Fair dinkum fee paying

May 3, 1996

Australia, land of the fair go, is widely perceived as having a student support system that is one of the best and fairest in the world. Federally funded higher education institutions are (currently) forbidden by law to charge tuition fees to Australian citizens for courses leading to "awards" such as degrees, diplomas, or certificates.

First recommended by the Wran committee in 1988, the Higher Education Contribution Scheme was introduced in 1989. It has worked well and for seven years has remained substantially unchanged in character if not in absolute cost. The Australian higher education system - and a whole generation of parents and prospective students - now waits with some nervousness to discover what impact, if any, the new coalition government's higher education policy will have on this widely admired scheme.

Its central, internationally innovative feature was its "pay-when-able" principle. By design it decoupled access from wealth, and by linking repayments to future individual success it went a long way towards ensuring that academic potential, not parental privilege, was the primary determinant of an individual's access to university education. All students have to pay HECS, and all pay exactly the same amount. There is no means testing, so the relative impact of the charge is less for the rich than for the poor, but the charges are sufficiently low not to be a deterrent even to the least well-off.

Moreover, and crucially, students can choose to defer their payments and to pay nothing until, years later, their subsequent earnings reach a threshold value, which is set at Aus$,675 (Pounds 14,500). At that point they begin to pay off their debt at a compulsory sliding-scale rate linked to their pay: the higher their income the higher the rate of repayment. For incomes just over the threshold, 3 per cent of the debt must be repaid each year. For incomes of Aus$44,030 the repayment rate becomes 5 per cent of the debt; the top rate is 6 per cent. The Tax Office calculates an individual's compulsory minimum repayment each year, reflecting any changes in earnings so that repayment rates can go down as well as up as income fluctuates.

The debt is index-linked but is formally interest-free. The only feature that has even a hint of regressiveness about it is that if students choose not to defer payment but to pay "up front" they get a 25 per cent discount on the charge - this is of course equivalent to a surcharge on those who defer payment, but it has been sold - effectively - as an incentive rather than an deterrent. About 15 per cent of the total liability is paid up front each year; this comes from about 20 per cent of students, of whom two-thirds are either part-time (43 per cent) or external (23 per cent) students. So only about 5 per cent of the annual liability is paid up front by full-time students even though the latter make up 62 per cent of all undergraduates.

Students most likely to pay up front are those in business or education courses; those least likely to pay are studying arts, science, or health-related courses. Students aged over 30 are more likely than school leavers to pay as they go.

Many reports have been commissioned to investigate the scheme's impact on access. Has it improved access among the lower socio-economic groups? Has it been a deterrent to any sections of the population? The results have been consistently indeterminate. No trends have been detectable above the statistical noise level, which at least means that any possible negative impact cannot have been very great.

The overwhelming advantage of the system is that not only is it - as far as one can judge - a fair system, but (perhaps even more importantly) it is perceived to be fair. Australian universities may lack the cachet, but they also lack the stigma, of being seen as serving the interest only of the privileged few.

At the same time it should not be forgotten that HECS itself simply provides a manageable way of paying for tuition fees. Even students have to eat and very few are eligible for Austudy grants. During the recent election campaign, one redneck gibe was that only aboriginals or the very poor could afford to send their children away to study. It is certainly true that most students either live at home or take part-time jobs, or both, and this is one of the most striking differences between the life of an Australian and a United Kingdom student.

For 1996 the annual HECS charge is Aus$2,442. Averaged over the university system, this is said to represent about a fifth of the total cost, but the rule of thumb is not always useful in individual cases since students pay exactly the same HECS charge whether they are following courses that are in inherently high cost or inherently low-cost disciplines. This is true even for medicine or dentistry, where costs may be between twice and three times those for arts subjects.

As was widely anticipated, the incoming Howard government discovered a budget shortfall of about Aus$8 billion, and there are blood-freezing rumours that higher education may be in for some brutal pruning. Inevitably thoughts turn to ways in which the student contribution might be increased to offset reductions in the size of block grant funding. How might more money be screwed out of HECS?

One could step outside the system and charge fees - for example, either by requiring up-front "joining fees" in addition to HECS, or by making access to HECS competitive and then making fee-paying access available to those who miss the cut. But both of these are incompatible with the scheme's founding philosophy, favouring the rich over the poor. The second of these might be less bad than the first, because the ablest of the less-well-off would still get HECS, but it lacks the unequivocal egalitarian coherency of the existing system.

There are several ways in which the system might be tuned. One could lower the income threshold at which payments become due, or increase the rate of repayment once threshold is exceeded; or one could increase the rate of interest on the debt (set by the Consumer Price Index). But these have limited short-term revenue potential, and there is the potential for creating a debt trap, since they would all hit hardest at those least able to pay. One could increase the discount for upfront payments, but unless this more than proportionately increased the number of people paying in advance, this might even decrease total revenue.

The other straightforward option is simply to increase the HECS charge across the board. As long as the increase was not so great as to choke off demand, this could produce an instantaneous increase in the income stream. By preserving the deferred pay-when-able aspect, the advantage to the rich would be minimised and the fundamental fair-go principle would be preserved.

Since the income-earning capacity of students taking the most expensive courses may be greater than that of those on the less expensive ones, the "pay-when-able" principle could be preserved even if a differential charge is introduced. Perhaps a three-tier system will be introduced to replace the Aus$2,409 flat rate: an increase to Aus$3,000 for the cheapest courses would be reasonable, with charges of about Aus$4,000 for intermediate-cost studies and Aus$5,000 for the most expensive such as agriculture, veterinary science, medicine and dentistry. An incidental benefit of such a scheme might be to persuade students away from high-cost, high-demand disciplines to cheaper and often under-enrolled disciplines. Whatever the details the pay-when-able feature will be a critical factor in maintaining demand even as the user pays more.

Bernard Moulden is dean of the faculty of science at the University of Western Australia.

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