HECS System Changes: Impact on Students

n 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