://images.theconversation.com/files/79214/original/image-20150424-25569-5s9jrj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One piggy bank for student loans and one for retirement.</span> <span class="attribution"><span class="source">from www.shutterstock.com.au</span></span></figcaption></figure><p>The Higher Education Loan Program (HELP) is a balancing act. On one hand, a student loan has to be repaid only if and when it is deemed “affordable” for the graduate to do so. On the other, the cost of zero real interest, delayed repayments, or no repayment at all is carried by the Commonwealth. </p>
<p>To governments this now looks expensive. A recent <a href="https://www.business.unsw.edu.au/research-site/publications-site/ejournaloftaxresearch-site/Documents/08_HighfieldWarren_HELP.pdf">paper</a> by UNSW tax experts highlights the problem. Richard Highfield and Neil Warren note that there are now over two million HELP debtors. They predict that in the next few years HELP debt will reach A$70 billion, and that by 2017-18:</p>
<blockquote>
<p>almost a quarter of all [new] HELP debt is not expected to be repaid.</p>
</blockquote>
<p>This outlook, based on the now-rejected 2014 budget proposals, may well overstate the public cost. But the trend remains. In vocational education, where diplomas yield lower incomes than most bachelor degrees, Andrew Norton <a href="https://theconversation.com/40-of-vocational-students-wont-repay-their-student-loan-report-37899">estimates</a> that 40% may never repay their debts.</p>
<h2>Suggested reforms</h2>
<p>Last year, both the Commission of Audit <a href="https://theconversation.com/commission-of-audit-report-released-experts-respond-26177">report</a> and a Grattan Institute <a href="https://theconversation.com/chasing-unpaid-student-loans-could-save-government-800m-25321">report</a> looked for ways to cut the public cost of HELP. The Grattan report proposed recovery of debts from deceased estates, annual payments from overseas graduates and adjusting the setting of income thresholds for compulsory repayments. Currently, a graduate must earn just over A$53,300 to trigger the first repayment (Table 1).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79232/original/image-20150424-14562-ox4ykc.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Table 1. Compulsory repayments as income rises.</span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>The Commission of Audit proposed lowering this threshold to the minimum wage, about A$33,300, to speed up repayments. It also proposed indexing HELP debts at the 10-year bond rate to charge students the full cost of government borrowing.</p>
<p>The 2014 budget proposed to lower the first threshold to about A$50,000, with a 2% repayment rate (A$1000 a year), and to index HELP debts at the bond rate, capped at 6%. The latter idea was dropped as it risked <a href="https://theconversation.com/hecs-upon-you-natsem-models-the-real-impact-of-higher-uni-fees-27808">big compound interest</a> effects for longer-term, lower-income HELP debtors. </p>
<h2>HELP repayment minimisation</h2>
<p>The Highfield and Warren tax paper found that HELP debtors often seek to keep their assessable income below the various thresholds to minimise repayments. For example, they may claim more work-related expenses, or make charitable donations. They may also avoid repayment by failing to tell employers they have HELP loans for “pay as you go” taxation, or by failing to lodge tax returns at all. </p>
<p>At zero real interest, with no cost penalty for remaining in debt, this is a response to the cash-flow cost of crossing a threshold. Repayments range from over A$2100 a year to over A$7900 (Table 1). If gross income is close to the lowest threshold, an extra A$100 can cut net income by over A$2000 (Table 2).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79233/original/image-20150424-14581-10q0dkh.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Table 2. Net income effect above or below HELP repayment threshold of $53,345.</span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>To recoup government costs, the tax paper proposes variations on the Grattan and Commission of Audit proposals. The authors also consider the idea of a <a href="https://theconversation.com/help-is-in-need-of-help-29955">25% loan fee</a>, as put forward by HECS architect Bruce Chapman and Timothy Higgins of the ANU, and other options such as higher discounts for earlier, voluntary repayments. </p>
<p>The dilemma here is that the most widely discussed reform ideas - adding loan fees, raising interest rates, lowering income thresholds and raising repayment rates – can’t reduce costs by very much without high risks to “affordability” for low-income graduates.</p>
<h2>The super option</h2>
<p>An option not yet canvassed is to redirect compulsory superannuation contributions into HELP repayments. Employers have to pay 9.5% of employee earnings into super, even for low-income, part-time workers such as students. In 2012, according to a Centre for the Study of Higher Education <a href="http://www.cshe.unimelb.edu.au/research/equity/docs/StudentFinances2012.pdf">report</a> on student finances, four in five domestic undergraduates worked part-time. A typical student might average 20 hours a week (less during semester, more in study breaks). </p>
<p>A student earning (say) A$16,300 a year would pay no income tax and make no HELP repayments. But the employer must pay over A$1400 of their earnings into a super fund (Table 3).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79234/original/image-20150424-14577-11edtd5.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Table 3. Part-time minimum wage: $16,300 ($17 per hour at 20 hours per week over 48 weeks). Full-time minimum wage over 52 weeks: $33,300.</span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>Compared with a HELP loan repayment, the benefit of compulsory super to students in part-time, casual work is questionable. The Australian Tax Office <a href="https://www.ato.gov.au/Media-centre/Media-releases/Young-workers-encouraged-to-save-money-on-super-fees/">reports</a> that many younger workers move around, change jobs and fail to track or manage their super. Some 45% of those aged between 18 and 35 have more than one super account. Each year, hundreds of dollars are consumed in fees (and insurance premiums). Over time, thousands may disappear from quite small accounts. </p>
<p>Redirecting super into HELP repayments would reduce student debts during study, with zero impact on their take-home pay. This could continue during a graduate’s early years in work, until their income rises to (say) the first HELP threshold. As Table 3 shows, a low-income graduate earning a minimum wage of A$33,300 a year would see A$2890 go into super - more than they’d pay off a HELP loan with income of A$54,000-$65,000 (Table 1).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79328/original/image-20150426-14543-9mtlzq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Table 4. HELP repayment at $53,400 versus super contribution paid to HELP at $49,000.</span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>Table 4 shows that by redirecting super contributions, a graduate earning A$49,000 a year could repay his or her loan at twice the rate of normal HELP repayments if earning A$53,400. The debt could be cleared in half the time. Yet, in cash terms, net income in both cases is roughly the same. </p>
<p>With faster repayments and fewer unpaid debts, the public cost of the HELP scheme would drop considerably. This could occur without risk of hardship to low-income graduates, since the cash-flow cost of clearing a HELP debt this way is zero. In fact, becoming debt-free sooner can only help with (say) a home loan.</p>
<p>The new risk is that this may erode the aim of compulsory super - to fund retirements and cut the public cost of pensions. But putting super into HELP debts up to (say) age 30 would still allow most future graduates a further 40 years in the workforce.</p>
<p>For over two decades, HELP and compulsory super have evolved in parallel. It’s time to consider them in tandem. International students who earn super can withdraw it when they leave Australia. Why not let domestic students use it for HELP debts?</p><img src="https://counter.theconversation.com/content/40759/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Geoff Sharrock does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Unpaid HELP debts are a problem, while super contributions may be lost. Should students use super to repay HELP?Geoff Sharrock, Senior Lecturer, LH Martin Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/383542015-03-04T04:16:01Z2015-03-04T04:16:01ZHECS tax would have Pyne’s desired effect: stratifying unis<p>If the main reason for the proposed changes to higher education was to increase university funding, cut government spending, or a combination of both, the simple answer would be to <a href="https://theconversation.com/university-funding-reform-blocked-theres-a-pretty-obvious-plan-b-34968">increase the caps</a> on what all universities are allowed to charge students.</p>
<p>However, Education Minister Christopher Pyne and most vice-chancellors seem to have no interest in this option. They prefer to introduce a hierarchical system where funding levels match universities’ status.</p>
<p>Recognising this, policy analysts have sought ways to stop price gouging under “fee deregulation”. The most recent proposal is to progressively “tax” fee increases.</p>
<p>The best of the taxing proposals was developed by David Phillips, a former senior officer of the Department of Education, and HECS architect Bruce Chapman in consultation with current officers of the Department of Education. </p>
<p><a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Higher_Education_2">Chapman’s submission</a> to the current <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Higher_Education_2">Senate inquiry</a> into the 2014 Higher Education Bill outlines the proposal very briefly.</p>
<p>Phillips and Chapman propose that for every dollar that a university charges above a fee threshold it would lose a proportion of its total government subsidy. As Chapman explains in his submission, the operation of what he calls the “University Subsidy Contingent Scheme” would depend very much on where fee thresholds were set and the amount of subsidy that would be lost for exceeding each threshold. </p>
<p>Chapman illustrates the proposal with a hypothetical example. If a university charged fees A$5,000 above the current fee cap, it would lose 20% of the increase from its government subsidy. For fees A$10,000 above the cap universities would lose 60%. For fees more than A$10,000 above the cap they would lose 80% of the increase from their government subsidy.</p>
<p>Higher education policy analyst Andrew Norton <a href="http://andrewnorton.net.au/2015/02/24/should-high-university-fees-be-taxed/">applied this</a> to the <a href="http://www.theaustralian.com.au/higher-education/university-of-western-australia-explains-its-proposed-student-fees/story-e6frgcjx-1227075467620">University of Western Australia’s</a> proposal to charge A$16,000 per year for each of its basic undergraduate programs.</p>
<p>Norton estimates that for humanities subjects the Phillips Chapman tax would be about A$1,000 for the first A$5,000 above the first threshold of A$6,499 and another A$2,700 for fees above the second threshold of A$11,499 up to the third threshold of A$16,499. </p>
<p>The tax is elegantly designed to cut government subsidies with increases in fees, and thus increases in the amount of money owed to the government that may not be repaid. </p>
<p>The thresholds of the Phillips Chapman tax could be changed by successive governments, allowing it to work for them. This could avoid many of the <a href="https://theconversation.com/artricle-26641">difficulties with the current bill</a> that I and many others foreshadowed such as price gouging and a consequent big increase in students’ unpaid debt.</p>
<p>It is therefore <a href="http://www.theage.com.au/federal-politics/political-news/abbott-government-considers-miningstyle-tax-to-break-senate-deadlock-over-uni-fees-20150303-13u453.html">reportedly</a> being seriously considered by the government as the latest of numerous changes floated since the bill was announced almost a year ago.</p>
<p>Norton <a href="http://andrewnorton.net.au/2015/02/24/should-high-university-fees-be-taxed/">argues</a> against a HECS tax because it wouldn’t inhibit universities’ likely allocation of some of the fee increases to research - which doesn’t directly benefit students.</p>
<p>Norton also opposes a HECS tax because it would result in some students compensating for costs they wouldn’t generate. For example, the government would reduce subsidies even for students who pay their fee upfront without incurring a loan, thus not incurring additional costs for the government.</p>
<p>While this analysis is correct within Norton’s terms, not all object as strongly as Norton to universities cross-subsiding between students, and to the extensive subsidy of research by <a href="http://www.changinghighereducation.com/2015/03/cost-allocation-in-the-research-university.html">revenue generated from teaching</a>.</p>
<p>Chapman does not discuss the interaction of the tax with the government’s proposal to require institutions to allocate 20% of additional fee revenue to scholarships for disadvantaged students.</p>
<p>Leading equity practitioner <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Higher_Education_2/Submissions">Mary Kelly</a> and <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Higher_Education_2/Submissions">Equity Practitioners in Higher Education Australasia</a> have <a href="http://www.ncsehe.edu.au/will-real-commonwealth-scholarships-please-stand/">heavily criticised</a> the proposed scholarship scheme. They say the current system is much fairer. </p>
<p>However, by increasing the HECS tax or lowering the thresholds at which it is levied, the government could increase revenue to continue funding the scholarships and student financial support <a href="http://www.education.gov.au/public-universities">which it currently plans to cut</a>.</p>
<p>The Phillips Chapman tax would be much more effective than <a href="https://theconversation.com/why-the-higher-education-reforms-need-to-be-independently-overseen-34231">earlier proposals</a> to establish a body to monitor, review or regulate fee increases.</p>
<p>That would be an impossible balancing act between being too light a regulator and imposing no discipline on fee increases, or too heavy a regulator, meaning fee “deregulation” doesn’t really exist.</p>
<p>The most fundamental objection to a HECS tax is that it would vertically stratify fees, status, resources and elitism among Australian universities. That is an outcome that Chapman and Phillips probably do not support but which Minister Pyne and the Group of Eight universities appear to seek. </p>
<p>The elite universities, which already have more resources and recruit overwhelmingly students from high socio-economic status backgrounds, would be able to charge higher fees than other universities. This would increase their resources and status, increasing benefits to their already advantaged students. </p>
<p>This would erode the relative position of most universities and would thereby risk the high ranking of Australia’s higher education system. The tax would do nothing to protect the rural universities and campuses, which crossbench senators and the National Party seek to protect. So it is doubtful that the “Pyne Bill Version III with tax” would be passed by the Senate.</p><img src="https://counter.theconversation.com/content/38354/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Moodie is an adjunct professor at RMIT University which would be able to increase its fees markedly if this proposal were adopted. While this would generate much higher revenue for the university, it is not clear whether RMIT would benefit relative to its competitor universities.</span></em></p>It seems the desired effect of Pyne’s uni reforms is to stratify the system, making the top unis better and the middle-tier unis worse. A progressive tax would allow him to achieve this goal.Gavin Moodie, Adjunct professor, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/369442015-02-02T19:02:37Z2015-02-02T19:02:37ZTime for a blunt lesson on HECS and price signals<figure><img src="https://images.theconversation.com/files/70783/original/image-20150202-25914-yqevmm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">By letting students in who might not otherwise be able to afford university, HECS sharpens the price signal.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>There continues to be a lot of discussion about the future of tertiary education in Australia. Should fees be <a href="https://theconversation.com/au/topics/fee-deregulation">deregulated</a>, places <a href="https://theconversation.com/state-funding-to-universities-is-stable-but-questions-remain-over-uncapped-student-numbers-36998">capped</a>, interest on student loans charged at the bond rate? And on, and on.</p>
<p>In all of this debate, however, there has been across-the-board praise for the HECS system, designed by economist Bruce Chapman and implemented by the Hawke-Keating government. And rightly so: it allows students to pay their share of the cost of their education over time, and do so contingent on income. This does two things. First, it provides credit to students, thereby eliminating the need to have up-front cash to pay tuition fees. Second, it provides insurance against labour market risk. Loan payments are only due when a solid income is being earned.</p>
<p>All good, right? I sure thought so. Yet education policy scholar Peter Noonan recently <a href="http://www.theaustralian.com.au/national-affairs/education/get-over-gough-whitlam-on-higher-education-fees-alp-told/story-fn59nlz9-1227196446840">said</a>: </p>
<blockquote>
<p>“Anyone who thinks that a system that blunts price signals can simply underpin price deregulation doesn’t understand economics.” </p>
</blockquote>
<p>Then University of Melbourne Vice Chancellor Glyn Davis <a href="http://www.theaustralian.com.au/higher-education/review-constraints-unclear-davis/story-e6frgcjx-1227198701229">told The Australian</a>:</p>
<blockquote>
<p>“HECS does blunt price signals but we don’t know whether it blunts them so much that it won’t work.”</p>
</blockquote>
<p>Really? The argument seems to be that in a deregulated fee environment, an income-contingent loan (HECS) means prices aren’t as informative as in a market without HECS.</p>
<p>Well, I do understand economics and I beg to differ. In this market, HECS makes prices more informative, not less.</p>
<h2>Price signals explained</h2>
<p>To see why let’s first be clear about just what a “price signal” is. The reason why people like me are fans of markets is because the market’s price mechanism has a remarkable ability to aggregate and communicate information. It can do what no central planner could ever hope to do.</p>
<p>My favourite story about how remarkable the price mechanism is in this regard comes from when I was living in Boston. I used to go to my local supermarket every day, and they had in-store-squeezed orange juice. One winter day, that seemed indistinguishable from the last, I noticed the price had more than doubled from $3.25 to $7.00. I also noticed an employee with a pricing gun changing the price of other juices in the refrigerator. </p>
<p>What had happened? It turned out that 18 hours earlier there had been a frost in Florida that had damaged orange trees, disrupting future supply. This had become known to traders, frozen concentrate orange juice prices had shot up, and local suppliers of oranges had raised their prices immediately in Boston. The supermarket manager, realising that in-store-squeezed juice and bottled juice were close substitutes raised the price of those, too. All in 18 hours — and all through markets.</p>
<p>So in a deregulated market for tertiary education in Australia what would be the price and what information would it convey? The price, of course, would be the cost of tuition. A high price would suggest a valuable degree — perhaps because of field of study (e.g. law or medicine), because of university reputation, or because of the quality of the education and educators. Right now prices are all essentially the same – so no price signal.</p>
<p>Different potential students have different information and perspectives on the value of those disciplines, universities, and faculties. The magic of the market is that the price of various degrees — in a deregulated market — aggregates and assembles all that dispersed information. This point was made forcefully by Austrian economist <a href="http://evankozierachi.com/uploads/The_Use_of_Knowledge_in_Society_-_Hayek.pdf">Friedrich Hayek</a> in 1945 and was later <a href="http://www.jstor.org/discover/10.2307/2326627sid=21105737979033&uid=2&uid=2129&uid=4&uid=70">formalised</a> by the great American economist Sandy Grossman.</p>
<p>Now, there’s other information besides prices: rankings, word of mouth, ATAR cutoffs, and more. So prices wouldn’t be the only source of information in a deregulated tertiary education market, but still a very important one.</p>
<p>The key thing to understand in all of this is that most students are credit constrained. They don’t have accumulated cash to pay tuition up front. So they have to borrow. HECS allows them to do that on very generous terms. But suppose there was no HECS. What would happen?</p>
<p>Without the private loan market stepping in this would mean a whole host of students could not afford to pay for university. So they would not participate in the market. This would be terrible for them, but also terrible for the market. Their valuable information about the future would not be incorporated into the price for tertiary degrees and that would make even those who could afford to participate worse off.</p>
<p>The bottom line is that for markets to work well they need to be liquid — they need to have a lot of participants. The more liquid they are the better they are at aggregating and communicating information. When a huge chunk of people are credit constrained and can’t participate in the market that’s bad for them and bad for the market. Letting them in, as HECS does, sharpens the price signal.</p>
<p>Would it be sharper still without income contingent repayments? I think not. That would make students bear more labour market risk and drive more students out of the market for tertiary education. Both efficient risk-sharing and efficient credit-provision makes price signals better. And that’s precisely what HECS does.</p>
<p>The trap that Noonan and Davis have fallen in to is to think that because HECS makes students less responsive in their decisions to changes in prices it makes prices less informative. Not so.</p>
<p>It is an understandable mistake, for well-functioning markets do two things. They equate supply and demand, and they convey information. Both are pretty important! But it’s in fact the latter that is what a “price signal” is really all about—particularly in a market like that for tertiary education with dispersed information and a good deal of uncertainty about the future.</p>
<p>Hayek would have liked HECS. It helps, not hinders the market weave its magic. It makes the price mechanism work even better. It’s time to stop apologising for it!</p><img src="https://counter.theconversation.com/content/36944/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is an ARC Future Fellow.</span></em></p>There continues to be a lot of discussion about the future of tertiary education in Australia. Should fees be deregulated, places capped, interest on student loans charged at the bond rate? And on, and…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/354192014-12-31T22:34:41Z2014-12-31T22:34:41ZCabinet papers 1989: Hawke government considered interest on HECS<p>The release of the <a href="http://www.naa.gov.au/collection/explore/cabinet/by-year/1988-89/">1988-89 cabinet documents</a> show that the Hawke government’s plans for Australian higher education were in some ways as radical as the <a href="https://theconversation.com/higher-ed-bill-explainer-what-will-pass-and-what-will-be-blocked-31019">policies</a> that Education Minister Christopher Pyne floated in 2014. What we pay for higher education and how the HECS system works came close to being very different.</p>
<p>Then-education minister <a href="http://en.wikipedia.org/wiki/John_Dawkins">John Dawkins</a> oversaw some of the biggest changes to higher education in Australia, including the introduction of HECS in 1989. This was at a time when the Hawke government had already gently shocked the country with a series of major economic reforms which changed Australia, including floating the Australian dollar.</p>
<p>One of the most dramatic changes during <a href="http://www.randomhouse.com.au/books/gwilym-croucher/the-dawkins-revolution-25-years-on-9780522864151.aspx">John Dawkins’ short few years</a> as education minister was turning Australia’s other institutions of higher education at the time – the Colleges of Advanced Education – into universities. This changed who taught in universities, who undertook research, and ultimately who was allowed to attend, as the system quickly expanded to include new students, teachers and researchers. In doing this he took an elite education system and turned it into a mass education system. </p>
<p>To fund this expansion in student numbers, Dawkins finalised the move away from Whitlam’s policy of no tuition fees for students by creating the Higher Education Contribution Scheme. A scheme now universally known as HECS.</p>
<p>Australians had become more used to the market driving much that government did, but as the cabinet documents reveal, higher education may have meant a different world for many Australian students.</p>
<p>Some of what could have become higher education policy then is being debated now. There has been a strong reaction against the government’s proposal earlier this year – since dropped – that <a href="https://theconversation.com/higher-ed-bill-explainer-what-will-pass-and-what-will-be-blocked-31019">HECS be subjected to a real interest rate</a>. The cabinet documents now show this was a live option in the design of the original HECS. The Department of Finance supported:</p>
<blockquote>
<p>… a suitable real interest rate be applied to outstanding debts.</p>
</blockquote>
<h2>HECS may never have been implemented at all</h2>
<p>In 1988, former NSW premier Neville Wran handed down a report on options for higher education financing. This examined, among others options, the world-first policy that was to become HECS. In assessing the findings of Wran’s report, a caucus consultative group was appointed to help guide options for the major government decision on how to pay for an expanded higher education system. </p>
<p>The powerful cross-factional caucus group looked at a number of options: direct student contributions through HECS, a levy on business, higher taxes for high-income earners and greater funding from general government revenue. All supported the idea that business should pay something towards the graduates they were employing (one recommendation never directly implemented). </p>
<p>But there was serious disagreement. A couple of working group members did not agree with the HECS proposal at all. In the end, the group came to recommend that HECS be supported while unanimously rejecting the push for a real interest rate. A uniform per year charge was also recommended for all students, irrespective of field of study. The group was worried that any attempt to match course cost to teaching costs in different courses might be disincentive to study in:</p>
<blockquote>
<p>… relatively high cost courses in areas of national priority (eg science and engineering).</p>
</blockquote>
<p>Unfortunately for many students in high-cost disciplines and those that are thought to offer high-wage potential, the policy of a uniform charge was overturned by subsequent education ministers, with students now paying different amounts for different courses.</p>
<p>Dawkins finally had cabinet agree on a HECS system where debts were indexed at consumer price index (CPI), as is still the case for HECS loans. </p>
<p>It is interesting to note in the current debate over <a href="http://www.alp.org.au/debtsentence">“debt sentences”</a>, the original projections included in the cabinet documents the anticipated time that it would take students to pay back their debt – albeit at a lower repayment requirement than is anticipated should the Pyne changes go through. The cost of most degrees were expected to take a decade or longer to repay. Some, like teachers, were expected to be burdened for at least 16 years. The current average time to repay across the board is <a href="http://andrewnorton.net.au/">about ten years</a>.</p>
<p>It is also worth reflecting that the original cabinet minutes recorded the fact that there was almost never a University of Canberra. Cabinet had agreed that the ANU should merge with the School of Music and the Canberra College of Advanced Education, the latter of which was to become University of Canberra. Given University of Canberra Vice Chancellor Stephen Parker has been a <a href="https://theconversation.com/stephen-parker-higher-education-changes-a-fraud-on-the-electorate-34909">vocal opponent</a> of Pyne’s proposed changes, you have to wonder whether the present government has days when it wishes the merger had gone ahead.</p><img src="https://counter.theconversation.com/content/35419/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gwilym Croucher is a higher education policy analyst in the office of the Vice-Chancellor at the University of Melbourne.</span></em></p>The release of the 1988-89 cabinet documents show that the Hawke government’s plans for Australian higher education were in some ways as radical as the policies that Education Minister Christopher Pyne…Gwilym Croucher, Higher Education Policy Adviser, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/284052014-06-25T20:27:19Z2014-06-25T20:27:19ZHECS for the unemployed: a finance answer to mining’s decline<p>A decade of strong mining revenue growth has seen workers disproportionately located in the “mining states” of Queensland and Western Australia. With mining investment now waning, workers drawn by in the resources boom are increasingly facing poorer prospects. </p>
<p>Faced with scarce employment opportunities, some must relocate. To ease the pain, policymakers should consider income contingent loans (ICLs).</p>
<p>A strong advocate of the potential for the use of ICLs, economist Joseph Stiglitz has argued they are an efficient (and low transactions cost) way of implementing equity contracts for human capital. </p>
<p>In a recently published <a href="http://us.macmillan.com/incomecontingentloans/JosephEStiglitz">book</a>, co-authored with Bruce Chapman and Tim Higgins, Stiglitz argues:</p>
<blockquote>
<p>“While it seems natural to link ICL with investments that increase the value of human capital — most notably education — there is no necessary reason to limit it to such investments.”</p>
</blockquote>
<p>In fact, ICLs could be used to not just finance tertiary education income support, but drought relief, community investments into social and community projects, the payment of low level criminal fines, legal aid expansion, the purchase of energy efficient devices, and extensions of paid parental leave. </p>
<p>ICLs essentially offer insurance to borrowers against both consumption hardship and default, advantages which are unavailable through the use of traditional mortgage-type loans. </p>
<p>Income contingent loans could be used for retraining and relocation expenses, partially insured by the federal government and collected via the income tax
system. </p>
<p>The loans could be provided by private financial institutions, using their likely comparative advantage in selecting and screening borrowers. Establishing the details of an ICL would naturally come after a lot of institutional negotiations, but we can flag one possible scenario.</p>
<h2>How it could work</h2>
<p>Workers in a particular area or industry deemed eligible by the
Commonwealth for an ICL would be allowed to enter a competitive financial market where intermediaries offered different packages, much as they do in the current market for loans. </p>
<p>Contracts would be for workers with prospects for employment, but no definite job on offer. These workers might need a period of retraining, with significant related costs. </p>
<p>The advantage of involving private financial institutions is that they might offer more effective screening than central government screening. A government/private partnership would reduce, but not eliminate, default risk, but at the same time encourage greater private sector involvement in the financing of retraining than would otherwise be the case. If designed well, such
an arrangement could be revenue neutral. </p>
<p>Apart from more effective screening, another advantage of the use of private markets for these loans is that, unlike the funding of higher education where very few students can provide collateral, some of the potential ICL recipients will have collateral to post, and the menu of contracts available should be more nuanced, to reflect this. </p>
<p>The loans would be for worker education expenses, technological purchases relevant to the workplace and removalist fees. Importantly, though, the biggest need for those in retraining is for income support, up to a reasonable cap. There is a case for including education expenses for some family members who wish to retrain, since these people often bear significant external costs of a move. </p>
<p>The collection of the loan repayment would occur through the tax system, in the event that the worker, or any family member in receipt of assistance, went above a HECS-style income threshold. Until such a threshold was reached, the debt would grow at an interest rate determined in the market for these contracts and, as in HECS, the loan would never be repaid if the worker failed to exceed the threshold. </p>
<p>It is feasible and inexpensive for the government to collect debts for
retraining purposes which take the form of income support for mature aged workers. Since the repayments would be collected via the income tax system, there would obviously need to be a financial agreement between the Commonwealth and the relevant institutions in which the loan is repaid at a set rate over time by the government. </p>
<p>There is already a precedent for this type of arrangement: in 1994 the government instituted the Special Supplement Loan Program designed to increase financial resources going to Austudy recipients with the initial outlays provided to students coming from the Commonwealth bank.</p>
<h2>Managing risk</h2>
<p>One key risk factor is that, unlike the recipients of higher education funding, the ICL recipients may be mid- or late-career workers with a relatively short working life left. The relative attraction of the scheme for those wishing to retire at the earliest date possible (adverse selection) and the change in behaviour of those who, having taken out a loan, then decide on an earlier-than-planned retirement (moral hazard) will increase the exposure of the
insurer, that is, the Commonwealth, to losses. </p>
<p>There are, however, options to reduce this risk. As already discussed, the use of private financial intermediaries taps into their skills for screening loan
applicants, using credit scores and similar tools.</p>
<p>In addition, the insurer (the Commonwealth) would have the power to determine eligibility at a global level – for example limiting entry into the ICL market to all workers in a particular company that shuts down. The total number of ICL
offers could depend upon the fiscal position of the Commonwealth at any point in
time.</p>
<p>And lastly, the Commonwealth could carefully choose to offer ICL market entry to workers whose labour market position was clearly the result of an outside development, rather than a hard-to-unravel combination of choice and external circumstances. </p>
<p><em>This is an edited version of a <a href="http://fsi.gov.au/files/2014/04/Menzies_Gordon_with_Bruce_Chapman.pdf">submission</a> by Gordon Menzies and Bruce Chapman to the Financial System Inquiry, which is due to report on July 15.</em></p><img src="https://counter.theconversation.com/content/28405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A decade of strong mining revenue growth has seen workers disproportionately located in the “mining states” of Queensland and Western Australia. With mining investment now waning, workers drawn by in the…Bruce Chapman, Director, Policy Impact, Crawford School of Economics and Government, Australian National UniversityGordon Menzies, Associate Professor of Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/267382014-05-21T23:46:49Z2014-05-21T23:46:49ZOn the creation of higher education cartels<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/49182/original/6xq8647c-1400709347.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Who will succeed in the free market higher education economy?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/carbonnyc/143186839">Flickr/David Goehring</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>I love the free market. It means my morning cup of coffee costs roughly the same at almost all the coffee shops near campus. </p>
<p>The free market is however ruthlessly efficient, even if it is largely responsible for the high standard of living we share in Australia. It means fortunes are made and lost, and has Darwinian consequences for inefficient players. When monopolies exist, the profits can be obscene.</p>
<p>In the <a href="http://www.budget.gov.au/2014-15/index.htm">2014 Australian federal budget</a>, plans were announced to bring the full power of the free market to the Australian higher education sector. From 2016, universities will have their budgets reduced but be free to charge undergraduates <em><strong>literally whatever they like</strong></em>!</p>
<p>It is arguably the most radical reform of the sector since the abolition of fees in the 1970s and the introduction of the Higher Education Contribution Scheme (HECS) in the 1980s. </p>
<p>Prior to the federal budget there was a limit to the government assistance one received for educating a student and also a cap on what could be charged for normal undergraduate degrees.</p>
<p>This meant that a course’s true value could not be cashed in on by the host institution. Instead the only advantage were better students attending your university. For many academics, that sufficed.</p>
<p>There is good evidence that 17 and 18 year olds pay little attention to the HECS debt they will incur when selecting an undergraduate degree. The popularity of medicine and law was not diminished by a higher HECS debt than engineering or science for instance.</p>
<h2>The Group of Eight (Go8)</h2>
<p>Each of the major capital cities has one “established” university. Sydney and Melbourne contain a second large and established institution, namely UNSW and Monash University respectively. With the addition of the Australian National University, the mainland major institutions form the Group of Eight (<a href="https://go8.edu.au/">Go8</a>) who collectively lobby government on a range of common issues.</p>
<p>Indeed the Go8 are national leaders in many fields of research. They also have the highest tertiary entrance ranks for their undergraduate courses. Although many of us would like to believe otherwise, an increase in the price of a Go8 undergraduate course is unlikely to deter undergraduates from attending the Go8 institutions if their marks allow it. </p>
<p>In economic terms a Go8 degree has an inelastic demand curve, and since the federal budget these degrees are now a licence for the Go8 to print money.</p>
<p>Higher fees will enable the Go8 to attract better staff, conduct more research and it is possible the gap between the Go8 and more junior institutions will become a chasm. In the nightmare scenario for the second-tier institutions a positive feedback loop will drive the Go8 to glory at the expense of the others.</p>
<p>On the upside the budgets of at least some of our higher education institutions will rapidly expand but we shouldn’t be under any illusion as to who will be funding all of this. <em><strong>It will be the taxpayers of tomorrow with degrees.</strong></em> What the Federal government is doing is exchanging future government debt for massive student debts. </p>
<h2>Compounding the debt</h2>
<p>These debts could conceivably be very high. Buried in the details of the budget were some gotchas. One was that HECS debts will now incur compound interest.</p>
<p>Another was that PhD students will also incur additional HECS debt for each year of their PhD, and in the meantime have their undergraduate HECS compounding.</p>
<p>If, like me, they go overseas for a few years gaining international postdoctoral experience then they’ll have the option of staying there and remaining HECS free or returning to a large compounded HECS bill.</p>
<p>For women who take years off to have a family the effects will be especially severe. If they work part time while the kids are little they might not exceed the HECS threshold until they are well into middle age, and some might end up taking a HECS debt to the grave.</p>
<p>Is there really any difference between the government owing A$30 billion or our kids? Indeed this is not so much a brilliant taxation reform as a cost-shift similar to the one between the federal and state governments around schools and medicine. Some universities will get more money but the collective debt (personal and government) will be much greater than it was before when fees rise.</p>
<p>The temptation to see what the market will stand is an enormous one for the higher education sector. Once the Go8 hike their fees their increased revenue base will mean that others in the sector will have no choice but to follow or their ability to retain the best staff and compete in research will be minimal.</p>
<h2>Competition or cartels?</h2>
<p>The high cost of living in Australia means that only a small fraction of undergraduates leave their home cities to commence their first degrees. In fact many live at home.</p>
<p>For the Go8 this is a beautiful scenario. </p>
<ul>
<li><p>The smartest kids will still want to attend the most prestigious institutions regardless of the HECS debt they will incur. </p></li>
<li><p>The economic necessity of the stay-at-home Aussie undergraduate means that there is no real competition interstate except for the very rich, and in Sydney and Melbourne there are enough kids for both Go8’s.</p></li>
<li><p>In order to compete the non-Go8 will be forced to either slash the cost of their degrees or reduce their investment in research or both.</p></li>
</ul>
<p>One could argue that the Go8 has realised their monopoly on high value courses in each capital city, colluded with each other to lobby government to remove price caps, and now stand to exploit that monopoly to maximise their profits.</p>
<p>If they were in industry, their exclusive society and annual meetings would soon raise the ire of the Australia Consumer and Competition Commission. </p>
<p>Instead they’ll be cheered on by Education Minister Christopher Pyne as they surge up the international rankings, while our national debt is progressively transferred from our government to our children. Instead of politicians setting marginal tax rates, Vice Chancellors will. </p><img src="https://counter.theconversation.com/content/26738/count.gif" alt="The Conversation" width="1" height="1" />
I love the free market. It means my morning cup of coffee costs roughly the same at almost all the coffee shops near campus. The free market is however ruthlessly efficient, even if it is largely responsible…Matthew Bailes, Pro-Vice Chancellor (Research) , Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/266602014-05-13T10:14:02Z2014-05-13T10:14:02ZInfographic: the promises vs budget measures<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1894&fit=crop&dpr=1 600w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1894&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1894&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=2380&fit=crop&dpr=1 754w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=2380&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=2380&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure><img src="https://counter.theconversation.com/content/26660/count.gif" alt="The Conversation" width="1" height="1" />
Charis Palmer, Deputy Editor/Chief of StaffEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/259482014-05-02T06:43:26Z2014-05-02T06:43:26ZRaising HECS, why not some more SSECS for education?
<p>Our treasurer Joe Hockey is looking to cut the budget and where possible create a user-pays approach to spending.</p>
<p>Universities and their graduates are an obvious target. In Australia we have the quite novel Higher Education Contribution Scheme (HECS). Students who gain a degree incur a debt that they eventually repay, if and only if their annual earnings exceed the median salary of their compatriots. Once this occurs the student pays an additional percentage of their income as a tax until the debt is repayed. </p>
<p>I kind of like it, although in some ways I’d prefer to just have better high-end tax scales or a higher Goods and Services Tax rate, as I believe that major disincentives to becoming more educated are ultimately to your country’s detriment.</p>
<p>As I was lucky enough to enter our higher education system in the early 1980s my education was “free” but 30 years later my children are incurring debts of > A$50K for their degrees. HECS contributes to high effective marginal tax rates that hurt graduates just when they are trying to enter the housing market and contemplating starting families. It is also an incentive to go and live overseas because then you never pay back a cent!</p>
<p>Opponents of HECS would point out that although my wife and I were educated for nothing, we are now paying extremely large amounts of tax at a stage of our lives when we can afford it, not when we were starting our family and buying our first home.</p>
<p>There’s a push from the <a href="https://go8.edu.au/">Group of 8</a> universities to be able to raise fees/HECS and it is likely that the conservative government will acquiesce to their demands.</p>
<p>This will almost certainly mean higher HECS debts for our graduates, and create a more “free-market” approach to higher education, more akin to the US system.</p>
<p>Vice Chancellors such as ANU’s Ian Young have argued that the talented from lower socioeconomic backgrounds will have scholarships made available to them to ensure that the system remains fair and equitable.</p>
<p>The market will then sort itself out. Sure there will be winners and losers, but what better way to shake those pesky academics out of their ivory towers, right Mr Pyne?</p>
<h2>Introducing ‘SSECS’</h2>
<p>But why stop at increasing HECS? I’d like to propose the introduction of “SSECS”. For one thing it has an awesome acronym, and for another what magical thing makes tertiary but not secondary education taxable?</p>
<p>SSECS, in case you hadn’t twigged already, will be the Secondary School Education Charge Scheme. Students who go to any high school that receives taxpayer money (<em>i.e. all of them!</em>) will incur a “SSECS debt” that they won’t have to pay back unless they ever get a job.</p>
<p>No longer will the taxpayer be subsidising people to attend high school and learn how to read, write and do mathematics that are ultimately a licence to print money! Instead the user will pay. </p>
<p>There’s some powerful arguments for the introduction of SSECS. For one thing, universities run all sorts of bridging courses to teach students what they should have learnt in school anyway. At university they incur a HECS debt, whereas the kids that were smart enough to do the right subjects at school get their education for free! What’s fair about that?</p>
<p>The introduction of SSECS will stop this anomaly!</p>
<p>As part of the reform, government secondary schools will be liberated to set their own “SSECS” fees and market forces will help dictate which schools offer the best value for money. Subjects that require specialist teachers, or labs will soon attract a higher SSECS debt than others.</p>
<p>The best teachers will be head-hunted by schools that can afford to pay them what they deserve, competition will flourish and they’ll be more money in the system.</p>
<p>Soon Australia will have the best secondary education scheme in the world and our Education minister Christopher Pyne will smile even more ever!</p>
<h2>Primary schools next</h2>
<p>Once the bugs in SSECS are ironed out we’ll move on the primary school sector and introduce “PECS”. Won’t this be a disincentive to some lower SE groups to attend school I hear you cry? </p>
<p>Fear not! Scholarships will be offered to talented students identified at the age of four or five to ensure those with ability will still have the opportunity to enter primary education without any disincentive. The rest will incur their PECS debt during everything from “Mickey Mouse” subjects like grade one finger-painting art classes to music and English. PECS will ensure that they ultimately they put back into society what they are taking out - but only once they start earning.</p>
<p>So in the future when your barista gives you change for your morning latte you’ll know that the taxpayer funded mathematics they learnt in primary school in order to make this possible will no longer be subsidised by the taxpayers!</p>
<p>One day our kids might be lucky enough to pay back US-magnitude fees not just because they went to university, but because they were educated at all. Alternatively the Treasurer might want to have the courage to investigate genuine tax reform, not just twiddling the percentages of existing taxes.</p>
<p><strong>Acknowledgements</strong></p>
<p>This article was inspired by a clever talk by Conor King which speculated about why we <strong>do not have</strong> an Australian Secondary Academic Ranking guiding entry to secondary schooling.</p><img src="https://counter.theconversation.com/content/25948/count.gif" alt="The Conversation" width="1" height="1" />
Our treasurer Joe Hockey is looking to cut the budget and where possible create a user-pays approach to spending. Universities and their graduates are an obvious target. In Australia we have the quite…Matthew Bailes, Pro-Vice Chancellor (Research) , Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/252542014-04-07T04:21:04Z2014-04-07T04:21:04ZStudent debt costs are an obstacle to new student loans<figure><img src="https://images.theconversation.com/files/45719/original/y5jydqw4-1396833931.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The idea of adding student income support to their HELP debt has been floated, but student debt is already high.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/downloading_tips.mhtml?code=&id=179275697&size=medium&image_format=jpg&method=download&super_url=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTM5Njg2MjY3MiwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfMTc5Mjc1Njk3IiwicCI6InYxfDEwMTI3NTg4fDE3OTI3NTY5NyIsImsiOiJwaG90by8xNzkyNzU2OTcvbWVkaXVtLmpwZyIsIm0iOiIxIiwiZCI6InNodXR0ZXJzdG9jay1tZWRpYSJ9LCJoZ2ZZWWFiWGJBUDV0OTQzd0hLY2tiVjVBNXMiXQ%2Fshutterstock_179275697.jpg&racksite_id=ny&chosen_subscription=1&license=standard&src=-MbGR7iytA1968HZToQpxQ-1-41">Shutterstock</a></span></figcaption></figure><p><a href="http://grattan.edu.au/publications/reports/post/doubtful-debt-the-rising-cost-of-student-loans/">A Grattan Institute report</a> I co-authored highlights student debt costs, with the finding that the government could save $800 million a year by retrieving unpaid debts from deceased estates and students who have moved abroad. </p>
<p>The report <a href="http://grattan.edu.au/publications/reports/post/doubtful-debt-the-rising-cost-of-student-loans/">Doubtful debt: the rising cost of student loans</a> found that 17% of the A$6 billion a year lent through the Higher Education Loan Program (HELP) is likely to be doubtful debt – loans that are not expected to be repaid. Total doubtful debt could reach $13 billion by 2017.</p>
<p>These debts have been building up since Australia pioneered income contingent loans for students with HECS in 1989. Unless people with student debt earn more than a threshold amount — <a href="http://www.ato.gov.au/rates/help-repayment-thresholds-and-rates/">$51,309 for 2013–14</a> — they don’t have to repay their loan. These loans aim to reduce students’ financial risks while keeping government education expenditure under control. </p>
<p>The success of HECS led to new income contingent loans schemes for full-fee higher education students, student amenities fees, study abroad and some vocational education students. Ultimately it all ends up as <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/QG/HELP">Higher Education Loan Program (HELP)</a> debt. </p>
<p>Extending income contingent loans to student income support has often been suggested. According <a href="https://www.universitiesaustralia.edu.au/news/commissioned-studies/Australian-University-Student-Finances-in-2012#.U0DoD3fpc_0">to one survey</a>, a majority of full-time undergraduates would be interested in taking out a HECS-like loan to increase their income. A loan could improve their living standards while studying, and perhaps help them work less and study more.</p>
<p>Although it is stalled in the Senate, there is already a proposal to convert <a href="http://www.humanservices.gov.au/customer/services/centrelink/student-start-up-scholarship">Student Start-Up Scholarships</a> to a HELP-like loan. While this change would not give students extra cash compared to now, it would create a scheme that could easily be adapted to do so. </p>
<p>During the 2013 election campaign, <a href="http://www.liberal.org.au/latest-news/2013/08/25/coalitions-policy-support-apprentices">the Coalition promised</a> a HELP-like ‘Trade Support Loan’ of up to $20,000 to finance “everyday costs” for apprentices in vocational education Certificate III and IV courses. </p>
<p>In principle, new uses for income contingent loans are welcome. They are a good policy option for people who are unlikely to have low lifetime incomes, and so do not require a subsidy, but do have a cash flow problem. </p>
<p>Despite the policy attractions of income contingent loans, HELP is turning into an expensive program. On the government’s current estimates, 17% of new HELP lending will not be repaid. For 2013-14, that means $1.1 billion of the $6.3 billion in new HELP loans is likely to be doubtful debt. By 2016-17, as HELP lending increases, that figure will approach $1.5 billion.</p>
<p>These numbers suggest caution in new uses for income contingent loans.</p>
<p>With income support loans students would borrow more overall, decreasing their chances of paying back all their debt. The full-time workforce participation rate of female graduates starts declining in their late 20s and early 30s. As less than 20% of part-time jobs pay more than the HELP repayment threshold, any debt remaining by this time may not ever be repaid. </p>
<p>The extension of loans into the vocational education sector through <a href="http://studyassist.gov.au/sites/studyassist/helppayingmyfees/vet-fee-help/pages/vet-fee-help">VET FEE-HELP</a> and the proposed Trade Support Loan could also increase HELP’s costs. Although some tradespeople earn six-figure sums, generally vocational education qualification holders earn less than university graduates. That would translate into lower repayment rates. </p>
<p>In the Doubtful Debt report, we suggest ways of reducing HELP’s costs while still protecting students from financial hardship. </p>
<p>The quickest way of reducing doubtful debt would be cutting the income threshold for repayment, but the report recommends caution on this idea. When the threshold was slashed in 1997-98, demand for university education from mature age people fell. Many of them work already and would have to repay while still studying. That conflicts with the goal of HELP encouraging people to study.</p>
<p>The threshold was increased in 2004, but the report suggests that it could be indexed to the consumer price index instead of increases in average weekly earnings. This would slow its rate of growth, and over time more people would make repayments. </p>
<p>Some HELP doubtful debt is caused by people living overseas. The report recommends a flat annual HELP repayment for people outside Australia, but on its own this would not make a major difference to doubtful debt. Most overseas HELP debtors eventually return and repay. </p>
<p>The change that would make the biggest financial difference is ending the current practice of writing off HELP debt in deceased estates. Almost all other debts, including those owed to the government, must be paid from the estate. </p>
<p>Most people who die without fully repaying their HELP debt will do so in their sixties, seventies or eighties. Although their personal incomes will not have been high enough to trigger repayment of all their student debt, this does not mean that they were poor. Many of them will have been in high income households. About 40 per cent of partnered female graduates earning less than threshold have partners who earn $100,000 a year or more. </p>
<p>The main beneficiaries of the HELP deceased estate write-off are likely to be the adult children of HELP debtors. This makes the write-off very poorly targeted social policy. If HELP was repaid from all estates worth $100,000 or more it would focus expenditure on families that are more likely to be genuinely needy.</p>
<p>If HELP doubtful debt costs can be controlled, there would be more scope for new uses for income continent loans. Under current repayment policies, the level of doubtful debt suggests that governments should be very cautious about lending students larger amounts of money.</p><img src="https://counter.theconversation.com/content/25254/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Norton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A Grattan Institute report I co-authored highlights student debt costs, with the finding that the government could save $800 million a year by retrieving unpaid debts from deceased estates and students…Andrew Norton, Program Director, Higher Education , Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/233472014-03-31T19:46:51Z2014-03-31T19:46:51ZHow selling off student debt will affect students: it won’t<figure><img src="https://images.theconversation.com/files/42344/original/4q8mpktj-1393219999.jpg?ixlib=rb-1.1.0&rect=0%2C322%2C3220%2C2265&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Would selling the student loan debt really be such a bad thing?</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/downloading_tips.mhtml?code=&id=79498447&size=huge&image_format=jpg&method=download&super_url=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTM5MzI0ODczMSwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfNzk0OTg0NDciLCJwIjoidjF8MTAxMjc1ODh8Nzk0OTg0NDciLCJrIjoicGhvdG8vNzk0OTg0NDcvaHVnZS5qcGciLCJtIjoiMSIsImQiOiJzaHV0dGVyc3RvY2stbWVkaWEifSwiZm1zME40R0RKQ2JSVWYwUDZXeGJoS1BNUjZRIl0%2Fshutterstock_79498447.jpg&racksite_id=ny&chosen_subscription=1&license=standard&src=KZyW_nCbP3aEmgxzqqXa4Q-1-29">www.shutterstock.com.au</a></span></figcaption></figure><p>The cost of the national student loan debt held by the federal government has gathered pace to pop the <a href="http://www.dailytelegraph.com.au/news/students-loan-scheme-blows-out-to-30-billion/story-fni0cx4q-1226802726631">A$30 billion mark</a>, <a href="http://www.abc.net.au/news/2013-10-28/pyne-wont-rule-out-privatising-hecs-debt/5051194">perpetuating rumours</a> that a debt sale could be on the cards. Should that happen, it wouldn’t be a bad thing for students.</p>
<p>We first need to understand how the cost of the debt has grown so large. Australia <a href="http://www.innovation.gov.au/highereducation/ResourcesAndPublications/Resources/Pages/DemandDrivenFundingForUndergraduateStudentPlaces.aspx">recently removed the cap</a> on the number of undergraduate university places, opening the doors to thousands of students who wouldn’t otherwise have gone to university. Many of these students came from disadvantaged backgrounds, or were the first in their family ever to set foot inside a lecture theatre, <a href="http://www.theaustralian.com.au/higher-education/uncapped-system-boosting-equity-regional-universities/story-e6frgcjx-1226861542665">particularly so in regional areas</a>. The uncapping of student places will prove to be one of the most under-recognised nation-building initiatives of our time. It will return a social dividend over the career span of every student who benefited from it. </p>
<p>But it has come at a price. All these new students became eligible to apply for a government HELP loan to assist with the cost of tuition, increasing the HELP debt owed to the government. There has been a $1.6 billion increase in HELP costs in 2012-13 alone.</p>
<p>I would be the first to call this a long-term national investment. But in reality the Treasury budget is no magic pudding and we expect the government to balance its books. </p>
<p>I’d be surprised if the Commonwealth were not considering three obvious options to bring the growing HELP debt under control. The first is to once again cap university places. The second is to change the loan contract terms in the government’s favour. That could mean charging interest on student loans, lowering the salary threshold at which repayments begin, or even chasing down debts from students who die or work overseas. The third option is selling HELP debt to banks and using the money to continue the uncapped student scheme.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/42345/original/3bxt5xcc-1393220172.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Does it matter to the student who they repay their loan to?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/downloading_tips.mhtml?code=&id=110919224&size=huge&image_format=jpg&method=download&super_url=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTM5MzI0ODkyMiwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfMTEwOTE5MjI0IiwicCI6InYxfDEwMTI3NTg4fDExMDkxOTIyNCIsImsiOiJwaG90by8xMTA5MTkyMjQvaHVnZS5qcGciLCJtIjoiMSIsImQiOiJzaHV0dGVyc3RvY2stbWVkaWEifSwidmdGOVc4ZzVaNUVJd3MydFBXaTJuRlI2MGtrIl0%2Fshutterstock_110919224.jpg&racksite_id=ny&chosen_subscription=1&license=standard&src=lYRiKBA5owNe_uvD5-PwZA-1-26">www.shutterstock.com.au</a></span>
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</figure>
<p>Choosing option one - capping student numbers - would be a national tragedy. Option two – being tougher on loan repayments – could create a disincentive to study for all but the more privileged of students. Option three, however - selling, or to be more accurate, <a href="https://theconversation.com/selling-off-the-hecs-debt-could-be-a-super-solution-19676">securitising the debt</a> - should have no effect on students whatsoever.</p>
<p>Here’s what would happen if the HELP debt were securitised. Students would still enter into a loan contract with the government, as they always have. The government would still be the financier of that loan - that would remain unchanged too. And the government would continue being the collector of debt repayments through the Tax Office.</p>
<p>What would be different is that the Commonwealth would sell the rights to its $30 billion stream of long-term debt repayments at a reduced price of, say, $15-$20 billion today. Yes the government short-changes itself a little in the process, but it removes debt from its books while receiving an immediate cash injection - as opposed to waiting years to see that money trickle in.</p>
<p>In this scenario, nothing changes for the students. They continue to make their repayments to the ATO, most commonly via salary garnishing. But the ATO then hands that repayment to a bank that bought the right to the debt. </p>
<p>Not only is this the only option that spares students, but it gets the government out of its financial pickle as well. The bank wins because they love holding other people’s debt and since they don’t have to go to the polls every three years, they can afford to be patient.</p>
<p>Eventually they will recover more from that repayment stream than what they initially paid for it, although they won’t ever recover the full debt amount. There will always be a proportion of bad debtors but this would be factored into the sale price. </p>
<p>Critics of this plan claim there could be pressure from the banks for the government to sweeten the deal at the expense of the students. This could come in the form of interest being applied to the loans, repayments starting at a lower salary threshold, or even dead students being pursued for unpaid debt. However these are fairly weak arguments because the government could make these changes tomorrow, and enjoy the extra loan repayments all to itself, without having to bother with a securitisation deal.</p>
<p>There is plenty of discussion around where the value in this deal lies for government and for the banks, but virtually no debate on what is best for students. If selling the debt helps secure the future of the uncapped system, providing places for students who would not otherwise go to university, then it’s a no-brainer for me.</p><img src="https://counter.theconversation.com/content/23347/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott Bowman is Vice-Chancellor and President of Central-Queensland University</span></em></p>The cost of the national student loan debt held by the federal government has gathered pace to pop the A$30 billion mark, perpetuating rumours that a debt sale could be on the cards. Should that happen…Scott Bowman, Vice-Chancellor and President, CQUniversity AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/205872013-11-20T23:20:02Z2013-11-20T23:20:02ZSomeone always pays: why higher education is never free<figure><img src="https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Higher education costs money, so someone always has to pay.</span> <span class="attribution"><span class="source">Graduate image from www.shutterstock.com</span></span></figcaption></figure><figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/35724/original/pbzgs7zp-1384989392.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Higher education costs money, so someone always has to pay.</span>
<span class="attribution"><span class="source">Graduate image from www.shutterstock.com</span></span>
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</figure>
<p>After some speculation, this week education minister Christopher Pyne has said the Coalition <a href="http://www.news.com.au/national/breaking-news/no-hecs-increase-under-coalition-pyne/story-e6frfku9-1226761955699">has no plans to increase university fees</a>. His comments come after much debate over selling the HELP – formerly known as HECS – debt , or more accurately, <a href="http://www.theaustralian.com.au/higher-education/hecs-debt-sale-would-cost-students-more/story-e6frgcjx-1226749206763">securitising it</a>. In both instances, the mere hint of changing university fees or the HELP loan scheme was met with visceral responses. </p>
<p>Even the announcement of a review of the demand <a href="https://theconversation.com/new-government-review-to-examine-uncapped-uni-places-20156https://theconversation.com/new-government-review-to-examine-uncapped-uni-places-20156">driven system of funding</a>, which largely has implications for student access to university, has prompted concern over possible change in student contributions.</p>
<p>Little wonder. A quarter century after the introduction, how much students contribute is still the public issue around university education in Australia.</p>
<p>Take the proposal for selling the A$23 billion loan book. A sensible public policy discussion around it becomes quickly very difficult. As any proposal to change the HELP system becomes the blazing emblem of new ways to punish those who dare seek higher education.</p>
<p>Concern over anything that might affect student debt and how it is repaid is understandable. Students end their university education with a sizable debt, albeit in the form of a very favourable loan collected through the tax system. Years of HECS-HELP repayments can have very real consequences for some former students long into the future.</p>
<p>The government could again make higher education free to all students. Fees could be gone in one deft strike with public funding to replace HECS-HELP. It could probably be done for $5 billion a year or so (depending on who you ask). And for a relatively modest cost remembering the Commonwealth budget is near $400 billion.</p>
<p>But this is unlikely to happen. Current political budget priorities mean it is difficult to imagine an additional $5 billion increase to defence or health, let alone for higher education.</p>
<p>In all probability, the Australian public accept students should contribute toward their higher education and thinks the HECS-HELP system is a fair way to do it. If they really did not, they would likely have punished the government that introduced HECS, or the subsequent one that raised it twice. Whether we like it or not, over time politicians usual reflect broad public opinion.</p>
<p>Students (and often enough their parents) are fully justified in asking whether taking on such a debt is worth it. Protest over the mere suggestion of selling the loan book is nothing compared to the anger of half a million plus Commonwealth supported students feeling they are not getting a “fair go”.</p>
<p>Education is never free. Someone always has to pay for it. If not students, then at present it largely falls to the Australian public.</p>
<p>If universities, their students and supporters want HECS-HELP unchanged (or a return to more public money subsidising students), the onus is on them to make the public case. Shrill cries of victimhood will not likely cut it.</p>
<p>Universities do produce significant public good through teaching and research. Yet this is not always as self-evident to the wider public as many people in the system assume. When faced with powerful arguments for why students should pay more, and why more should be done with less, it is up to those privileged enough to be part of Australian education to secure deep and lasting support for public funding for universities by making a stronger case.</p>
<p>However much those of us in the system may at time wish it were otherwise, universities have an implicit contract with state and society that requires institutions to explain publically what they do.</p>
<p>Relying on often-vague expressions of public goodwill is a risky strategy for a sector faced with the pressing forces of technological change and international competition.</p><img src="https://counter.theconversation.com/content/20587/count.gif" alt="The Conversation" width="1" height="1" />
After some speculation, this week education minister Christopher Pyne has said the Coalition has no plans to increase university fees. His comments come after much debate over selling the HELP – formerly…Gwilym Croucher, Higher Education Policy Adviser, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/196822013-10-30T04:47:49Z2013-10-30T04:47:49ZDon’t sell off HECS: reforming student loans could bring in real savings<figure><img src="https://images.theconversation.com/files/34084/original/cb8c6362-1383106668.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Potential changes to the ownership of student loan repayments could make reform of the system more complicated. </span> <span class="attribution"><span class="source">Student loan image from www.shutterstock.com</span></span></figcaption></figure><p>According to the <a href="http://budget.gov.au/2013-14/content/bp1/html/index.htm">budget papers</a>, Australian students and former students could owe the government more than $40 billion in unpaid <a href="http://studyassist.gov.au/sites/studyassist/helppayingmyfees">Higher Education Loan Program</a> debt by 2017. </p>
<p>Unsurprisingly, HELP, formerly known as HECS, is starting to attract political attention. Education minister <a href="http://www.theaustralian.com.au/higher-education/hecs-debt-sale-would-cost-students-more/story-e6frgcjx-1226749206763/">Christopher Pyne has said</a> that the Commission of Audit, which is currently looking for savings in the federal budget, is going to look into whether “securitising” this debt would be better than leaving it on the government’s books.</p>
<p>HELP does have financial problems, but securitisation – selling the rights to <a href="https://theconversation.com/selling-off-the-hecs-debt-could-be-a-super-solution-19676">future income streams from student repayments</a> – does not of itself solve them. The danger is that it could create additional political problems that make reforming HELP harder. </p>
<p>HELP has two main financial issues, high doubtful debt and interest subsidies. The budget papers <a href="http://www.innovation.gov.au/AboutUs/Budget/Pages/Library%20Card/PortfolioBudgetStatementsDIICCSRTE2013-14.aspx">estimate that 19% of new HELP debt</a> will not be repaid. There are interest subsidies because the government indexes HELP debt at inflation, but itself borrows at higher rates. As a result of the issues, the estimated market value of HELP debt is much less than its face value. </p>
<p>The $26 billion HELP debtors owed in 2012 <a href="http://grattan.edu.au/static/files/assets/28a92f8b/184_2013_mapping_higher_education.pdf">is written down to $19 billion</a> in the government’s balance sheet.</p>
<p>As these numbers imply, HELP is generous to students and former students. They don’t pay anything <a href="http://www.ato.gov.au/Rates/HELP-repayment-thresholds-and-rates/">unless they earn at or above $51,309 a year</a>, and this threshold is increasing in real terms as it is linked to average weekly earnings. If HELP debtors go overseas they don’t pay anything, and the debt is written off if they die. No other publicly available loan has such soft terms. </p>
<p>Put in annual terms, HELP’s costs are estimated to be $1.7 billion a year by 2016-17, equivalent to nearly a quarter of what the government expects to spend on tuition subsidies. The <a href="https://theconversation.com/should-universities-suffer-to-pay-for-school-funding-13472">higher education cuts</a> announced by the former government earlier this year that caused so much angst in the sector would be unnecessary if HELP’s costs were brought down. </p>
<p>The cost of HELP is also a potential obstacle to further uses for income-contingent loans. The <a href="http://www.universitiesaustralia.edu.au/page/submissions---reports/commissioned-studies/student-finances-survey/">Universities Australia student finances survey</a> found that most full-time undergraduates would be interested in a HECS-like loan for living expenses. </p>
<p>In principle this is a good idea, but aside from it directly replacing Youth Allowance – <a href="http://www.humanservices.gov.au/corporate/publications-and-resources/budget/1314/measures/young-people-and-students/25-15245">as is happening with the Start-up Scholarship</a> – it is hard to see the government agreeing to it on HELP’s current arrangements. </p>
<p>Securitisation does not of itself solve these problems, although it would mean that private investors incur the risk of doubtful debt being worse than forecast by the sale price. What it could do is create pressure from the finance industry to increase the value of future HELP repayments. </p>
<p>Opposition higher education spokesman <a href="http://www.theaustralian.com.au/higher-education/hecs-debt-sale-would-cost-students-more/story-e6frgcjx-1226749206763">Kim Carr objects to selling HELP debt</a> for this reason. Private investors would want repayment rules less favourable to students and former students. But another way of looking at this is that securitisation would make it more difficult to reform HELP. </p>
<p>History tells us that it is hard enough to reform higher education finances when the beneficiaries are other students or other government priorities. HECS was <a href="https://www.mup.com.au/items/9780522864151">bitterly opposed by many when introduced</a> and still remains opposed by some, despite its success in expanding access to higher education. That the proposed higher education spending cuts were to fund schools did not save the then government from near-universal condemnation. </p>
<p>Reducing HELP’s costs to increase the profits of investors would be a near-impossible political sell. After all, the finance industry does not attract public sympathy. </p>
<p>There are also many potential changes other than securitisation that are worth considering. These include lowering the threshold at which HELP repayment starts, collecting from HELP debtors working overseas, charging real interest, and removing the death write-off of remaining HELP debt. Other countries with similar loan schemes already do the first three things on this list, and we could too if the public believed the savings would be well spent. A Grattan Institute project is looking into these options in more detail. </p>
<p>Selling HELP debt to private investors could give the government billions of dollars in the short term, but reforming HELP could lead to billions more in repayments over the long run. </p><img src="https://counter.theconversation.com/content/19682/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Norton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>According to the budget papers, Australian students and former students could owe the government more than $40 billion in unpaid Higher Education Loan Program debt by 2017. Unsurprisingly, HELP, formerly…Andrew Norton, Program Director, Higher Education , Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.