Sustainability of HECS-HELP

Budget Review 2015–16 Index

James Griffiths

Since the introduction of the demand-driven system for bachelor degrees in 2012, successive governments have made policy decisions aiming to improve the fiscal sustainability of the higher education system. This Budget marks a continuation of this approach, with the Government sticking with its policy of fee deregulation under the Higher Education Loan Programme (HELP, also known as HECS-HELP), and announcing that it will seek to recover HELP debts from people who have moved overseas.

In considering the Government’s treatment of HELP in this Budget it is necessary to recognise that the past two years of HELP reforms remain unlegislated. This Brief sets out proposed HELP changes as a guide to the assumptions in this year’s Budget.

Background

2013–14 Budget

In the 2013–14 Budget, the then Labor Government announced a series of higher education savings measures, including the removal of the incentives for voluntary and upfront payment of HELP debts, in order to assist with the funding of the then Government’s Better Schools Plan.[1] This policy was not legislated prior to the 2013 federal election.

The Abbott Coalition Government presented the savings measures to Parliament as part of the Higher Education Support Amendment (Savings and Other Measures) Bill 2013.[2] In his second reading speech, the Minister for Education, Christopher Pyne, stated that the Bill’s fiscal savings would ‘ensure the sustainability of funding for the higher education sector’.[3] However, as the Coalition Government proposed not to fund the last two years of the Better Schools Plan, the Labor Opposition reversed its position and did not support the legislation.[4] As a result, this Bill did not pass the Parliament.

2014–15 Budget

The 2014–15 Budget proposed wholesale changes to the higher education sector, including:

  • an average 20% cut to funding through the Commonwealth Grant Scheme (CGS), the deregulation of undergraduate student fees and a new fee for those embarking on a PhD
  • a real interest rate for HELP debts and a lower income threshold for repayment and
  • loan fees would be removed as the FEE-HELP and HECS-HELP schemes were amalgamated.

The policy rationale for the average 20% cut in Commonwealth contributions to the funding for each student place was that it would rebalance the system and ensure it was ‘fair and sustainable’.[5] It would also likely assist in containing the cost of extending the demand-driven system to private providers and sub-bachelor tertiary qualifications. The 2013–14 HELP measures were also included in this package.

The initial higher education reform legislation, the Higher Education and Research Reform Amendment Bill 2014, did not pass the Senate.[6] Following negotiation with the Senate, the Abbott Government presented a series of policy compromises to the Parliament in the form of the Higher Education and Research Reform Bill 2014.[7] These proposals also failed to receive legislative assent.

2015–16 Budget

The Budget does not change the mix of measures contained in the Higher Education and Research Reform Bill 2014 and confirmed in MYEFO. The spending and performance data is predicated on the basis that student contributions will be deregulated, the demand-driven system extended, and HELP debt repayment will start at a lower income threshold.[8]

Higher Education Loan Programme — recovery of repayments from overseas debtors

This revenue measure will extend the HELP repayment framework to debtors residing overseas from 1 July 2016.[9] HELP debtors residing overseas for six months or more will be required to make repayments of their HELP debt at the same repayment rates as debtors in Australia if their worldwide income exceeds the minimum repayment threshold. This measure was proposed by the peak universities body, Universities Australia, in August 2014. [10] Minister Pyne formally announced the policy change prior to the Budget on 2 May 2015.[11]

The implementation of this measure will require legislative change to include debtors residing overseas in the current repayment framework and include any associated penalty provisions in cases of debts continuing to go unpaid. Both England and New Zealand have income-contingent loan schemes to cover tuition fees—both schemes apply to overseas debtors and both are administratively complex. However, a quarter of England’s overseas student debtors were in default as of 2013, while 60% of overseas debtors in the New Zealand system have overdue payments.[12]

The measure is expected to recover $26.0 million over four years. This should be considered within the context of a HELP loan total projected to be at $62.7 billion by the end of the same period.[13]

The measure may be able to pass the Senate as long as it is not included in the overall higher education reform package. The relevant Shadow Minister, Senator Kim Carr, stated that the Opposition would support measures ‘to protect fairness and integrity in universities, including the HECS system.’[14] Liberal Democrat Senator Leyonhjelm has previously labelled the HECS scheme as ‘generous’ and so could support measures to ensure repayment of outstanding debt.[15]

Comment

The last three Budgets have included measures to shift the burden of payment for higher education, by ensuring that students contribute more and taxpayers contribute less. The overall aim is to make the programme more fiscally sustainable. However, it should be noted that there is no general consensus about what constitutes ‘sustainability’ in the context of an income-contingent loan programme such as HELP. In the absence of an agreed definition of what sustainability is, it is difficult to evaluate the likely success of proposed changes to the system.



[1].          C Emerson, (Minister for Tertiary Education, Skills, Science and Research), Statement [Higher Education], media release, 13 April 2013; Australian Government, Budget measures: budget paper no. 2: 2013–14, p. 216.

[2].          Parliament of Australia, ‘Higher Education Support Amendment (Savings and Other Measures) Bill 2013 homepage’, Australian Parliament website.

[3].          C Pyne, ‘Second Reading Speech: Higher Education Support Amendment (Savings and Other Measures Bill) 2013’, House of Representatives, Debates, 21 November 2013, p. 973.

[4].          C Ey and C Dow, Higher Education Support Amendment (Savings and Other Measures) Bill 2013, Bills digest, 23, 2013–14, Parliamentary Library, Canberra, 2013.

[5].          Australian Government, ‘Higher Education’, Budget 2014–15 website, p. 1.

[6].          Parliament of Australia, ‘Higher Education and Research Reform Amendment Bill 2014 homepage’, Australian Parliament website. The Bill was negatived on the second reading.

[7].          Parliament of Australia, ‘Higher Education and Research Reform Bill 2014 homepage’, Australian Parliament website. The Bill was negatived on the second reading. For analysis of the Bill see J Griffiths, Higher Education and Research Reform Bill 2014, Bills digest, 69, 2014–15, Parliamentary Library, Canberra, 2014.

[8].          See Australian Government, Portfolio budget statements 2015–16: budget related paper No. 1.5 – Education and Training Portfolio, p. 37. The Outcome 2 Strategy includes ‘continued pursuit of reforms to the provision of Commonwealth subsidies for students undertaking higher education to ensure that students have a choice of course and higher education provider and that these providers can perform at their best’ and ‘strengthening the Higher Education Loan Programme’.

[9].          Australian Government, Budget measures: budget paper no. 2. 2015–16, p. 9.

[10].       See Minister Pyne’s comments in M Knott, ‘Graduates abroad should repay HECS, sector says’, The Sydney Morning Herald, 5 August 2014, p. 7.

[11].       C Pyne (Minister for Education and Training), New plan to recover HECS debt from Aussies living abroad, media release, 2nbsp; May 2015.

[12].       A Norton, Doubtful debt: the rising cost of student loans, Grattan Institute, pp. 31–3, April 2014.

[13].       Australian Government, Budget measures 2015–16, op. cit., p. 9; Australian Government, Budget strategy and outlook: budget paper no. 1 2015–16. p. 6-23.

[14].       K Carr (Shadow Minister for Higher Education, Research, Innovation and Industry), HECS crackdown—Here we go again, media release, 2 May 2015.

[15].       P Coorey, ‘University deregulation looks doomed’, Australian Financial Review, 15 March 2015, p. 4.

 

All online articles accessed May 2015. 

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