Posted tagged ‘HECS’

Dealing with debt

July 8, 2014

As the global debate continues about how to resource higher education, there are some strong voices suggesting that the only way to generate sufficient cash to pay for educational excellence without discouraging the less affluent from entering universities is through tuition fees funded through student loans. Under such systems students pay nothing on commencing their studies, but rather take on a loan, with the sum of the loan representing some or all of the cost of their courses. That loan is later repaid by instalments when the student, now a graduate, is in employment or economically active and earning more than a specified income.

This system, it is suggested, is superior to ‘free’ higher education (i.e. studies funded entirely by the taxpayer) because it secures more resources for universities than the taxpayer could afford to provide, and to a tuition fee-based model because the student pays nothing up front or during the course of their studies and so is not excluded by lack of means. It is used in Australia (where the Higher Education Contribution Scheme – HECS – was introduced in 1989) and more recently in England (and not, as is sometimes suggested, in the United Kingdom as a whole).

The introduction of a similar scheme in Ireland has been proposed by some for a while. The Irish Universities Association began to argue for the ‘introduction of a system of income contingent loans and top up fees’ by 2009. More recently the new President of University College Dublin Professor Andrew Deeks, in an interview with the Irish Times, said:

‘My personal view is that the contribution system that has worked in Australia for the past 20 years now provides a good model. It is a deferred payment of a debt, which is accumulated module by module as students progress through the course.’

There is little doubt that the Irish system of higher education is now seriously under-funded. It is also easy to see the attraction of a resourcing framework that does not create a financial entry hurdle for students. Whether the Australian model is as good as is suggested could however be open to argument. One of its significant features is the by now very high level of unpaid debt. It is estimated in Australia that over A$30 billion in student debt is outstanding, of which up to A$7 billion will never be recovered (nearly £4 billion). Now one of the live issues in Australian politics is the question of whether student debts owed by people now deceased can be recovered from their estates. Other studies have suggested that the prospect of high indebtedness is also discouraging some poorer students from entering higher education.

Nobody has yet found the silver bullet for funding higher education, and all debate and exploration should be welcomed. As countries in the developed world identify the need to promote universities that are resourced to host world class discovery, attract very high value industry investment and provide graduates with top skills, it is clear that the funding burden is not an easy one for the taxpayer to carry. Equally it remains of vital importance that appropriately able people from all socio-economic backgrounds are encouraged to pursue a university degree. However, whether a loan system is the answer is, in my view at least, somewhat doubtful.

Give us a loan?

October 2, 2012

As the complexity of higher education funding, and the scarcity of available resources to provide funding, has become greater, an increasingly popular method of addressing it has been the idea of student loans. When the Westminster government introduced its recent framework for increased university fees for England, ministers emphasised that a university degree programme was still accessible to students without paying anything up front, and indeed without repaying anything until a reasonable salary threshold has been reached. By providing student loans, the system allows students to embark upon their studies without either them or their parents having to fork out anything at that point.

So is this as good as it sounds? No financial hurdles for students while studying, but financial benefits for universities from fees? Actually, England was not first to try this idea. Australia has been operating a fees/loans system for some time. It was introduced in 1989 as the ‘Higher Education Contribution Scheme’ (HECS), which has more recently been replaced by the ‘Higher Education Loan Programme’ (HELP). This scheme has been used as a model for higher education funding programmes contemplated or introduced elsewhere, including in Ireland. Student loan programmes are also common in the United States.

However, all these schemes are somewhat problematic. In Australia it was estimated in 2010 that outstanding student loans debt was $15.8 billion. In the United States student debt overtook credit card debt around the same time. Furthermore, it has been revealed in America that where graduates begin to re-pay their student loans, nearly 10 per cent default within two years. It is not unlikely that this pattern will be repeated in England, and if it is, it will create a whole new funding issue as the expected resources from loan repayments do not fully materialise.

There is, I believe, a strong case for tuition fees paid by the well off, with financial support for those who cannot afford to pay. There is also a case for state funding of higher education fees, provided the state understands the scale of the funding requirement. There seems to me to be no convincing case for loan schemes. They deter students, and they create unpredictable financial issues. It is time to move away from the whole idea.