And then there were none: HECS discounts

Parliament house flag post

And then there were none: HECS discounts

Posted 16/04/2013 by Leonie Doyle

On 13 April 2013 the Australian government released a Statement on Higher Education. One of the three savings measures announced is ‘removal of the 10 per cent discount on paying university fees upfront and the 5 per cent bonus received for voluntary repayment of HELP debts’. 


This move is the end of the line for two incentives that have been whittled away over the past ten years. Abolishing them is expected to save $230 million.

Higher Education Loan Program (HELP)

The Higher Education Contribution scheme (HECS) was first introduced in 1989. Its purpose was to provide income contingent loans to Commonwealth supported students.

In 2005 there was a major overhaul of the scheme. Additional loans were added to create a stable of loan options under an expanded Higher Education Loan Program (HELP). HECS became HECS-HELP and was joined by new income contingent loans: FEE-HELP for students who pay full fees to study and OS-HELP for students studying overseas for one or two semesters.

These were followed by VET FEE-HELP (in 2007) for students studying higher level vocational education and training courses and SA-HELP (in 2011) for payment of student services and amenities fees (student union fees). The legislative basis for HELP is the Higher Education Support Act 2003.

There are currently two financial incentives to encourage upfront or early repayment of debt:
  • Upfront payment discount
    When HECS was first introduced a 15 per cent discount on upfront payment was introduced with it. The discount was increased to 25 per cent in 1993, reduced to 20 per cent in 2005 and reduced again to 10 per cent from 1 January 2012. That is, if a course costs $10,000 the student (or student’s family) who chooses to pay upfront only has to pay $9,000.
  • Voluntary repayment bonus
    In 1995 the government introduced a bonus for voluntary repayment (of $500 or more) of HECS debt. The voluntary repayment bonus was initially set at 15 per cent, reduced to 10 per cent in 2005 and reduced again to 5 per cent from 1 January 2012. That is, if a student repays $1,000 a loan repayment of $1,050 would be recorded by the Australian Taxation Office.

Upfront payment discounts work, sort of

When the discount for upfront payment of HECS was raised from 15 to 25 per cent, there was a gradual increase in the proportion of students paying upfront from one in five in 1990 to one in four students by the mid 1990s. Then upfront payment commenced a slow but sustained decline.

There was no unusual drop in upfront payment when the discount was reduced from 25 to 20 per cent. But when the 20 per cent discount was cut to 10, the Department of Education, Employment and Workplace Relations anticipated that half of the students paying upfront would commence deferring.

In 2010 less than 17 per cent of students paid upfront (taking advantage of the discount), 80 per cent took out a HECS-HELP loan, and 3 per cent paid upfront and weren’t eligible for the discount.

The case for removing discounts

To some extent, removal of the discounts may be defended on equity grounds. Discounts provide an advantage to those who have the capacity to pay upfront, that is, typically wealthier students or their families. The government wrote in 2011 that ‘These discounts advantage those with the capacity to pay their fees upfront. Analysis of the upfront discounts provided in 2009 showed that only around 12 per cent of these students came from low-SES postcodes.’

Short term solution, long term problem

Removal of the HELP payment incentives doesn’t actually take money out of the higher education system. Some students will, for whatever reason, continue to pay upfront and/or make voluntary repayments. In that sense, removing the discounts is taking money from those (able-to-pay) students, not from higher education. On the face of it, the government saves money.

But many more students will simply defer the entirety of their loan repayments until their taxable income reaches the repayment threshold (in 2012-13 this is $49,095). Converting Student Start-up Scholarships into student loans will also add to HELP debt.

In a recent report, the Grattan Institute reported that by mid-2012 accumulated HELP debt stood at $26.3 billion, or $19.4 billion in ‘fair value’ terms. (The government writes down the value, reflecting the hidden costs of lost interest and doubtful debts. Up to 17 per cent of HELP debt is not expected to be repaid by those whose income is too low, who move overseas, or die.)

The measures announced recently will add to HELP debt that is already high and rising. So what is a savings measure in the short term is something that will ultimately cost quite a lot.

Comments

  • 21/01/2014 1:57 PM
    Thomas Luckey said:

    This is a very good analysis of the issue. Has there ever been a parliamentary or department review/position on closing the 'loophole' that allows people to avoid repaying their HELP debt by permanently moving overseas? The system as it stands effectively provides you with a free tertiary education, on the condition that you don't work in Australia. It seems a bit counter-intuitive.

  • 21/01/2014 1:58 PM
    Leonie Doyle said:

    Thanks for this comment Thomas. That's an interesting question. I can refer you to this 21 January article in the Australian Financial Review (paywall): http://www.afr.com/p/national/labor_to_chase_billion_in_university_yhkfVmtdVaRZeFJtgoXNhK which suggests that the government is looking at ways to recover HECS payments from people living overseas. We should stay tuned I guess.


Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

Refugees asylum immigration Australian foreign policy Parliament climate change elections women social security Australian Bureau of Statistics Employment indigenous Australians Sport illicit drugs people trafficking taxation Medicare welfare reform Australian Defence Force higher education welfare policy United Nations health financing gambling Asia Middle East criminal law disability Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget school education forced labour aid statistics Australian Electoral Commission WADA income management Industrial Relations emissions trading dental health Australia in the Asian Century steroids detention Private health insurance OECD ASADA labour force transport Law Enforcement Australian Federal Police people smuggling poker machines National Disability Insurance Scheme Australian Crime Commission 43rd Parliament slavery election results Papua New Guinea Australian Public Service constitution International Women's Day corruption Afghanistan Fair Work Act child protection Aviation debt federal election 2013 parliamentary procedure ALP New Zealand Newstart Parenting Payment political parties Census politics High Court skilled migration voting Federal Court terrorist groups Higher Education Loan Program HECS governance youth paid parental leave environment foreign debt gross debt net debt defence capability customs Senate doping health crime health risks multiculturalism aged care Gonski Review of Funding for Schooling sex slavery sea farers Special Rapporteur leadership United Kingdom UK Parliament Electoral reform banking firearms public policy Population violence against women domestic violence mental health China ADRV terrorism science research and development social media pensions welfare ASIO intelligence community Australian Security Intelligence Organisation accountability public service reform Carbon Pricing Mechanism carbon tax mining military history employer employee fishing by-election European Union same sex relationships international relations coal seam gas family assistance planning Senators and Members United Nations Security Council Australian economy food vocational education and training Drugs health reform Indonesia children codes of conduct terrorist financing health system money laundering early childhood education Canada Financial sector national security fuel disability employment Tasmania integrity transparency Australian Secret Intelligence Service sexual abuse federal state relations World Trade Organization Australia housing affordability bulk billing water renewable energy children's health health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation expertise climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry food labelling Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets Indigenous constitutional recognition of local government local government consumer laws PISA royal commission US politics language education baby bonus Leaders of the Opposition Parliamentary remuneration Australia Greens federal election 2010 servitude Trafficking Protocol energy forced marriage rural and regional Northern Territory Emergency Response ministries social citizenship human rights emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories workers Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation standards NATO Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly public health smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine regional unemployment asylum refugees immigration political finance donations foreign aid Economics efficiency productivity human rights; Racial Discrimination Act employment law bullying asylum seekers Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies trade unions same-sex marriage disorderly conduct retirement Parliament House standing orders public housing prime ministers election timetable sitting days First speech defence budget submarines Somalia GDP forestry world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission regulation limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders animal health live exports welfare systems infant mortality middle class welfare honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Constitutional reform referendum Rent Assistance competition policy pharmaceutical benefits scheme obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant homelessness regional engagement social determinants of health abortion Youth Allowance Members suspension citizen engagement policymaking workplace health and safety Trafficking in Persons Report marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament alcohol Korea rebate Australian Greens presidential nomination Racial Discrimination Act entitlements political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing Hung Parliament political education social inclusion Social Inclusion Board maritime early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin Iran sanctions Norway hospitals republic President Barack Obama Presidential visits ANZUS qantas

Show all
Show less
Back to top