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).