AUSTRALIA: HIGHER EDUCATION CONTRIBUTION
1. This essence of this scheme remains unchanged
since its introduction in 1989.
2. Students are expected to make a contribution
towards the cost of university education. Either the student makes
an up front payment with a 25 per cent discount. Or the Government
pays the contribution through the HECS Reservea special
account established for this purpose. The student then repays
the contribution after completion of the course subject to reaching
a specified income threshold. This is referred to as an income
3. The repayments go into the HECS Reserve.
Initially, public funds underwrote most of the students' HECS
loans but the largest source now is the growing level of repayments.
4. Although the HECS Reserve is hypothecated
for use in higher education, the level of university funding is
determined by the Government so as to take account of student
contributions. Hence, universities do not receive more income
because students pay HECS. In practice, university operating grants
have increased somewhat, although funding per student has fallen.
5. The scheme began with a flat rate annual
contribution of some £1,000. In 1997, three bands were introduced
with the average contribution doubled. The subjects in the bands
were selected partly according to cost and partly according to
demand. For example, law was brigaded with medicine and dentistry
in the highest band. A further change allowed universities to
recruit additional students at full cost (and without access to
income contingent loans).
6. As in the UK, there is no real rate of
interest on the loans. The starting point for repayments has been
reduced over time to near the UK level of about £10,000 per
annum. But in Australia, the initial rate of repayment is 3 per
cent rising to 6 per cent above about £20,000 per annum.
This compares with a flat rate of 9 per cent above the starting
point in the UK.
7. The scheme is essentially an income contingent
loan scheme for the payment of fees, accompanied by a discount
for up front payments. If introduced in the UK, there would be
an initial cost which on a resource accounting basis would cover
mainly the interest subsidyand would amount to about 35
per cent of the cost in cash. The discount for up-front payments
can be shown to compensate for the lack of interest subsidies.
About 25 per cent of students take advantage of the discount.
Nevertheless, such a discount for the better off might not be
seen as attractive in the UK.
8. A major achievement of the scheme is
that it has yielded substantial private contributions to university
funding without affecting participation significantly.
9. Although the scheme offers no funding
benefits for universities, it is relatively simple to administer
centrally and avoids the need for universities to collect fees
(except for the up-front payments). The Government sets the details
of the arrangements and the HECS scheme offers no scope for universities
to set their own fee levels. The separate full-cost fee regime
offers some flexibility for universities but is burdensome. There
is some evidence that it has encouraged a lowering of entry standards.
10. Arguably the present fee regime in the
UK offers more potential flexibility for universities. Any problems
over students paying the fee up-front with a parental contribution
could be met by a selective loan scheme.