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HECS System Changes: Impact on Students

Listed author(s):
  • Gillian Beer
  • Bruce Chapman

This paper examines the impact of changes to Australia’s student financing system on various hypothetical students who choose the Government’s proposed deferred payment options, HECS-HELP and FEE-HELP. The present values of their HECS repayments under the existing (2004) system are compared with the present values of repayments under various alternative systems. These alternative systems relate to increasing the HECS charge by 25 per cent for HECS-HELP students and introducing a fee paid with a debt of $12,500 per year for FEE-HELP students. For HECS-HELP students it is found that the impact of an increase of 25 per cent in the charge is likely to be small. For example, we show that for ‘average’ males and females, an increase of 25 per cent in the HECS charge will result in a much smaller true financial cost than this. Further, graduates earning relatively low incomes are protected from the 25 per cent increase in the HECS charge by the higher repayment thresholds and they (especially female graduates) will pay substantially less HECS compared with the current system. High income graduates, however, will experience true price increases which are considerable and of the order of 20 per cent or more. For FEE-HELP students, not surprisingly, the present values of HECS repayments are substantial given debt accumulations of $12,500 per year for a four-year period of study.. However and importantly, it is found that many low-income graduates will not fully repay debts of this amount. As well, because debt totals are to be limited to $50,000 per student it is possible to model the effect of the need for some to pay a proportion of the charge up-front, and it is clear that in this case FEE-HELP adds very substantially to a student’s payment obligation and is also arguably very regressive. A commentary is offered on ways in which the proposed 2005 changes to financing might be improved.

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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 484.

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Length: 22 pages
Date of creation: Dec 2004
Handle: RePEc:auu:dpaper:484
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  1. Bruce Chapman & Chris Ryan, 2002. "Income-Contingent Financing of Student Charges for Higher Education: Assessing the Australian Innovation," CEPR Discussion Papers 449, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. L. G. Hines, 1955. "Economics and the Public Interest," Land Economics, University of Wisconsin Press, vol. 31(2), pages 108-119.
  3. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-751, May.
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