Income-Contingent Financing of Student Charges for Higher Education: Assessing the Australian Innovation

In Australia in 1989, for the first time in the world, a broadly-based income contingent loan policy for the payment of higher education charges was adopted, when the government introduced the Higher Education Contribution Scheme (HECS). This can be seen to be a watershed in terms of the relationship between economic theory and education policy. Fourteen years later it is timely to revisit the arguments for its introduction and review Australia's experience with income contingent charging for higher education. That is the purpose of this article. It is argued that compared to all possible alternatives, income contingent loan arrangements are preferable for both economic and social reasons, so long as the administrative context allows efficient collection of the debt. These points are explained in detail. The political background to HECS is examined, and the paper considers the implications of the scheme for both revenue and the access of the poor to higher education. It is demonstrated that neither the introduction of the scheme in 1989 nor the radical modifications undertaken in 1997 have had any deleterious consequences for the participation of less advantaged students.