HECS System Changes: impact on students

In early 2002 the new Minister for Education, Science and Training, Brendan
Nelson, announced a wide-ranging reform agenda with respect to the funding
(and other areas) of Australian higher education. Over the ensuing months the
Government released a number of discussion papers, in a process referred to as
Crossroads, and initiated and promoted a series of consultations with stakeholders
and others covering the essential issues.
The process led to potentially far-reaching policy changes with respect to the
financial operation of Australian universities, announced in the 2003-2004
Commonwealth Budget, and passed by the Parliament in modified form at the end
of 2003 (to take effect from 2005). An important part of the reforms concerns the
nature and extension of the operation of the Higher Education Contribution
Scheme (HECS), the income related arrangement for the payment of student
charges introduced in 1989.
This paper addresses several questions. One, what is likely to be the true
financial cost for different types of students and graduates subject to increases of
25 per cent in HECS charges (the new HECS-HELP arrangements), given that the
first income threshold of repayment is to be increased substantially? Two, what is
likely to be the true financial cost to different types of students and graduates of
so-called ‘full-fees’, covered by an income related loan known as FEE-HELP?
And three, what are the potential consequences for effective student charges of
capping loans at $50,000, meaning that some students will have to face the
unpalatable requirement of paying a proportion of the charges up-front?
It is important to note that it is not possible to predict from this type of
analysis the absolute numbers of students who will face higher, lower or
unchanged effective HECS debts from the 2005 reforms. The reason is that there
are no available data on the likely distributions of the future incomes of students
and the number of graduates in the income categories modelled. We seek instead
to illustrate the consequences for students and graduates with typical hypothetical
debts and future incomes.
A brief analysis of the benefits of income related loan arrangements, and a
description of the changes to HECS to be implemented in 2005 follows.
Subsequent sections, in turn, explain the methodology used to analyse the impact
of changes on students, present the results under various scenarios for HECSHELP students, and describe the results for those paying full fees under different scenarios of FEE-HELP. These sections are followed by a commentary on the
HECS-HELP and FEE-HELP systems and some conclusions.