Paying extra to not pay now: the issues with a loan fee for the Higher Education Loans Program

Andrew Norton and Ittima Cherastidtham of the Grattan Institute have released Shared interest: a universal loan fee for HELP.  It proposes that the Government introduce a common 15% loan fee for each element of the Higher Education Loans Program (HELP).

The proposal needs to be taken seriously to think through its implications.  Mr Norton is one of Senator Birmingham’s four higher education Counsellors. It is reasonable to assume his argument will have influence.

The major weakness is the reliance on the exaggerated estimates of the cost of supporting HELP on Government borrowings.

The comment below targets the implications of a loan fee and the case made for it. It then considers the transformation in how Government underwriting of student payments is portrayed from being a ‘contribution’ to being a ‘loan’.

Whether a loan fee should be part of the Government’s next package is an open question.

We need to assess a whole package to see what a loan fee, if included, contributes.  As a means for some reduction in the cost of higher education for Government a loan fee is better than cutting into university funding or imposing real interest in HELP balances. It is worse than directing any additional payment from students to their education now.

Impact of a general loan fee

HELP pays for students their student charges or fees on the basis that the student later pays the charge or fee when their income is sufficient.  There is no fee for the Government paying for the two largest groups of students:

  • undergraduate and postgraduate students in Government funded places, accessing HECS-HELP for their degree studies and OS-HELP for overseas study and work experience; and
  • postgraduate students using FEE-HELP to pay their fees.

There is a loan fee for:

  • undergraduates using FEE-HELP, primarily at the few non-funded private universities and non university providers – a 20% loan fee; and
  • vocational education and training students using VET FEE-HELP – a 25% loan fee.

The loan fee is added to the base fee.  It increases the student total debt.  For example, a $10,000 undergraduate course fee attracts a 20%, or $2000, loan fee if the student uses FEE-HELP rather than pay upfront.

Under the Grattan 15% proposal, the cost for most university students would increase by 15%.  For students in Government funded places, the increase would be between $938 and $1,566 a year on 2016 student contribution rates (see Table One and full comment attached below).

Successful HEPP faces death by a thousand cuts

This article by IRU Executive Director, Conor King was published in The Australian newspaper 11 May 2016

The federal government’s flagship equity program has never been allowed to become what it was meant to be.

When the latest round of cuts hit, the Higher Education Participation Program will have been turned back into the small, well-meaning but ineffective equity program it replaced.

Since its inception, HEPP has been the go-to program when governments of both sides wanted savings. The $152 million hit in last week’s budget will remove 40 per cent of its funding by 2019-20.

The outcomes from HEPP have been positive, if not as high as predicted.

While the growth in low socioeconomic status students has been faster than for others — they will reach 18.1 per cent of all students in the coming year — it is still way short of 25 per cent but shows progress towards the initial target of 20 per cent.

So why do we need HEPP and how should it operate? To be effective, it needs to be a program with scale, so it avoids being well-meaning but piecemeal.

The 2008 Bradley review argued that its predecessor was too small, over-regulated and caught up in worthy but small projects. It was not driving significant change. Denise Bradley combined the new demand-driven system with a key funding element, equal to 4 per cent of base funding, to create incentives for universities to improve participation and completions of students from all under-represented groups.

The argument was that if universities received serious money for each low-SES student, they would have the incentive to increase enrolments and the flexibility to allocate resources as necessary to ensure retention through to graduation. Action would be university-wide, not limited to the efforts of equity units. It was a comprehensive approach.

The key issue now is whether universities responded in the anticipated way. One sign of success would be that students from all backgrounds enrolled in similar proportions and that universities ensured support was available for students who needed it. Read the full article attached or read here (subscription based news source).

Conor King, Executive Director, Innovative Research Universities 10 May 2016

Three problems with the Supplementary Report on HELP from the Parliamentary Budget Office

On 6 April 2016, The Parliamentary Budget Office (PBO) released Report no. 02/2016 Higher Education Loan Programme: Impact on the Budget offering models and costings for the HECS/HELP program into the future, taking into consideration Labor’s demand driven policy and Liberal’s potential deregulation one – amongst others.

IRU Executive Director, Conor King asked four big questions of the PBO 13 April 2016.

The PBO issued a supplement to the report on 20 April 2016.

Conor King has three main problems with it.

  • First, the Parliamentary Budget Office’s (PBO) estimate is highly dependent on the interest rate for Government borrowing. Its chart shows that when the interest rate was low the cost reduced twice.  Change its assumption about future interest rates for Government borrowing and the estimated costs will grow or shrink accordingly.
  • Second, the PBO estimates the cost to Government differently depending on whether the Government directly pays a university or advances money for a student.  The PBO assumes Government borrows to advance money for students; but uses revenue to pay universities directly.  The consequence is that on its assumptions given time it would be cheaper for Government to eliminate student payments in favour of direct Government subsidy.
  • Third, the Supplementary Report still leaves opaque the long term cost of HECS-HELP, the current funding system for undergraduate education. This prevents use of the Report to consider the consequence of the current system against the various alternatives.

Read more attached or contact Conor King 0434 601 691

Four questions for the Parliamentary Budget Office on the true cost of HECS-HELP

I do not fully understand the Parliamentary Budget Office report: HELP, impact on the budget.

The headline figure in is that in 2025-26 the annual cost of HELP on an underlying cash balance basis will be $11.1 billion. How does a suite of programs bobbing along at an estimated cost of around $2 billion suddenly and inexorably begin to rise from 2017-18 to six times the current level with lending only doubling?  This has been transformed into a flurry of concern that the main university funding system is out of control.

As I ponder the report four questions come to the fore.

  1. What is the split of the $11.1 billion across the five distinct HELP programs?

The report does not break out HECS-HELP, the core program supporting undergraduate students in Commonwealth funded places. At a guess on the PBO assumptions HECS-HELP is about $6.6 billion in 2025-26.

  1. What is the split of the HECS-HELP amount to show the current program plus the impact of the Government’s proposed changes?

At a guess on the PBO assumptions the current program would be at a cost of $4.5 billion in 2025-26.

  1. What is the saving to the Government from its proposed major reduction in funding through the Commonwealth Grant Scheme?

Any assessment of the HELP programs should surely allow for the reduced call on direct Government funding. The saving has to be at least equal to the cost the loan increases to replace it.

  1. On what basis does the PBO hypothecate all HELP costs to Government borrowing, ignoring the contribution of many other major Government programs and driving up the notional cost of HELP?

The counter, and equally self-serving argument, is that none of it does.

Read full Executive Director comment below.

Who funds the researcher?

The Grattan Institute report The cash nexus: how teaching funds research in Australian universities has opened up the debate about how universities’ responsibility to lead research and higher education delivery in Australia is achieved within each institution.  The issue is important, with expectations high for university delivery on both fronts.

The report’s assessment of the relationship of the four relevant factors – expenditure on teaching, expenditure on research, revenue for teaching and revenue for research – glides too easily across the data, assuming a single purpose for universities’ largest single revenue source, the Commonwealth Grant Scheme.

Applying the report’s logic, the conclusion I reach is that Government does not fund academics’ salary as they research.  This seems strange.

Another interesting implication is that the extent of the subversion of teaching funds should be greater in universities with more substantial research output per student.  That is, the services for students should be that much better in universities with relatively low levels of research activity, since there is less research to prop up.  Is this the experience of students in such universities?

To take the four factors in turn, before looking at the substantive issues – how should Government fund research, and should students contribute to research costs.

Read more by downloading the statement in full below.


Updated: HILDA: In defence of good research wherever it is found

The commentary on The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 12 by Roger Wilkins of the Melbourne Institute of Applied Economic and Social Research at The University of Melbourne has been sidetracked by one plausible statistic, neglecting the full import of the Survey.

The Survey confirms the earning value from higher levels of education, particularly for women. It shows that for women having a higher education degree is important for the likelihood of employment. That is not so for men who tend to be employed but with lower earnings if not a graduate.

Those outcomes are not necessarily new but since they based on a cohort covering multiple generations they underpin the value from expanding the take up of higher education, a core mission of IRU members.

The new aspect coming from the survey is the hints that school results let alone intelligence are not long term strongly correlated with income. Rather it is the fact of education. Read more in the pdf below.


Will Government fund higher education to the standard required?

The IRU argues that the approach of Governments of both sides has not and will not deliver the significant increase in Government funding sufficient to teach students to the standard required. Governments have not taken past opportunities to increase funding in this way, despite recommendations from the Bradley report and the Lomax-Smith report about the relative funding between disciplines and the clear areas of underfunding.

The Higher Education reforms: Issues and areas for change


Universities have a strong interest in having the future arrangements decided to allow as much clarity as possible for students considering enrolling in 2015 and to allow universities to plan well for the changes due in 2016.

The Government plans to introduce legislation for the higher education package to the House of Representatives in September 2014 to have it passed for the Senate to consider in October or November 2014, allowing passage by the end of 2014. The assumption has been that the Senate will refer the legislation to a Committee to permit a detailed analysis and more political plays, which could delay a final vote until early 2015. In recent discussion the Opposition has raised the option of putting the legislation to an immediate vote – which it would do if it thought the numbers would be against it.

The red tape returns: HE Reforms create a three year plan for participation

The proposal outlined by the Department of Education (25 June 2014) that there be three year Access and Participation Plans as part of the revamped Higher Education Participation Program (HEPP) indicates that the Government is on the verge of failing an early test of its capacity to carry through its undoubted commitment to reduce unnecessary reporting, pointless acquittals and ineffective accountability.

Rather than unleash the bonds around the previous Higher Education Participation and Partnerships Program (HEPPP) the Government on current plans will merely alter the shape of the knots.