AUSTRALIA

Rise of the income contingent loan
A little more than 25 years ago, an Australian economist called Bruce Chapman devised a brilliant scheme that allowed the federal government to impose tuition fees on the nation’s university students without them having to pay a cent upfront.What became known around the world as the Higher Education Contribution Scheme, or HECS, now called an Income Contingent Loan programme, took some of the heat out of an increasingly angry debate over making students pay for their degrees. Up until that time, the cost of going to university in Australia was minimal.
The fact that students could defer paying tuition fees until they graduated, and then only if their annual income reached a certain level, silenced the critics who had argued fees would deter the most disadvantaged students and lead even those better off into eventual penury.
Today, as Professor Chapman points out in a feature in this edition of University World News, at least eight countries are using variations of income contingent loans to make higher education more accessible to the young and old. Even the US Congress is considering a bill to introduce an income contingent loan scheme there.
Chapman goes further: he says such loan systems could be adopted in other fields, ranging from recompensing poor countries for skilled migrant emigration and legal aid for civil disputes, to a profit-contingent loan arrangement for R&D for small and medium enterprises, or covering the payment of low-level criminal fines, or out-of-pocket healthcare costs.
Plans by the Netherlands government to adopt a similar system to cover university fees, however, have generated widespread student and academic protests – as University World News correspondent Jan Petter Myklebust reports in a News article in this edition.
There is one catch to a deferred repayment system, however: the amount that current and former Australian students owe the government is nearing A$30 billion (US$24 billion) and it seems likely that 20% of that huge sum will never be repaid. That is because many graduates will never reach the income threshold at which a tax surcharge begins to apply – currently around A$53,000 a year – others will die while yet others may leave Australia and never return.
Chapman back in the news
Now Chapman is back in the news with a suggestion that could help the deeply unpopular conservative government of Tony Abbott break a deadlock in the Australian Senate preventing the introduction of a deregulated fee system for universities.
A majority of senators have refused to pass a bill that would give vice-chancellors the freedom to fix their own fees, which are currently set by the government.
Deregulation as proposed by the government has led to fears that the top eight research-intensive universities could impose charges far above those of lesser institutions. They, in turn, would be forced to offer cheaper tuition to attract students and this could eventually end up costing them money and even send some into bankruptcy.
Under the Chapman proposal, universities could still set their own fees but they would face a “levy” if they raised the charge above a fixed sum. That is, their government grants would be cut by the amount they overcharged students.
In a submission to a Senate inquiry into the bill, Chapman notes that after HECS was introduced in Australia in 1989, fees charged by universities increased from effectively zero to around A$3,000 (US$2,350) a year in 2015, yet there was no impact on student demand and enrolments actually increased after HECS was instituted.
But he says that when New Zealand introduced its version of HECS in 1991, universities were allowed to set whatever prices they wanted. A later government was then forced to impose price caps after eight years because the charges had increased by at least 300% for arts, and much more in other fields.
Likewise, when the UK government allowed price caps to increase from £3,000 a year per full-time student to £9,000 a year in 2011, 95% of the universities had raised their tuition charges to the highest level.
“My view is that there is no clear economic justification for public sector universities to be allowed the use of a government instrument such as HECS to raise substantial revenue, in a situation in which this can lead to unjustifiably high fees,” Chapman says in the submission.
“An informed guess is that if Australian universities were to charge the sort of prices that I believe many of them could under the planned fee deregulation, the revenues received would in many cases far exceed the costs of teaching.”
Instead, under the new levy proposal, universities would still set their own fees but if the price imposed exceeded a government-set figure, there would be a reduction in the overall government grant to the institution. And, to ensure the control over price-fixing worked, the cut in grants would become increasingly more severe the higher the charge imposed.
“It is essentially a conditional market-based reform, very similar to proposals... provided to the UK government on fee deregulation in 2010,” Chapman says.
“Importantly, the sort of policy approach suggested would retain the benefits that deregulation seeks to achieve: the ability of our higher education institutions to offer quality services for students in a differentiated higher education system, and one in which institutions can pursue their own strategies to attract and retain students.”
He then concludes: “Critically, though, policies such as this scheme, if designed well, have a real potential to limit price rises to socially reasonable and fair levels.”
The National Tertiary Education Union, however, disputes Chapman’s claims about the effectiveness of a levy. In a submission to a Senate inquiry, the union says the proposed ‘tax on fee increases’ will not only fail to achieve its stated objective of taking the heat out of excessive fee increases, but that it will add unnecessary complexity to the funding system, “making it ripe for manipulation and gaming”.