Executive Summary
The Higher Education Contributions Scheme (HECS) was introduced in 1989 as an innovative means of financing large scale expansion of the higher education system. At the time, the introduction of income contingent loans was perceived as a more appropriate means of seeking a greater contribution from individuals towards the cost of their education while minimising potential adverse impacts on participation. This paper explores whether HECS has acted as a disincentive to higher education and, in particular, whether particular groups have been adversely affected by HECS and subsequent changes to the system.
The paper first considers the impact of HECS on disposable income. With the introduction of HECS, persons with an annual income of $30,000 paying off a HECS debt experienced a fall in their disposable income of around $15 per week. This increased to around $50 per week for persons with an income of $50,000. Among the 1996 reforms to the HECS regime, probably the most significant in terms of its impact on disposable incomes was the lowering of the repayment threshold from $28,495 to $20,701. Persons within this income range experienced falls in disposable incomes of between $12 and $24 per week. The lower repayment threshold is more likely to have deterred persons from combining work and part-time study. Full-time students, given they have lower incomes, were less likely to have been affected by the lower threshold.
The paper investigates the impact of HECS on the demand for higher education as measured by applications through State Admissions Centres. Our analysis found that the demand for higher education among school leavers increases in line with the number of persons completing Year 12. We found only weak evidence that the number of Year 12 school leaver applications responds to labour market conditions (though this is in addition to the impact of labour market conditions on the Year 12 retention rate). However, the introduction of HECS in 1989 did not deter interest in higher education among school leavers. We found that the 1996 HECS changes reduced demand for higher education among school leaver applicants by around 9,000 students per year. These findings contrast with those from an earlier study (Andrews, 1997) showing that the introduction of HECS discouraged school leaver interest in higher education but the 1996 HECS changes had not lowered demand. This suggests the need for caution in interpreting the influence of HECS on the demand for higher education among school leavers
We found that interest in higher education among ‘mature age’ persons was unrelated to the size of the feeder population, though the evidence suggests there has been a steady upward trend in demand for higher education among this group. Our analysis shows that ‘mature age’ applications for higher education increase as unemployment rises. The introduction of HECS in 1989 did not deter interest in higher education among ‘mature age’ persons. Rather, any negative effects from HECS were swamped by other unspecified factors, such as the general expansion of places at the time, increasing demand by around 9,000 persons per year from 1989 onwards. We found that the 1996 HECS changes lowered demand for higher education among ‘mature age’ applicants by around 17,000 persons per year.
The impact of HECS on different groups in the student population is an important issue. We reviewed the impact of the 1996 HECS changes on patterns of commencing students. It does appear that older persons were more sensitive to the 1996 HECS changes, though it must be said that the evidence is indicative rather than being strongly conclusive on this point. In particular, older persons new to higher education, studying part-time or externally appear to have been more responsive to HECS changes than other groups. However, it is important that these changes are kept in perspective. For example, the participation rate of 40-44 year-olds fell from 0.38 per cent in 1996 to 0.31 per cent in 2001. Overall, it seems reasonable to conclude that the balance of the student population has changed, with fewer older students, especially those new to higher education or studying part-time or externally, in response to the 1996 HECS changes.
An ongoing concern has been the impact of HECS on persons from different socio-economic status (SES) backgrounds. The evidence suggests that opportunities for higher education among persons from a low SES background have increased in line with the overall expansion of the higher education system, though the share of low SES has been remarkably unchanged over time. Importantly, in terms of the analysis in this paper, the introduction of HECS and its variants since that time, have not discouraged overall participation in higher education among persons from a low SES background. That said, the share of males from a low SES background in HECS Band 3 courses (the most expensive) declined appreciably, by 38 per cent, following the introduction of differential HECS charges. This directly affected a small number, around 100 persons, in comparison with the size of the overall domestic student population.
In summary, the 1996 changes to HECS, as theory would suggest, have had some impact on the demand for higher education. These changes need to be evaluated in the context of the large scale expansion of the higher education system that occurred during the 1990s. Arguably, HECS has played a major role in expanding access to higher education. The lesson from this study is that any future changes to HECS arrangements would need careful design to minimise their impact, particularly among groups more sensitive to student charges.